To date, I have been willing to give the two Eds the benefit of the doubt on the grounds that they were putting clear blue water between themselves and Blairite spin. But let’s face it: the Shadow Chancellor’s unwillingness to reverse Osborne’s cuts is a political manoeuvre designed to allay those New Labour diehards who argue that because the public backs the cuts, Labour cannot be seen to do otherwise.

On the one hand Balls says ‘My starting point is, I am afraid, we are going to have keep all these cuts’  while, on the other hand, he proposes a five-point plan to kick-start employment growth---mainly through temporary VAT and national insurance cuts.  He is pointing both ways at once. The five-point plan is too small to revive the economy when private investment has fallen by 5% of GDP. The economic logic of ‘keeping the cuts’ is taken straight from the Treasury; namely, we can only afford welfare benefits once growth has returned and the structural budget deficit has been shrunk right down.  

Welfare benefits for the disabled, to take but one example, are not an add-on to be financed only during good times. On the contrary, such benefits are vital to living in a more civilised and socially inclusive society. Nor, as I have argued elsewhere, does the concept of a large ‘structural deficit’ stand up to close scrutiny.

To be sure, the economy is in dire straits: GDP has been flat for a year and now looks set to turn negative. Britain’s fall in output over the period 2007-2010 was by far the largest in the EU. Unemployment is edging towards the 3mn mark while youth unemployment is now over 20%.  But does this mean we must accept the drastic shrinking of the welfare state?

The average voter has been conned into accepting the cuts for two reasons. First, he or she faces a choice between cutting spending and going into greater debt (typically at usurious rates of interest). With jobs scarcer and employment less secure, the prospect of greater personal debt is quite terrifying. Secondly---and this is crucial---the average voter has been sold the Thatcherite view that the government budget must balance just like a household budget.  New Labour failed seriously to challenge that view.

This Micawberesque view of state finances is utterly misleading. At a time when domestic households and firms are trying to rebuild savings (deleverage), unless there is a miraculous export boom, increased government savings can only be compatible with lower national income; ie, with even greater unemployment and uncertainty.

As Keynes famously argued, when the private sector is unwilling to invest, the public sector must be willing to step in and spend more. Deep down, Brown knew this...  just as the young and able economists in the Shadow Cabinet know this. For example, Britain owns a large chunk of the banking sector and could use it to fund such expansion; Brown and Darling may have saved the economy, but they feared the City too much to transform RBS into a public investment bank.

Sadly, the Shadow Cabinet appears to think the serious economic argument too complex and too counter-intuitive to make successfully---and so is reduced to mouthing platitudes about ‘cutting more slowly for growth’.  Take away the new clothes and this is little more than another version of expansionary fiscal contraction---it is, if you will, a case of ‘oxymoron lite’.

As the Japanese economist Richard Koo (RWER 58 ‘The world in balance sheet recession’) has warned, if the UK is not to follow the Japanese down the path of twenty years of stagnation, it needs to invest now.  

As I have argued elsewhere, the voting public cannot make well-informed choices unless such principles are explained. Obviously, voters cannot be expected to have an economics degree, but then neither are the above principles the stuff of advanced rocket science.

Three months ago, 100 economists signed a letter supporting ‘Plan B’ covered extensively in the Observer. How might it be financed if we don’t want to borrow---how about joining the German, French and Spanish commitment to a Tobin tax? The Labour front bench has been mute on Plan B while rejecting a Tobin tax, which would raise far more money than a banker’s levy. Or for that matter, how about closing the tax gap as Ed Miliband favours? Again, there’s no reference to this in Balls’s latest plan. Instead, Alan Johnson attacks the trade union movement saying:

The difference between Len’s [McCluskey] position and Ed’s is that Len believes a political party can win an election on a platform of promising no cuts, no job losses and continued levels of public expenditure. That is the policy of the delusional left who will never again win the public’s trust.

The Shadow Cabinet’s U-turn on the cuts is a mistake----it’s mainly for electoral gain. Not only is ‘keeping the cuts’ logically incoherent, it betrays the labour movement’s fundamental commitment to renew the welfare state.