Balls is no fool. I struggle to believe that he believes his own account of the boom and bust years, but he actually seems to, despite the evidence.
During the boom, several things happened in the UK simultaneously. The financialisation of the economy – which had started in the 1980s under Margaret Thatcher – went into overdrive under Brown during his decade at the Treasury. The government was very enthusiastic about this, and the resulting tax revenues. Number 10 and Number 11 got very reliant on and close to the banking industry.
The government-sponsored cheap money of that era – which, married to financial innovation was fuelling the rise of the banks – also fuelled an astronomical rise in personal debt, as mortgages and loans became cheaper and millions of Britons leveraged themselves up. There was a borrowing binge and the government pointed at it and said: look, prosperity.
In this climate it was felt safe to increase government spending markedly, and latterly to push it to levels that were bound to store up trouble if there ever came a sudden reverse, which human history suggests there usually is when people have got over-excited for a long spell. Then tax receipts and economic activity would fall sharply and there would be a large hole. Call it the deficit.
Catastrophically, the then government thought that the good times would continue in perpetuity. In this Labour was steered exclusively by Gordon Brown on the economy and his guru Ed Balls, because no-one else in the party was permitted to have any thoughts on the economy, let alone voice them. It wasn't all hubris, although hubris was a large part of it. It seemed, for a while, that the enormous increase in the size of the global economy, as emerging economies roared into life creating hundreds of millions of new producers and consumers, had changed the rules of the game. It was combined with a surge of disruptive new technology that promised a hand-held second industrial revolution. And there was huge innovation in financial services. It was post Cold War western over-optimism. It was quite, quite mad.
Until Ed Balls applies his formidable intellect to providing a proper account of what he thought he was doing in the boom years, it really is going to be hard to take his speeches seriously.
