Why David Blanchflower has it wrong
Fraser Nelson 4:59pm
Gordon Brown may have gone, but advocates of his calamitous policies remain. David
Blanchflower, the chief exponent of borrowing more, has a piece in The Guardian today which
is worth examining. Written with his trademark chutzpah, it’s a very clear exposition of the Labour argument — along with its flaws. Here are some extracts, and my comments:
And why would that be? The GDP figures showed growth of 0.5 per cent in the first quarter, bang in line with City expectations. But Blanchflower is deploying a rhetorical trick. He bolts on Q1 of 2011 with Q4 of 2010, where growth was -0.5 per cent, so that he can claim "zero growth over six months" — thereby covering up the real story of "contraction, followed by expansion". He continues:"In his budget speech last month, Chancellor George Osborne suggested that he was hoping for 'an economy where the growth happens across the country and across all sectors. That is our ambition". Sadly, to judge by Wednesday's GDP figures, growth under this coalition remains just an ambition, a mere illusion."
Really? As Cameron said in PMQs yesterday, when Ed Miliband was in the Cabinet quarterly growth never exceeded 0.5 per cent. Was that disastrous?"The British economy has not grown at all over the last six months, it has flatlined and is stagnant, simple as that
By contrast, the economy grew by 1.8 per cent over the previous two quarters of 2010, when the previous Labour government's policies still had a strong influence. This is not 'good news', as David Cameron astonishingly claimed at prime minister's questions — where he was accused by the Labour leader, Ed Miliband, of 'extraordinary complacency'"
The spending cuts have not yet been applied. We have monthly state spending figures up until March 2011 — and in each month Osborne has set new records. Month after month, state spending has been even higher than it was under Brown:"It is time the prime minister stopped the spin and recognised that the government's economic policies are not working."
Now, there will be a fiscal contraction — of only 0.6 per cent in the financial year just started. But it hasn’t kicked in yet, so the cause-and-effect that Blanchflower is longing to
find just doesn’t exist. As Cameron said in PMQs yesterday, the coalition is cutting just £8 for every £7 that Darling would have cut. This is not much of a difference.
On the contrary, the OBR forecasts that unemployment has already peaked (at 8.3 per cent, or 2.6 million, on the ILO measure) and will steadily fall. Here is its projection, from last month’s Budget:“Over the last six months employment has grown by only 65,000 — far below the numbers needed to compensate for the cull of jobs the coalition has planned. Unemployment is set to rise.”
And as for the new jobs compensating for the “cull” of public sector jobs, again the OBR data tells a different story. Private sector job creation is forecast to offset public sector job losses, just as it did under John Major’s post-ERM spending reform:
Here's Blanchflower again:
Here, he has a point. Osborne is not making the argument as well as he could be, and is slowly losing the support which he built around the time of his first Budget. This should seriously worry the government, and Cabinet members should give Osborne backup in making the economic case. Nick Clegg has led the way here: his speeches about the economy, and the need for cuts, have been original and refreshingly free of hyperbole."The claim that the increasingly awful economic news is all down to Gordon Brown and Alistair Darling, and is not the coalition's fault, doesn't seem to be convincing the British public. According to the latest YouGov poll this month, 52 per cent of respondents thought the coalition government is handling the economy badly, compared with 15 per cent in May 2010 and 38 per cent last October."
The MPC’s job is to keep inflation under control: it has no remit over growth, nor jobs. It’s odd that an economist like Blanchflower can write a piece about the UK economy without mentioning the no.1 economic problem: inflation. But he does offer us a glimpse into the way that too many MPC members think: not so worried about the plunging value of money, and more taken by Keynesian arguments about debt stimulus."The only bit of good news is that the job of the Bank of England's monetary policy committee should now be a lot easier: the poor growth data should take away any possibility of an interest rate rise this year."
