In 1976, Jim Callaghan famously lectured the Labour conference thus:
"We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists"
20 years ago Fritz Scharpf developed this argument more systematically through a comparative study of four European economies, which concluded, like Callaghan, that Keynesianism was finished. The alternative, which Labour eventually developed under Blair and Brown, was to adopt strict fiscal and monetary policies to entrench macroeconomic stability and low inflation. The disastrous failure of this model makes 1976 look like the good old days.
So Ed could do with saying:
"We used to think that you could cut your way out of a recession, and increase employment by reducing Government spending. I tell you in all candour that that option no longer exists"
It's a tough sell, but to refuse the challenge condemns Labour, should it win, to the kind of centrist no man's land Obama finds himself in. The electorate have to be told what is going on, however counter-intuitive it is. There is nothing to gain by offering a softer version of Cameron's Hooverism.