I never believed Ed Miliband was going to lead the Labour Party into a glorious socialist future, but I was disappointed when Alan Johnson was appointed shadow chancellor. I was then and remain convinced this had more to do with the internal balance of forces in the party and the desire to squash the 'Red Ed' label than anything else (see here). With a political career not exactly synonymous with economics, this decision didn't show Ed's leadership in its best light.
But now Alan Johnson has stepped down for 'family reasons' and Ed Balls has been shuffled into his position. Good.
Of the Labour leadership candidates during last summer's contest, only Balls and Diane Abbott offered a decent alternative to the 'slow and shallow cuts' consensus of the other three. And of the two Balls offered a comprehensive and serious critique of Tory/LibDem economic policy. In my opinion, Abbott's shopping list of left demands were worthy but lacked the necessary grasp of the issues. It was also obvious the Tories feared Balls and his Keynesian agenda more than any other contender.
What does this mean now for Labour's economic policy? Ed Miliband has said the new appointment will not effect his economic policy. This is not, strictly speaking, true. The Miliband/Johnson orientation (it would be mangling the language to call it a policy) said more things about investment and growth than the Tories, but were fundamentally in agreement with them on the necessity for cuts. Balls's strategy boils down to placing more emphasis on the former than the latter - his Bloomberg speech does accept a role for cuts, but it is entirely swamped by the argument for economic activism. Luckily for Ed Miliband, policy up until now has been so vague that Balls could take it in a more Keynesian direction while allowing Ed to save face by pretending this is what he favoured all along.
As far as I'm concerned, Ed Balls doesn't go far enough. There is absolutely no reason for cuts. Period. As Paul Mason explains in his "interview" with Marx, this crisis is one part a crisis of investment. It follows if private capital in its totality is fighting shy of investing, the state has to step in to get things on the move. The multiplier effects of creating jobs and stimulating demand creates conditions more conducive to private investment. Cutting only worsens the climate and makes the private sector-led recovery Osbourne and Dave are pinning their hopes on fanciful and utopian, and their actions irresponsible and dumb. As the world's economy is jittery, as Portugal, Spain, Italy and Belgium aren't looking good and the unwelcome spectre of currency wars is frightening economists and chancelleries, investment at home is the strongest inoculation possible the UK economy can take against a global economic chill.
That said, Ed Balls as shadow chancellor is a step in the right direction. With a strong advocate for investment over cuts in one of the most influential political positions in the land, the hand of the labour and anti-cuts movement has been strengthened ahead of the fights to come.