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Did Labour REALLY do economics better than Tories? Is this graph even relevant?

Earlier today, I shared this post on my Facebook wall:
http://www.thecommentator.com/article/5393/don_t_whitewash_gordon_brown_he_was_a_disaster

I seem to have attracted the attentions of someone whose conclusions are that this is nonsense, Labour didn't increase debt, they strengthened the economy, leaving it stronger than they inherited. And he's doggedly fixated on the graph in this article:

http://news.bbc.co.uk/1/hi/business/8011781.stm

'In 1997 Labour inherited a budget that was actually in balance'
FACTUALLY WRONG
'After a painful and turbulent decade under the Tories the public finances had finally been brought under control.
FACTUALLY WRONG
But after four years in office Gordon Brown took out the country's credit card and let rip.
AFTER 4 YEARS OF GORDON BROWN BORROWING WAS LOWER THAN IT HAD BEEN THROUGHOUT THE ENTIRE PREVIOUS TORY GOVERNMENT

OK, the alarm bells ringing in my head are saying that the last "response" has no context - how can you say that 4 years of borrowing can be compared to a cumulative 18 years?

The trouble is, other lefties are now piling in giving him the thumbs up on points like that.

I've spent an hour reading things like fullfact and factcheck, and all they do is seem to come to wishy-washy conclusions like "no-one could have foreseen the crash" and "if you remove the effects of the economic downturn..."

So - maybe I am actually wrong? Maybe Labour and Gordon did, literally, a sterling job and left the economy strong and the country wealthy.

But if not, has anyone got the ultimate, independently sourced and indefensible smackdown so I can put this one nicely to bed?

Thanks!

Reply 1

Rakas21

Original post by digitaltoast

Now, looking at the years, dates and trends there, it's hard to argue his assertion that Labour reduced the debt early on. However, what about fiscal drag and so on?

So, I linked to an alternative graph from http://www.debtbombshell.com/britains-budget-deficit.htm

His response was that this was a "rant" from an "idiot" and that (him quoting the article and replying in CAPS)...

OK, the alarm bells ringing in my head are saying that the last "response" has no context - how can you say that 4 years of borrowing can be compared to a cumulative 18 years?

The trouble is, other lefties are now piling in giving him the thumbs up on points like that.

I've spent an hour reading things like fullfact and factcheck, and all they do is seem to come to wishy-washy conclusions like "no-one could have foreseen the crash" and "if you remove the effects of the economic downturn..."

So - maybe I am actually wrong? Maybe Labour and Gordon did, literally, a sterling job and left the economy strong and the country wealthy.

But if not, has anyone got the ultimate, independently sourced and indefensible smackdown so I can put this one nicely to bed?

Thanks!

By making that debt point it sounds like has no idea of the deficit and its impact on debt.

The Tories were technically one year out however you can see that Clarke as Chancellor reduced the deficit each year from 1993-1997 and allowed Labour a surplus in their first term (they agreed to Tory spending plans for the 1997-1998 and 1998-1999 financial years). So i'd say the Major government did have a good grip on finances.

His final point is partially incorrect given that Thatcher ran a surplus and the final Clarke deficit was about £15bn, well below Brown's £30-40bn deficit.

Reply 2

jonskibeat

OK, that's good, interesting and useful. Any more with any more :smile:

Reply 3

username841677

You're asking several slightly different questions here. I'll do my best to give what I think is a fair and balanced answer to each. The first thing you ask is whether the Labour Party or the Conservative Party handled the economy better, and the second is which handled public finance (debt, deficit, interest repayment, and so on) better. These are related questions, but they can have different answers. As an example, you may consider it intrinsically a good thing for the economy that the economy experiences consistent growth in GDP, but equally intrinsically a bad thing that the government runs a deficit. If you suppose that running a deficit can under certain circumstances restore consistent GDP growth, then you have to accept one can handle the economy well but handle public finances badly. That means both questions probably need answering separately.