Blanchflower finishes his piece by saying:
This is the "Plan B" argument and it won’t work for two reasons. First, Osborne is enacting Plan B. Plan A was Gordon Brown’s, and it drove Britain to fiscal ruin with a debt legacy that will saddle a generation with higher taxes, poorer public services, or both. And, more importantly, Osborne is going as slowly as he dares with spending cuts: already credit rating agencies have warned that any deceleration in the cuts agenda would put Britain back into the danger zone."The times they are a changing, but not for the better. It's time for a rethink, George, if you want to keep your job."
Britain’s deficit is the worst in the EU alongside that of Greece. To "rethink" on deficit reduction now would make Britain the next target of the bond markets and send us into the A&E ward of trashed economies, joining Greece, Ireland and Portugal. Miliband was teasing Osborne yesterday for being premature in saying that Britain was out of the danger zone. He may have a point. Osborne cannot change course — the only option open to him is to speed up his journey towards fiscal sanity.
Previous
Rhoda Klapp
April 28th, 2011 5:32pm Report this commentThere now follows a short summary of all the times David Blanchflower was right.
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Woody
April 28th, 2011 5:42pm Report this commentWas this Blanchflower writing, or EdBalls who said almost the exact comments on SKY.
Neither of them have any credibility as far as I'm concerned.
General Zod
April 28th, 2011 5:45pm Report this commentThis is the man who was calling for interest rate cuts at the height of the housing boom.
alexsandr
April 28th, 2011 6:22pm Report this commentwhy does any one give this stupid man any credence. he doesnt even live here but he keeps popping up on the beeb.
shut up, danny, you have yesterdays economics.
Occasional Ostrich
April 28th, 2011 6:23pm Report this commentDidn't he play football for Man. U? Or was it Spurs?
toco
April 28th, 2011 6:29pm Report this commentBlanchflower is just miffed his mate Jonah Brown has been ruled out of the IMF job which no doubt had it happened would have proved mutually valuable.
Andy Leeds
April 28th, 2011 6:42pm Report this commentBlanchflower is always wrong. He should be ignored.
TrevorsDen
April 28th, 2011 6:42pm Report this commentIn 2001 the national debt was £312 bilion
In 2008 it was £525 billion.
Did all this mass of deficit spending do us any good? During this time we had growth. Why did we still run up this extra debt?
Its thanks to that debt that we cannot now spend our taxes on what we want but on interest repayments. Wasteful past spending is now hobbling us.
johnson
April 28th, 2011 7:10pm Report this commentDanny was the first one to recognize we were in a recession and voted to cut rates to combat it.
Bickers
April 28th, 2011 7:37pm Report this commentBlanchflower is one of Nulabour's useful idiots. He seems to think Governments can run a large & bloated non productive public sector economy, continue to borrow huge sums that ramp up the deficit (and future interest payments, nervermind paying off the debt itself) and it'll be all right on the night. You only have to look at Ireland, Greece and Portugal to see what happens when you you live beyond your means.
UK Plc has to start making lots of 'stuff' (like the Germans do) that we can export, then substantially reduce the Government's tax take of GDP to well below 40% (peferably below 30%) - then we'll see the UK economy take off. We'll also have the shed the shackles of the EUSSR to become a successful country again.
hey General
April 28th, 2011 7:50pm Report this commentYes, he was calling for interest rate cuts at the "height" of the housing boom because he saw the coming crisis and wanted the MPC to move to get ahead of its problems. Monetary policy has a lag of atleast 6 months.
daniel maris
April 28th, 2011 8:01pm Report this commentFraser,
If (thanks to the immigration policies which you seem so relaxed about) our population is increasing by 0.5% per annum (and it is) then a 0.5% growth rate is no growth rate at all. I don't know how many times I have to mention this fact before one of our commentators actually picks up on it! Because it is a pretty important point if you have 200,000-250,000 extra mouths to feed and people to house every year.
