No wonder Dave was “in awe” of Gordon Brown. The man knew what he was doing. Still, I’m sure Dave and Gideon’s friend Christine Lagarde will do a much better job than GB. She has all the qualifications, what with being friends with Dave and Gideon.

Éoin,

Might I suggest that picking up the one quarter of growth under Labour before the election and comparing it to the subsequent performance is a bit misleading. It was quite easy for the economy to grow by 1.1% after the recession – it had shrank quite a lot before remember.

This looks like selecting figures and illustrating them with pretty graphs (one of which managed to imply that despite the fact that Q3 in 2010 was effectively a continuation of the previous government’s policies, as the present one had only just come into power and could not make that much change, that the fall in growth was the Conservative’s fault – bravo for failing to understand process), rather than showing anything particularly useful.

I don’t claim to be any good at economics, but clearly you are not either (or if you are, you aren’t showing it). This is pure political craptrap – which would be undermined purely by showing Q1 2010 in your figures.

Not sure I agree with the premise of the article – growth might have been expected to slow somewhat, as Labour would have implemented cuts too (though with a more optimistic message of “growth” rather than “austerity” which might have had some impact on consumer confidence).

I do agree that the Coalition have some explaining to do though. Growth in the 9 months before the Spending Review was over 2%. Growth in the 9 months since has been 0.2%.

International events have obviously had an impact – but there is a question about why other economies are weathering the storm far better than us.

And I’m not sure that snow, a warm April and the additional bank holiday for the Royal Wedding cut it as excuses, especially alongside the massive “expansionary fiscal contraction” Osborne has implemented to boost growth.

While I believe the economy would be stronger under labour, I’m not sure this is an entirely fair comparisson. Labour would still have introduced spending cuts and growth would be unlikely to have remained as high as 1.1%. While your last prediction graph is kind of questionable, I agree it’d be more than it is now. At least Brown seemed to understand economics.

Is Eion Clark really a Doctor?

This argument has been constructed out of selective use of data. Using the last period under the Labour government where growth was unsurprisingly coming out of the biggest recession since the great depression totally distorts the figures. Why isn’t he using 4Q09 (0.5%) or 1Q10 (0,4%) data?

Because it doesn’t make his argument look as good. Let alone using the data before that.

He is also wrong on the Greek crisis. The bulk of it happened much later, and the drag on growth the contagion brought only really started showing through in European PMIs towards the end of 2Q11…

Whilst GDP data isn’t great, the figures aren’t really that much lower than the QoQ growth Labour achieved (average of 0.55% over their period of office) and this is AFTER a global credit crisis and fiscal consolidation, whereas Labour had the help of huge cash inputs (4G auction, gold sales, pension raid), massive expansion of PFI and a massive credit fuelled boom.

Remember also that weather, bank holidays and more importantly the Japan Tsunami and Olympic ticket sales all affect the GDP number – roughly a total of 0.5%. City anaylsts aren’t massively disappointed with the numbers

Can you now compare the speed of growth to the cost in borrowings to achieve it – and how long it would take to recover the cost in higher taxes.

I am personally not at all interested which rate of growth is better – only which is sustainable and affordable in the long term.

If borrowing now means the economy can generate the taxes to repay the debt, good – if it can’t then don’t do it.

Oddly though, neither side of the political argument ever seem to work that bit out. Maybe both are wrong?

Oh, and have the cuts actually started yet?

Aren’t they only just beginning?

For those interested…

http://www.guardian.co.uk/news/datablog/2009/nov/25/gdp-uk-1948-growth-economy

Full data of GDP growth over history.

The OP’s argument has been put forward in a poor way, but his basic premise of Labour’s history of growth is sound…it’s been pretty consistent all through the 00′s. However the reality is that the Tories of the 80′s knew how to grow an economy too…with the same success.

Are the current Tories failing? I believe so…but at the same time 4 quarters of data is nowhere near enough to compare to what Labour achieved while in office.

What a complete load of old twaddle this is.

This is basically bordering on statistical manipulation to prove a point. Whilst I have no time at all for Cameron and Osbourne this kind of analysis is a load of schoolboy bull. Some of us are trying to run businesses and create jobs and we have to fight against this tide of political tribal effluent all the time.