The question is also complicated because there is no right answer with respect to either of them, for a number of reasons. Firstly, the economy is just a word to describe the set of production and consumption functions - how much people have made and consumed, are making and consuming, and will make and consume. There are many different aspects to this: you could measure how well an economy is doing by looking at how much is produced (GDP), or by how much is produced per person (GDP per capita), or by how much people can consume per capita (disposable income), or by how few power inequalities it generates (something like the GINI coefficient), or by how well it conforms to certain rights people should have (so, how low taxation is if you value concepts like self-ownership). Different people will value different things. Intuitively, I find it quite plausible that we have a positive duty to do something to improve the situation for those worse off than ourselves, so a better economy for me may be one that where those who are the poorest are the least poor they could be. You may disagree - you make think that the amount produced or consumed is irrelevant, and that a good economy is one which taxation is lowest because people's material well-being is irrelevant if their basic rights are being over-ruled. More commonly, we might share a balance of many values to determine how well an economy is doing. A similar principle applies to public finance. You might think that the role of the government is to finance capital projects that private investors are unwilling to undertake - i.e., the building of publics roads. If so, you will probably accept higher deficits, at least in the short-term, than someone who believes the sole purpose of government is to enforce private contracts.

Even if we can agree on a few basic principles the economy should be judged by, the question still doesn't become easier. How well something is handled is relative - it depends on having something to compare to. If I was the only person in the world, I would be the fastest man alive, and so on. When you judge the Labour Party's and the Conservative Party's economic performance, you need to have an alternative to mind. Here are three potential alternatives: you could compare them to the government directly before them, you could compare them to what the other would have done in the same situation, and you could compare them to what a hypothetical 'best possible government' would have done in the same situation. All three of these present problems: comparing Labour 1997-2010 to the Conservatives 1979-1997 is difficult when they faced entirely different contexts. Labour had to deal with the economic repercussions of a liquidity crisis that stemmed from another country. The Conservatives had to deal with the aftermath of an oil crisis and the collapse of the previous monetary orthodoxy. These are different problems and it is difficult to say that "X did better than Y!" when X may have had an easier time of it than Y. Additionally, given they act differently, one may have actually done better in an alternative situation - that is, the Conservatives might have been right for 1979-1997 but wrong for 1997-2010, and vice versa for Labour, because they have different attitudes towards economic policies that might have done well for them in certain contexts and poorly in others. The other two comparisons have a different problem: we'll never know what the Conservatives would have genuinely done had they been in power 1997-2010. We can at best construct a plausible hypothetical, but there's no concrete comparison. Similarly, we don't really know what a 'best possible government' would have done - we could use academic consensus generated in the aftermath as a reasonable way of guessing, but it isn't flawless.

I'm actually going to change your question to make it more answerable, and I hope that's okay. If you make the question "Did the administration Labour 1997-2010 run a higher deficit in comparable economic circumstances than the Conservative administration 1979-1997.", then it becomes a much more objective question: the only subjective element left is what 'comparable economic circumstances are'. Note that it excludes some very important other questions - for example, which party handled economic restructuring better, or monetary policy better. It is purely focused on public finance. It also has a very particular conception of what is good: a lower deficit. I'm going to group the years each administration faced into very rough categories, so we can see what comparable economic circumstances are. I'm going to group years which had similar growth, unemployment and inflation rates as a means to do this. Note again that because we are solely concerned with the deficit, I'm not going to discuss the extent to which governments did or did not affect what the inflation rate and unemployment rate were. Most years are not comparable - Labour never faced inflation problems like the Conservatives did and the Conservatives never faced recession problems like Labour did. If you exclude the year-groups 1979-1989, and 2008-2010, which is admittedly not very helpful because it cuts out most of Thatcher and Brown as Prime Ministers, then the remaining years have broad similarities between the two parties; that is for every Conservative year that had say x% growth, y% unemployment and z% inflation in this period, you can find a 'similar' Labour year that shows similar figures. If you look over these years, you'll find that Labour's deficit spending was usually lower than the Conservative equivalent.

Now to look at some of the more specific things you picked up on. The balance for 1997 can broadly be attributed to the Conservative government, given Labour's policies would not have had much impact at this point. In this year, there was a budget deficit of 0.6% of GDP. This means that the claim that Labour inherited a budget balance is, indeed, false. It's not strongly false, though - 0.6% is very close to balance. For context, in Labour's first year they brought it into surplus at 0.5%. The second claim, that the Conservatives brought public finance back under control, is a bit more difficult to assess. They certainly reduced it from their own heights in the early 1990s when Thatcher and then Major were running the biggest deficits that would be seen until 2008 and the financial recession. However, it's not clear whether it would have been necessary for public finances to become so out of control had it not been for some of the other policies Thatcher had followed in the first place.

As for your third point, I don't think your friend is comparing how much Gordon Brown borrowed in 4 years against how much the various Conservative chancellors borrowed in 18 years. They're just arguing against the point the website you quoted makes. To quote,

But after four years in office Gordon Brown took out the country's credit card and let rip.