Moreover, as everyone said at the time of the Q4 figures, to the extent that they weather-related as claimed by Osborne, there would in part be a rebound effect in Q1. How much that rebound effect is worth is debatable, but you can probably shave off 0.2% for that alone, which takes you to 0.3%. Add in our population growth and it is clear that per capita GDP is contracting in Q1.
I note once again Fraser that you are presenting OBR forecasts (already proved to be inaccurate) as facts to be used in arguments - completely illegitimate!
Verityred
April 28th, 2011 8:20pm Report this commentBlanchflower is a withered and increasingly discredited Labour stooge, a cringing Gollum, hiding like a snake in the un thumbed pages of The New Statesman. He feeds like a vampire off the party he has nailed his threadbare flag to.
yank
April 28th, 2011 8:27pm Report this comment"Why the Spectator chavs have it wrong (again)."
Let's put aside the Spectator's incoherent jabbering about all the "cuts", in the very same blogpost they're jabbering that not only have there been no cuts, but the spending increases that actually have occurred are to be celebrated.
It doesn't matter what the opposition jabbers on about, as their words mean as much as the Spectator's. It only matters that there is stagflation in the land, and that the Cameroons are either doing nothing about it, or exacerbating it.
And the Spectator chavs constant jabbering about all this job growth that will eventually occur, some day, you just wait, is simply laughable. If these are the only pom pons you've found to wave for your pets, and from the frequency of your reference to that future job growth utopia just around the corner, it is, then you are in some serious trouble, my fawning Cameroonian friends.
Stagflation don't grow jobs. It destroys wealth. That is its only certainty.
No, the opposition only need wait. They will be delivered of government.
john
April 28th, 2011 9:17pm Report this commentWhy not have further government cuts to make way for tax cuts ?
normanc
April 28th, 2011 10:07pm Report this commentAs Osborne has already said that tax cuts don't stimulate growth cutting spending and taxes was always gong to be off the table but I'd have like him to have front loaded the cuts so that we didn't have to raise taxes.
No one expects miracles but reducing the deficit by large tax rises in the first two years, and then those rises being factored in on above growth calculations to make up the bulk of the reduction in years 3-5, leaves a bad taste when you're out knocking your pan in every day.
john
April 28th, 2011 10:15pm Report this commentOh and let's not forget - your chart shows no cut in spending yet but public confidence has plummeted - I wonder why that would be ? losing the PR war is going to cost us all
TrevorsDen
April 28th, 2011 10:36pm Report this commentMr Maris - what makes the OBRs forecasts less worthy than Blanchflower's? All he is doing is speculating.
We have this govt to thank for the existence of the OBR, rather than Browns smoke and mirrors.
In looking at the figures yuo fail completely to take in the point of the argument - namely that the service sector has grown by 0.9% ie 3.6 % a year.
This rather shoots your own argument in the foot. What his dragging the figures down is construction. What is the reason behind that? A slowdown in house building? What?
But the biggest sector of the economy has in fact 'bounced back'.
I have to say I am quite surprised.
Baron
April 28th, 2011 10:40pm Report this commentIf Osborne were to go for plan ‘B’ it should be for more cuts, lessening what he’s already announced, extending the time span would essentially mean adopting the policies of the loony Balls. It wouldn’t work, of course, Labour could claim they ought to run the show since they came up with it first.
The one point that may seem minor, but isn’t is what the councils are cutting; many of the jobs created under Labour were as a direct result of their legislation. One doesn’t see any move to scrap the statutes that have forced the creation of such jobs, the feel good outreach posts the country cannot afford.
daniel maris
April 29th, 2011 3:59am Report this commentTrevors Den -
I wasn't arguing Blanchflower's approach, just noting that it was illegitimate for Fraser to use OBR projections as "evidence" for anything whatsoever, especially as they have been so wrong on so much in so short a period of time.
I do support the government's efforts to rebalance the economy and think more should be done in that direction. I am interested in (a) the real economy (b) the real economy as it applies to UK citizens.
