Andrew Grice: Sadly for them, Labour still owns the economy

"Oh, the luxuries of opposition," David Cameron sighed as he reflected on a rare but important victory for Ed Miliband, who forced Stephen Hester, pictured, the Royal Bank of Scotland chief executive, to give up his £1m bonus. Being in opposition has huge frustrations, but it also has its advantages. Exploiting the public anger about bankers' bonuses was a good wicket for Mr Miliband to bat on. It wasn't down to luck, but judgement; his decision to make "responsible capitalism" his signature tune at the Labour conference last autumn was widely criticised at the time but looks good now.

Ironically, some senior Labour figures have been reflecting lately on Mr Cameron's performance as Leader of the Opposition. They have concluded that he was rather good at it, even though he failed to translate that to an overall majority at the general election. One conclusion is that Mr Cameron used the Conservatives' policy review to send signals about the modernisation of his party, without making cast-iron commitments. Another is that Mr Cameron kept himself in the headlines more frequently than Mr Miliband is doing now. The Labour leader can resemble a rabbit who pops up to make clever interventions – on Rupert Murdoch, or bankers' bonuses – but then disappears down his hole for too long.

Power has its advantages, too, and Mr Cameron appeared to get the credit for this week's move to strip Fred Goodwin of his knighthood. Mr Miliband, in the same Labour conference speech, said Mr Goodwin's award was a mistake but no one remembers that; Mr Cameron's timing was better. Mr Miliband had reason to be miffed; he had planned to renew his call, but the Prime Minister seized on the no longer "Sir" Fred as a useful diversion from the looming row over RBS bonuses.

On both the Goodwin case and the bonuses, the two leaders pandered to popular opinion. Wiser heads, like Alistair Darling, the former Chancellor, noted that the anti-business hysteria could damage Britain's reputation in the world as a place to do business.

Politics has trumped economics; and today it is happening on several fronts. Senior Labour figures suspect the review of Mr Goodwin's honour, driven by No 10, might not have happened without the 0.2 per cent contraction in the final three months of last year – a vindication of Labour's warnings that the cuts are "too far, too fast."

In different circumstances, Labour would have got some credit. Yet, Labour is winning the economic argument without translating that into the political game. Why? Voters still blame Labour for the state we're in. Also, the Cameron-Osborne strategy of accusing Labour of wanting to "borrow more in a debt crisis" is working well. With the opinion polls showing that Labour has lost its lead, the pressure on the Chancellor to opt for an economic Plan B is much lower than it would normally be after those non-growth figures.

Last month Labour tried to counteract this by putting more emphasis on its medium-term plan to cut the deficit and less on its short-term plan to secure growth (by cutting more slowly than the Coalition). Blairites believe that Labour's shift should have happened much earlier, that the Government is now even more firmly locked into a disastrous economic strategy because its political strategy is paying dividends. The Labour leadership hopes this will change over time, as the Coalition takes ownership of the economy and blaming its inheritance from Labour will wear thin. "At some point the economics will run up against the politics," one Miliband aide said. But it is not happening yet.

Internationally, some economists fear a collective austerity is being driven by politicians' desire to send the right signals to the financial markets. George Osborne told a recent conference in Hong Kong: "When you have a high budget deficit, if you do not have a [disciplined fiscal] plan then you will not have sustainable growth because investors will be worried about investing in your country."

A different view was given at the same conference by Joseph Stiglitz, the Nobel Prize-winning economist. He described the fiscal compact agreed by eurozone countries this week as a "mutual suicide pact". He said: "Even though they [the politicians] see over and over again that austerity leads to the collapse the economy, the answer over and over is more austerity."

Mr Stiglitz warned: "It reminds me of medieval medicine. It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours. And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died." Ominous.