The fifth year Gordon Brown spent in office (so, the year after four years) was 2002, so the fiscal effects would be felt approximately in 2003. In this year, Gordon Brown ran a deficit of 2.3% of GDP, which is lower than all of the Conservative administration years that aren't 1981, 1986, 1987, 1988, 1989, 1990 and 1997. This means your friends are actually wrong on this point - there are some Conservative years which saw lower borrowing than Gordon Brown. However, it is worth noting that even after four years in office, Gordon Brown's average deficit would remain smaller than the average deficit from the Conservative administration. This remained true up until 2008, when the deficit went from 2.7% in the fiscal year ending 2007 up to 6.7% - the beginning of the fiscal stimulus package.

I hope this broadly answers your question about how Labour handled the public finance. Note that this doesn't deal with any actual broader economic policies about ease of establishing businesses, banking regulations, unemployment opportunities, capital investment, and so on, it just focuses solely on public finances. The answer runs something like "In years where the Conservatives and Labour faced similar scenarios, Labour typically did slightly better. However, for many of the most important parts of their administrations, they faced very different problems and direct comparison is difficult." If you did want to continue the argument with your friend, you could point out that for his first three years in office, Gordon Brown pledged to match Conservative spending plans - this way you could probably at least partially claim credit for Gordon Brown's early successes in running a surplus.

Full disclosure: I am considering voting Labour at the next general election, and I am a third-year undergraduate Economics student.

(edited 9 years ago)

Reply 4

jonskibeat

Original post by TopHat

I'll do my best to give what I think is a fair and balanced answer to each.
[ answers above and beyond the call of duty ]
Full disclosure: I am considering voting Labour at the next general election, and I am a third-year undergraduate Economics student.

I'm very grateful and more than a little impressed. That's possibly the most balanced and level headed response I've seen for a long time from anyone, left or right. I even learnt a new thing - the GINI coefficient.

If the Labour party were full of people like you and Frank Field were PM, I'd possibly even consider voting Labour!

OK, that's slightly shaken a few preconceptions up a bit - but as you say, it's near impossible to factor in ALL variables and say x was better than y.

Since posting, I found this, which is interesting too: http://news.bbc.co.uk/1/hi/magazine/7733794.stm

I suppose people could go back and forth on numbers forever - for me, at the end of the day, graphs can mean everything or nothing - it's how it "feels". My bottom line is:

When Labour left office, was the economy stronger, unemployment lower, the poverty gap narrower, housing and University education more affordable, education and the NHS better managed, the UK safer and more prosperous?

To me, it feels not. To me, it appears like Gordon Brown made a bit of a mess of the economy. Which is why I originally posted that first link.

Looks to me like there's no definitive smackdown. Equally, though, I'm not sure that my friend's assertion that "Labour strengthened the economy, leaving it stronger than they inherited" rings true, either.

Anyway, thanks for that incredibly interesting post, even if it wasn't quite what I was hoping for :smile:

Reply 5

Rakas21

Most years are not comparable - Labour never faced inflation problems like the Conservatives did and the Conservatives never faced recession problems like Labour did. If you exclude the year-groups 1979-1989, and 2008-2010, which is admittedly not very helpful because it cuts out most of Thatcher and Brown as Prime Ministers, then the remaining years have broad similarities between the two parties; that is for every Conservative year that had say x% growth, y% unemployment and z% inflation in this period, you can find a 'similar' Labour year that shows similar figures. If you look over these years, you'll find that Labour's deficit spending was usually lower than the Conservative equivalent.

This is actually a good point.

If we look at the 1993-2003 period (11 years) then it was a pretty fantastic macro period for both governments. Growth was no lower than 2.7% and in 7 of those 11 years growth was 3% or above including 3 years in which growth exceeded 4%. Unemployment fell pretty much in a linear manner from 10.8% to 4.9% (historical average is ~7%) and inflation was between 0.5% and 3% for the entire period. We even had the trade and fiscal surplus for a brief period as well.

