Today programme interview on housing, growth and Labour’s jobs plan

John Humphrys: Do you like the sound of this housing idea?

Ed Balls: I think it is a good start it at last shows recognition from the government that we need action now to get the economy moving and to start building houses, get people into jobs. I am afraid it is rather small beer in its scale, it is a £400m boost, but George Osborne last year announced a £4bn cut in housing spending, and we have proposed building 25,000 homes this year and next using the bank bonus tax which would be a considerably bigger boost to jobs in the construction sector. But at least it starts to show that David Cameron and George Osborne have realised that unless you act to get growth and jobs in our economy you can’t get the deficit down and so I think it probably does show that at last the government is starting to shift.

JH: Where would your money come from?

EB: Well for that we would repeat the bank bonus tax for a second year, raise £2bn and use that to get 100,000 jobs for young people – with youth unemployment very high that is essential – and also to build 25,000 homes across the country and I think most people would say that with bank bonuses still very high repeating that tax for £2bn and using it in that way would be a much better way to spend the money and a good boost to jobs and housing.

JH: The trouble is there is no guarantee it would actually create those jobs is it, I mean the government can’t as you well know can’t actually create jobs, I mean it doesn’t work quite like that does it?

EB: No, but when you have a record high level of youth unemployment and when the economy is seeing its overall level of employment falling government has got to act. And we had a thing called the Future Jobs Fund that was abolished, since then, at the beginning of this year, since the beginning of this year there has been a 60% plus rise in youth long-term unemployment. That is a disaster. We all lived through the ‘80s and saw what happened in the 1980s when you allowed long-term youth unemployment to take hold. We can’t make that mistake again, a lost generation of young people now will be disastrous for them and for our country.

JH: But if you look at other countries in Europe, they are at least as badly off as we are in that respect and some, look at Spain for instance, are desperately, desperately worse off than we are, the number of youth, young people out of work is staggeringly high in somewhere like Spain.

EB: And we heard from your financial analyst, the bond trader, just 10 minutes ago on your programme, the reason why where is a crisis in Spain as well as being in the Euro was because growth was depressed, sentiment is down, confidence is low. And I warned a year ago in Britain that if we allowed consumer and business confidence to fall and you over-laid upon that the biggest cuts in the public spending in a generation or more the danger was in Britain we’d have spiralling confidence, low growth, flatlining economy, rising unemployment and all that happened even before this latest bout of Euro crisis. So I’m afraid you have got to learn the lessons of history, you have got to act to get growth and jobs moving in economies. Unless you do that you have falling confidence and you have rising borrowing.

JH: Do you have to go back into history or can you just cross the channel and look at what is happening in some of the countries, like Italy, Spain, Portugal and so on…

EB: Well fundamentally, they are different though John, because they are in the eurozone and that makes…

JH: Well they are indeed but the essential is the same which is they borrowed more money than they can afford and the markets have lost confidence in them and that is not happening in this country, that is the important thing isn’t it, we borrow money at a very, very low rate, a tiny fraction of what they pay in Spain, Italy, wherever?

EB: Well look I think you have to be very careful with these arguments because in the 1990s Japan had very low interest rates for years, it was a lost decade of complete stagnation, their interest rates there were very low because people said: the economy is not growing, inflation is low there is no prospect of rising short term interest rates. The same thing is happening in Britain and in America. The Eurozone is different and the reason is because with their exchange rates fixed together in a single currency there are now lots of fears about Greek default, or Spanish default, contagion running rife, that is why they have got high interest rates. But it is deeply, deeply foolish to take comfort from our very low long-term interest rates in Britain. I’m afraid this is a sign, a very clear economic sign, of stagnation low growth and rising unemployment…

JH: It is not foolish in the sense that we, all governments have to borrow money, obviously, we have to borrow a huge amount. Partly, the argument goes, because of the debts that your government left behind, but the fact is the debts are there. We owe a lot of money, we have to service that debt, we have to pay interest, if the debt was higher it follows, even to those of us who are not economists that we would have to pay more money for it and, add to that the lack of confidence in the currency because people say ’ah, their debt isn’t coming down’ and then it builds on itself. Whether you are in or out of the eurozone, that is what happens, Argentina wasn’t in the eurozone for instance, it happened in Argentina, one example.

EB: That is a, you know, an interesting piece of economics but I think…

JH: It is accurate isn’t it, I mean broadly, I know it is simplifying it, but it is broadly true…

EB: If I am honest with you John it is not because it misses out a fundamental component: the Chancellor next week will announce in his autumn statement a downgrading of growth, higher unemployment, and as a result, not only that he will borrow next year and the year after but he is going to borrow billions and billions of pounds more than he planned because unless you have got growth and jobs in your economy, you don’t get your borrowing down, it stays stubbornly high. That was the lesson of Japan in the 90s, it was the lesson of the world in the 1930s, I’m afraid it is the lesson now of Greece and Spain and Italy. Unless you have got growth in your economies and unemployment is coming down, your borrowing doesn’t get better. David Cameron is saying today at the CBI, his two elements for a plan, a deficit reduction plan and the plan for growth, but if in the last 18 months he’d had a plan for growth and jobs, we wouldn’t be in the mess we are in now: flatlining economy, rising unemployment and borrowing to be revised up not down.

JH: But the logic of your position, and some would argue that this is a very sensible thing to do is that you go out and give money away, you quite literally give money away, go out in the street and give everybody £100 quid in cash and tell them to go and spend it. Which is a bit what you have done with your VAT cut…

EB: The great right-wing economist Milton Friedman talked about helicopters dropping money from the sky and I am not proposing that but my point is…

JH: Well the VAT cut that you do propose is something along those lines, not quite the same I grant you, but it is along those lines.

EB: But my point is John, next year George Osborne is not only going to borrow billions of pounds, he is going to borrow billions of pounds more because growth is low and unemployment is high. Isn’t it better, not to be borrowing more for unemployment, but borrowing more to act to get confidence, to get growth…

JH: They are… [inaudible] public sector jobs, they are giving money to, at least they are encouraging private companies to do things, we see in the papers this morning, partly to build houses but also to build toll roads, useful stuff, infrastructure stuff…

EB: But John you know a year ago, with such confidence on this programme the Chancellor said ‘we will cut the public sector jobs and the private sector will more than compensate, private led recovery,’ what has happened? An overall fall in employment, hundreds of thousands of fall, rising unemployment because the private sector, consumers and businesses are gripped by a lack of confidence, a flatlined economy well before the eurozone crisis. Unless you get some leadership from this government, some action which goes beyond gimmicks and small pots of money here and there and says ‘ok look, let’s be honest, we have got this wrong, it has not worked, let’s change course.’ We have set out a clear five point plan for jobs and growth. George Osborne, I hope, will adopt all of them but just two or three would be a step forward.

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Posted November 21st, 2011 by Ed