Gordon Brown`s Keynesian era

May 13, 2007

One of least understood and heralded aspects of Gordon Brown`s 10 tenure at the UK Treasury while Tony Blair was PM is a solid record of low unemployment, low interest rates and surprise surprise   consistent deficit budgets that sensibly were used to finance massive reinvestments in infrastructure, education and health care. The total amount of deficits involved over the 6 of 10 years that Labour ran a deficit exceeded 30 milion pounds.
The data is as follows courtesy of the UK national statistics site, UK public debt:

Year         %GDP deficit       net debt to GDP

1997/98     -0.18                     41.6   %

1998/99     1.18                       39.3

1999/00       2.30                       36.6

2000/01       2.50                       31.7

2001/02       1.10                       30.7

2002/03       -1.08                       32.0

2003/04       -1.61                       33.0

2004/05       -1.58                       34.9

2005/06       -1.23                       36.4

2006/07       -0.67                       37.4

The combined policies produced one of the lowest unemployment rates in Europe and a much healthier British economy.Inflation at 3 % is somewhat higher but compared to Canada the British have fared better precisely because they tolerated moderately higher inflation and used deficit finance wisely.

To be fair, Brown continued more or less the policies established by his Tory predecessor Ken Clarke, who also tilted in a moderate Keynesian direction and to his credit leaned on the Bank of England to avoid Thatcherite Friedmanite interest rate rises.
Britain has been running a deficit for the past 5 years. Neo-con advocates insist that UK unemployment is the result of labour market flexibility and supply side measures. But Labour introduced a minimum wage policy(the minimum wage is worth over 11$ an hour) and ran deficits to boost aggregate demand and deliver essential services and capital investments.

The results are impressive and it is very unfortunate that because they were based on progressive Keynesian policy that the Blair regime was unwilling to focus on them and openly defend Keynesian virtue as opposed to spinning new Labour doctrine.(See the excellent discussion of this in an article by Doug Saunders in the Globe and Mail this weekend.)

The resulting low unemployment, steady growth and low debt to GDP ratio are there for all to see