King is right – whether Balls likes it or not
ED BALLS, the Shadow Chancellor, has set off down a slippery slope in attempting to second guess the private views of Bank of England governor Mervyn King on the Government’s economic strategy.
As recently as Tuesday last week, Mr King declared that “the right course has been set and it is important that we maintain it” – a position fully consistent with the governor’s frequently stated view (before last year’s General Election, as well as since) that substantial cuts in government spending are now necessary for a stable recovery.
It is one thing for Mr Balls to think that he knows better, even if the Labour Party’s strategy for a much slower reduction in the deficit was rejected by a majority of voters at the election. It is his own credibility which is at stake.
But it is a much more serious matter to suggest, as Mr Balls did in an interview with the BBC at the weekend, that Mr King’s real view differs from that which he has so often stated in public.
Appearing on The Andrew Marr Show, Mr Balls said: “I don’t think that Mervyn King, in his heart of hearts, really believes that crushing the economy in this way is the right way to get the economy moving.”
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The Shadow Chancellor added that if the governor had said the country “was on the wrong track it would have caused a crisis”.
There is, of course, an element of truth in this, but it is, at root, merely a variation on the logical fallacy of the “He would say that, wouldn’t he?” variety.
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Given Mr King’s past statements on the need for cuts, there is no rational reason to suppose that he had changed is mind and it is unwise, to put it no more strongly, for Mr Balls to suggest otherwise.
One might also identify a second fallacy in Mr Balls statement in that the spending cuts are not being advocated, whether by Mr King, Chancellor George Osborne or anybody else, as a means of getting “the economy moving”.
There is no dispute that the cuts will be a drag on growth; the point is that they are necessary in order to restore the credibility of the UK’s public finances and avoid a far more damaging collapse in confidence which would be an even greater blight on the nation’s economy in the long run.
This was a point entirely missed by Mr Balls when, to complete a hat-track of nonsensical assertions, he claimed in last Sunday’s interview that Mr King had been “quite right” to resist calls for an increase in interest rates.
Mr King and the other members of the Monetary Policy Committee who voted with him were indeed right to leave rates on hold. If, however, Mr Balls rather than Mr Osborne was in power and pursuing his strategy on the deficit, interest rates would already be rising.