It has been a catastrophic political blunder not to challenge the myth that Brown’s government caused the crisis and the austerity that followed. The choice, correctly framed by the economist Simon Wren-Lewis, is whether to pretend Osborne’s version of events is true and own up to perceived past mistakes or to contest it.
Pleading guilty seems the easier line to take, but it isn’t. The confession would be brandished by the government for the next five years as proof that Labour should never again be trusted with the public finances.
Instead, Labour needs to start its fightback by rehabilitating the record of the Blair-Brown years, making the point that the purpose of the pre-crisis borrowing was to modernise and improve the NHS and shabby schools. It also needs to challenge the idea that all borrowing at all times is bad. If that were the case, individuals would have to save up the entire asking price for a house rather than buying it on a mortgage and there would be no startup capital to launch businesses.
That’s not the argument about why Labour was profligate. Rather, look to the entirely standard Keynesian story. Yes, we should (using automatic stabilisers by preference, not spending sprees) increase aggregate demand in a downturn. But the flip side of that is that we should be running, yes, including that “investment ” shtick, a significant surplus at the peak of the boom. And we were at the peak of a boom: the longest one of modern times in fact, dating back pretty much to 1993.
No, not so as to pay down the national debt, no, not to save money for the future, not even to increase the firepower available for stimulus when the downturn inevitably comes.
Rather, to suck excessive demand out of the economy. There should have been, as with Ireland and Spain (not that it saved them, but things would have been even worse if they hadn’t been doing this), substantial budget surpluses in the period 2000 (or so) onwards. That’s the profligacy, that Labour didn’t even follow the standard Keynesian prescription.