by Jane West

Last week Ed Balls made a speech on the economy, entitled 'There is an alternative', which saw the first break in the political consensus in support of cuts and a framework of 'paying down the deficit', and puts forward a strong case for investment rather than cuts.

Not surprisingly, the speech was a leading item on the news the day after it was made and was widely covered in the print media, as Balls is the first senior politician - apart from Ken Livingstone in setting out his case as Labour candidate for London Mayor - to advocate an alternative strategy to that of the Coalition.

The two leading candidates for the Labour leadership - David and Ed Miliband - have argued either for reducing the distance between Labour and the economic policies of the coalition (David Miliband) or for a slower rate of attack on the deficit (Ed Miliband).

In contrast, Ed Balls speech, to Bloomberg, argued that 'the political and media consensus has dictated that the deficit is the only issue that matters in economic policy, that the measures set out in the Budget to reduce it are unavoidable, and that there is no alternative to the timetable the Budget set out...So strong and broad is this consensus that a special name has been given to those who take a different view – ‘deficit-deniers’ – and some in the Labour Party believe our very credibility as a party depends on hitching ourselves to the consensus view.'

He goes on to robustly refute this. First arguing that just because there is a consensus, does not mean that a policy is right, and then specifically rejecting the case for rapid cuts, even at the speed previously advocated by the post-crisis Brown government. Making it clear for the first time that there was a sharp difference of opinion with Alistair Darling in 2009, he explains that he argued that 'whatever the media clamour at the time – even trying to halve the deficit in four years was a mistake. The pace was too severe to be credible or sustainable.'

While highly credible mainstream economists, like Paul Krugman, Joseph Stiglitz, Anatole Kaletsky, Robert Skidelsky, Danny Blanchflower and even Martin Wolf in the Financial Times, have put the case for an alternative strategy, no mainstream politicians in Britain have broken with the cuts consensus until now. Hence the high level of media attention to the speech.

Using the example of the post-war Labour government, which inherited mountainous war debt, yet chose to prioritise developing the welfare state and investing in housing and reconstruction to early debt deleveraging, he argues: 'If it was possible for our post-war government to have the wisdom and foresight to recognise the benefits of a slower, steadier approach to reducing an even bigger debt, then it does not behove you to close off all debate.

'As for the argument that by taking a longer period to repay the debt, we unfairly burden future generations, Nobel prize-winning economist Paul Krugman puts it well:
'“People who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.”'

With the sharpest attack to date on the Tory Coalition from a senior Labour politician he takes a stiletto to Osbourne: 'For all George Osborne’s talk of ‘deficit-deniers’ – where is the real denial in British politics at the moment?

'We have a Chancellor who believes that he can slash public spending, raise VAT and cut benefits – he can take billions out of the economy and billions more out of people’s pockets, he can directly cut thousands of public sector jobs and private sector contracts, and none of this will have any impact on unemployment or growth.

'Against all the evidence, both contemporary and historical, he argues the private sector will somehow rush to fill the void left by government and consumer spending, and become the driver of jobs and growth. This is ‘growth-denial’ on a grand scale. It has about as much economic credibility as a Pyramid Scheme.'

If Ed Balls had launched his campaign on this type of policy, rather than on backward and unsustainable arguments about immigration, he might well have been able to carve out a space in the Labour leadership contest that made him a real challenger.  However, even at this late stage, it is a step in the right direction. It remains to be seen whether he will stand his ground if one of the Milibands is elected as Labour leader.

Nonetheless, it is the reason why the correct position for socialists to take in the Labour leadership election is Diane Abbott 1, Ed Balls 2 and Ed Miliband 3.