For instance, a sizeable amount of that GDP will simply be bankers' bonuses and a large proportion of the bankers won't be UK citizens. Moreover, the fact they are here, living in London or the South East, means that we have to build a house from scratch somewhere in this crowded island to accommodate the UK citizen deprived of the opportunity to occupy the house.
Contrast that with the expansion in UK manufacturing employing UK citizens - that is really having a positive impact on the economy.
No one denies that the deficit and debt have to be tackled: the issues are how fast and how do you cut expenditure. The government spread gloom and despair by targetting the jobs of millions - rather than, say, bringing in a recruitment freeze over a couple of years.
There may be some lift in Q2 from people making use of redundancy payments (and incidentally redundancy payments are why the government's achievement in cutting the deficit will be as small as Fraser has pointed out several times). But from then on I think we could see a worsening position.
Let's not forget our performance on GDP is far worse than Germany's and this flatlining performance is in the context of strong growth across the global economy.
Mark Cannon
April 29th, 2011 9:28am Report this commentThat will be the David Blanchflower who said on 21 June last year "The danger now is we’re certainly going into a double- dip recession. I think that’s absolutely certain given what’s coming."
Fatbloke on tour
April 29th, 2011 12:16pm Report this commentTrevor - aka "Fraser" - the fastest spinner in the Nelson family even though my brother is a DJ.
You fail on the basic point, we have had 6 months of stagnant growth even although the main course of dog boiling has not been served yet.
That is where we are, slow motion train wreck by the Disaster Brothers even before their politically spiteful cuts kick in.
What is the definition of a recession?
6 months of negative growth.
What have we had?
6 months of bumping along the bottom.
Sniffy's plan has failed before it got out the box. DB is on the money, you are clutching at straws.
Paddy
April 29th, 2011 1:41pm Report this commentHe is a horrible, bitter and twisted little man.
Me thinks he protesteth too much.
Danny Blanchflower
April 29th, 2011 4:39pm Report this commentGolly I really did get some of you folks worked up. Hopefully my response on my New Statesman blog will give you all something to think about.
http://www.newstatesman.com/blogs/david-blanchflower/2011/04/growth-economy-greece-osborne
A serious debate would be fine but please cut the name calling
Pete
April 29th, 2011 5:08pm Report this commentYou really don't understand economics at all do you?
I'm not saying that David Blanchflower is right, as a matter of fact, I could care less. But vitually evey figure you quoted in this arcticle is questionable, and several of them are very, very inaccurate. A lot of assumtions have also been made which, I would argue, someone in full possesion of the facts would see are not bankable.
Please stop this political posturing and concentrate on reporting facts, people read this stuff after all, and someone basing an opinion on this arcticle would, obviously, be wrong. Take some responsibility.
Guy Bailey
April 29th, 2011 6:54pm Report this commentDavid Blanchflower is Right and has been since 2008 - we are a locomotive heading off a cliff and Dave, Gideon and Fraser are putting more coal on the fire and yelling full steam ahead!
Fatbloke on tour
April 30th, 2011 1:27pm Report this commentTrevor
Any chance of a response or are you waiting for "Tony" to read another chapter of the Ladybird book on Economics before you put pen to paper?
It will be interesting to see who does the next SpeccyLand article on economics, I fear PH will be the sacrificial lamb to the slaughter.
Oh well waiting for Q3 and Q4, primetime as Sniffy and the Dog Boilers reap what they have sowed.
At this rate I fear Harry will be dragged down the aisle next May to keep the plebs occupied with another royal pageant.
the result?
November 21st, 2011 3:13pm Report this commentI am just wondering what the author thinks about this "disproved" article now! Has he realized that everything Blanchflower said turned out to be true or would he still praise the austerity measures that would take us to the moon! I think you owe David an apology Sir.
JT
December 1st, 2011 12:03am Report this commentBlanchflower is now looking increasingly vindicated and Fraser Nelson is looking plain wrong.
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