Reply 6

young_guns

The Tories are less competent than Labour on the economy. This excellent article outlines some of the reasons

http://mainlymacro.blogspot.co.uk/2014/11/why-are-conservatives-so-incompetent-at.html

The 1990 recession was more home grown. It was partly a result of excessive inflation caused by bad fiscal and monetary policy under Conservative chancellor Nigel Lawson, but it was made worse by fixing Sterling to the DM at an overvalued exchange rate. So a pretty clear case of macroeconomic mismanagement under a Conservative administration. Then we have 2010 onwards. Rather than recovering from the recession, income per capita has diverged further away from its pre-crisis trend. Now you might say in mitigation that this disappointing post-recession performance has been global, but the UK has been more disappointing than either Japan or the USA. Although the UK, the US, the Eurozone and Japan suffered a major recession, by 2013 both the US and Japan had exceeded their 2007 level of GDP per capita. Furthermore the recovery in the Euro12 was also more rapid than in the UK, but then fell back following the Eurozone crisis. As a result GDP per capita in both the Eurozone and the UK remains well below 2007 levels. The best that can be said for the UK recovery is that it has been as poor as the Eurozone, without the excuse of a government funding crisis.

Every recession between 1945 and 2007 occurred when the Tories were in power. Tory economic policy in the 1980 and 1990s was particularly egregious, with rampant unemployment at levels not seen since the Great Depression (up to 3.5 million under Thatcher, totally unprecedented) and then the complete debacle that was he Exchange Rate Mechanism and Black Wednesday and the early 1990s recession.

Between 1997 and 2007 Labour saw unemployment come down and debt-to-gdp ratio went down (Labour was effectively paying down our national debt). What is notable to me is the extent to which the recessions that have occurred under the Tories have been caused or exacerbated by their policy decisions

(edited 9 years ago)

Reply 7

young_guns

Original post by TopHat

If you did want to continue the argument with your friend, you could point out that for his first three years in office, Gordon Brown pledged to match Conservative spending plans - this way you could probably at least partially claim credit for Gordon Brown's early successes in running a surplus.

I just wanted to say, gemmed for a superb comment and objective assessment of the parties' economic performance.

Just to address the part I quoted, I do think Labour's economic performance in the 1997-2007 period needs to be considered in light of the fact Labour had to make enormous investments in health and education to make up for years of Tory underinvestment. It was under New Labour that many NHS hospitals saw their first lick of paint for years, or built new wings and invested in modernisation. Ditto with schools. Prior to the global economic downturn in the late 2000s, Labour had done reasonably well in keeping the economy on an even keel while managing to make serious investments in social/welfare areas. I think their success can be judged by the overwhelming support for New Labour in opinion-making circles (consider they were endorsed by the FT, the Sun, the Times and the Economist in 2005)

Labour had a real job of work to do on the NHS particularly; I don't want to ignore their mistakes (PFI being particularly egregious, though it was consistent with the philosophy espoused by both parties at the time) but I also feel one cannot ignore the significant investments they had to make to wrangle our health service into the 21st century after years of neglect

(edited 9 years ago)

Reply 8

jonskibeat

Original post by young_guns

Between 1997 and 2007 Labour saw unemployment come down and debt-to-gdp ratio went down (Labour was effectively paying down our national debt). What is notable to me is the extent to which the recessions that have occurred under the Tories have been caused or exacerbated by their policy decisions

Original post by young_guns

I do think Labour's economic performance in the 1997-2007 period needs to be considered in light of the fact Labour had to make enormous investments in health and education to make up for years of Tory underinvestment [...] one cannot ignore the significant investments they had to make to wrangle our health service into the 21st century after years of neglect

I'm unclear - did they do well or not during that period? I'd also like to see the following data:
Year on year spending on health and education by both parties between, say, 1975 and 2010.
The extra amount spent by Labour as a proportion of GDP.
The change in waiting times, number of patients seen and the "productivity" (for want of a better word), as a ratio of that extra spending for health, and similar rankings for numbers of NEETS, literacy levels and position in the world education rankings over those time periods.

In other words, just saying "they spent more" is meaningless. Was it well spent and value for money? I'm genuinely interested - anyone got a chart?!

Reply 9

young_guns

Original post by digitaltoast

I'm unclear - did they do well or not during that period?

Clearly they did do quite well, and this is underlined by the fact they were endorsed by the FT, the Times, the Sun and the Economist in 2005.

What I was also pointing out was that their fiscal performance would have been even better if they didn't have to make up for years of Tory neglect of the NHS.

The Kings Fund report commissioned by the Sunday Times was a reasonable assessment of Labour's achievements in the area of health, and clearly pointed out how NHS facilities were in very poor shape by the mid-1990s with a huge maintenance backlog. This was addressed under Labour.

