"The huge scale of the retrenchment that the government wants to implement, and the decision to cut the fiscal deficit at an accelerated pace, will inevitably increase dangers of double-dip recession... In spite of the relatively strong recent UK performance in the second quarter, the recovery is still fragile and risks of a relapse are high.”
David Kern - economist at the British Chambers of Commerce
Prof David Blanchflower talks Balls.
Balls said Osborne's speech was wrong in its analysis of the past, reckless in its diagnosis of the current situation, and dangerous in its prescription for the future.
By contrast, he carefully laid out the historical evidence showing that austerity programmes have not worked in the past but have led to low growth, social unrest and high levels of unemployment. He argued that the coalition government is not only leaving the UK badly exposed to the coming economic storm but is "undermining the very goals of market stability and deficit reduction, which their policies are designed to achieve". I couldn't agree more.
In a challenge to Osborne, whom he calls a "growth denier", Balls said: "I would like him to point to the precedent, from British economic history, which says that, with slowing growth in our main trading partners and companies deleveraging, it is possible for public-sector retrenchment to stimulate private-sector growth and job creation." There is none. The slower, steadier path to deficit reduction that Balls has proposed is the right path.
Then came the revelation that Balls opposed Alistair Darling's plan to halve the deficit in four years, and continues to do so. For many months in this column, I have made clear the dangers of falling back into recession. I have never believed it was appropriate to set out a plan to reduce the deficit by a certain date, principally because of the high levels of uncertainty we face. Economic policy in these circumstances has to be path-dependent. Much rests on the extent to which the world economy slows and whether the banks start lending and firms begin investing and hiring again. Plus, it remains an open question whether consumers will start spending again.
It has to be said that Ed Balls has been excellent in challenging the Tories, driving home his point comparing the government's current policies with those that dragged us into the depression in the 1930s.
Oh - and house prices fell again last month, the first drop in two consecutive months since February 2009.