Fantasy Island

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Larry Elliot and Dan Atkinson, Constable, £7.99

The Guardian's Larry Elliot and former colleague Dan Atkinson have published an assessment of Blair in power. The subtitle Waking up to the Incredible Economic, Political and Social Illusions of the Blair Legacy gives a fair indication that it won't exactly be holiday reading for Cherie and Tony.

Their contention is that Labour's policies are built on a series of seven fantasies. The most important of these are the notions that the economy can be sustained by ever-higher levels of personal indebtedness, and that there is no inherent contradiction between environmental considerations and continued economic growth.

The book is probably at its best in dealing with the problems caused by the rise of personal debt. It shows that between 2000 and 2005 the amount of consumer credit outstanding rose by 65.8 percent while mortgage debt nearly doubled. The result? While many individuals are drowning in debt, corporations have actually been saving money.

The finance companies profiting from this argue that it has stimulated demand and kept the economy afloat. However, Elliot and Atkinson show that it is perfectly possible for it to have the opposite effect - the more people spend on servicing their debts, the less they have to spend on other items, leading to reduced demand and slower growth overall.

The book contains an excellent account of the real pressures behind inflation in the 1970s and the resultant Winter of Discontent in 1979, when public sector workers finally decided they'd had enough of wage restraint in the face of rising prices and falling living standards. The parallels with the present are obvious, especially as the authors go on to argue that the recent period of low inflation is the result of a specific set of circumstances that are likely to lose their force.

The chapter on employment is one of the most interesting, but in my view also one of the weakest. Their argument here is that the idea that the labour market is buoyant is a "hallucination". They base this view partly on the likelihood that official measures of unemployment underestimate the extent of "hidden" unemployment in areas like the former coalfields.

They also argue that the expansion of public sector employment makes for lower unemployment than would otherwise be the case. If former miners opt out of the workforce by claiming incapacity, I don't think they should be blamed. But then neither should those who opt to work in the public sector.

I disagreed most with the treatment of immigration. They argue that the government's welcoming of immigration implies that nothing can be done about the numbers of those classed as "economically inactive", but who nevertheless would like to work. Perhaps, but it's by no means clear either that a reduction in the number of migrant workers would reduce the rate of economic inactivity, which has remained steady for many years.

One of the problems with the book is its structure. The authors start by making the case for New Labour, sometimes weakening the authors' criticisms. Also, the rhetorical device of presenting the ideas they wish to argue against as "fantasies" means that they often pull their punches when it comes to stating what they think themselves.

A book which is good on the failure of the state to control money supply and reduce inflation - thereby failing to prevent a possible financial crash - suffers from the limits of its Keynesian vision.