By all normal measures, the Labour government's economic performance 1997-2007 was good, and indisputably miles ahead of the Tories abysmal economic performance in, say, the 1979-1989 period (3.5 million unemployed, for one. Very high interest rates for another)

Between 1945 and 2007, every recession occurred under Tory governments. That speaks for itself

(edited 9 years ago)

Reply 10

Rakas21

Original post by young_guns

QFA

The Tories are less competent than Labour on the economy. This excellent article outlines some of the reasons

http://mainlymacro.blogspot.co.uk/2014/11/why-are-conservatives-so-incompetent-at.html

The article is factually correct however there are two points.. Firstly there's no telling the extent to which there may have been a recession in the early 90's anyway (the US was in recession in 91 and Germany in 93 suggesting severe headwinds regardless). But regardless, if we accept that a recession was made worse by Tory actions then we can also ask if Labour made the 08/09 worse, i do believe there's a fair case for that given the degree to which house prices were rising above wages (the US may have toppled the domino, but we had our own bubble).

The first instance (if we accept that 75 was a double dip and not a Labour recession) should not be surpising given that from 1945-1997 Labour was in power for two 6 year terms and one 5 year term (well technically they had re-elections in there but they retained office) while the Tories were in power for 13 years, 4 years and then 18 years. The simple maths alone suggests that the Tories will likely be in power for a full business cycle rather than being dumped out after a short time. Additionally, it also works the other way in the sense that they also presided over more growth.

As for the second instance even with two recessions, the 80's saw higher average growth than the 70's, 90's and 00's. In the 90's of course you've also chosen to leave out what i alluded to a few posts above which is that from 1992 onward the economy grew a good rate and indeed Blair himself said that the Tories had left him a "golden economy". Unemployment is not everything.

Between 1997 and 2007 Labour saw unemployment come down and debt-to-gdp ratio went down (Labour was effectively paying down our national debt). What is notable to me is the extent to which the recessions that have occurred under the Tories have been caused or exacerbated by their policy decisions

As did the heath government which had unemployment rates of 3.4-4.5%, lower than anytime Labour were in office. Plus lets not forget the Lawson boom nor the Major years from 1993-1997 when unemployment carried on falling swiftly.

Again, as did the Tories from 1982-1991 when debt to GDP fell to a level even lower than under Labour.

You've presented no evidence at for the Tories exacerbating any recession other than the early 90's.

Reply 11

KingStannis

I don't feel educated enough on the subject to involve myself in the economic history debate on this thread, however I jus wanted to point out that the article you posted was ludicrous.

There were no arguments just statements.

The unionist success of Scottish independence was hardly inevitable.

Maybe she was a biggoted woman. The fact that she is A female, B fairly old, and C widowed is not an argument against this possibility. If having an opinion about a woman due to having a private conversation with her that no one else was privy to (that I can remember) is his "ugly" side then fair play to the man, he's a straight shooter. Morally.

Reply 12

Observatory

Labour ran modest deficits in the good times, meaning that when the shock hit the modest deficits became crippling deficits. Brown justified this by claiming that he had eliminated the business cycle, which he argued was due to Conservative policies rather than world conditions.

I think it is clearly unreasonable to blame the government of the day for all differences in conditions between 1984 and 2004. A less partisan writer could point out that most of the problems of 1984 originated in Labour policies from the 40s and 50s, while the good performance of 2004 occurred under economic policies that had barely changed since Major.

Reply 13

jonskibeat

Original post by young_guns

Yes, you've repeated yourself twice there. What is also very clear is that you completely ignored my question, so I'll repeat it again:

I'd like to see the following data:
Year on year spending on health and education by both parties between, say, 1975 and 2010.
The extra amount spent by Labour as a proportion of GDP.
The change in waiting times, number of patients seen and the "productivity" (for want of a better word), as a ratio of that extra spending for health, and similar rankings for numbers of NEETS, literacy levels and position in the world education rankings over those time periods.

In other words, just saying "they spent more" is meaningless. Was it well spent and value for money? I'm genuinely interested - anyone got a chart?!

Reply 14

Observatory

Original post by digitaltoast

NHS spending has never decreased under any Prime Minister:

Your other questions are more subjective. At what point does more healthcare spending stop being worth it? There's always some return, but it fades quickly. People are not much less sick, nor do they live much longer, than in 2000 when we spent less than half of what we do now. On the other hand, the NHS may be more convenient to interact with now. Only individuals can decide if that is worth £ks per year.

More generally, Thatcher did not reduce the state share of GDP by cutting spending on public services. Almost all her real terms cuts came from the 'trade and industry' budget (i.e. subsidies to nationalised industries), housing (i.e. maintaining council houses which left government ownership), and defence.

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