Do grow up

The logical fallacy is known as “post hoc ergo propter hoc”.

1) cuts haven’t started, so they can’t be causing pain. 2) counter factual: would the UK be borrowing at 3% (& falling) if Labour were in power? 3) given the fiscal multiplier is less than 1, http://www.offnews.info/downloads/w16479.pdf then spending won’t support the economy, so the whole Keynsian schtick falls over. 4) The generally accepted lag between Government policy and effect is 12-24 months…

This is mere partisan hackery, selecting numbers to suit argument already decided upon – that it (whatever it is) is the Tories’ fault.

What we need is deeper, faster cuts, so we can have tax-cuts sooner. THAT would increase confidence.

@Libertarian

What a complete load of old twaddle this is.?

I don’t think anyone who calls himself a “libertarian” should go around accusing anyone else of talking “twaddle” given the complete nonsense this clownish poilitical movement believes.

Tim Worstall

Oh, and have the cuts actually started yet?

Ah, so there’s worse to come.

If the past few years have taught us anything it’s that growth != jobs and living standards.

BenM,

You do realise that your views of libertarianism are exactly what non-socialists will think of socialism, non-anarchists of anarchism etc. If you don’t like it, disprove it, otherwise stop playing silly childish point scoring (which won’t work since any libertarian would think you were wrong anyhow…).

And as to the cuts being worse to come – if cutting government spending reduces the GDP, yes there is. But there is something of a question about that one remember, so I’d suggest wait and see.

14. No need to disprove selfish, clown-like Libertarianism.

Just point to how utterly unpopular the nasty indulgent little movement is.

No one doubts that a short term stimulus has a positive effect on short term growth so it’s hardly surprising growth has fallen back since the stimulus has stopped.

If Osbourne wanted he could spend a massive amount of money, improve quarterly growth figures and leave the economy is an even deeper hole too.

Thank God he isn’t.

16 Ross

No one doubts that a short term stimulus has a positive effect on short term growth so it’s hardly surprising growth has fallen back since the stimulus has stopped.

Well, yes. That’s what Osborne and the Righties who still believe in voodoo economics were warned would happen.

If Osbourne wanted he could spend a massive amount of money, improve quarterly growth figures and leave the economy is an even deeper hole too.

So growth (and note an “economy” is all about spending money) would “leave the economy is an even deeper hole” (sic)?

Er, while zero growth is intended to do what exactly?

I agree that Eoin’s note is mostly waffle. Choosing one quarter is not going to tell us anything. However, those who say cuts have not started yet so can’t be affecting the economy are equally waffling. Government affects expectations with immediate effect. Therefore, government ministers can depress the economy just through their language well in advance of any cuts in spending.

What matters is not GDP growth just for the sake of growth. The issue that counts is are we generating enough growth in order to create employment. The ONS estimate an additional bank holiday costs anywhere between 0.2 and 0.7 per cent of output for that quarter. That suggests that there is underlying growth of 0.5+ in the economy. Therefore, the growth figures are not terrible and although anaemic compared to past recessions, the growth is generating more employment than normally would be expected at that rate of growth. The fact that the economy is generating healthy employment growth from modest RGDP growth does mean that wages will only rise slowly.

@timworstall

Is your point that Government policy has had little impact on the economy?

It’s clearly having an effect in making people fear for the future and constrain their spending (I thought you believed in ‘rational expectations’. Osborne’s continued overblown “be afraid, we’re just like Greece” austerity talk has also had a role in crippling his growth strategy.

And cuts have started – I guess some of us are spared all but the macroeconomic effects of them (and Osborne is seeking out more ways to cut taxes on high earners to ‘stimulate the economy’ further – apparently shifting money to those with the lowest marginal propensities to consume to save, ramp up the housing market, and buy luxury imports with is the most effective way of doing this)…

We’ve had almost a quarter of significant corporation tax cuts, that have been advertised to businesses for over a year…so why is our manufacturing output dropping like a stone?

The whole basis for Osborne’s economy is that he can tempt businesses out of the European mainland and in to Britain, using tax cuts to lead the way, and generate new jobs.

Clearly, so far, businesses are skeptical of the benefit despite having 12 months to consider it properly.

Coupled with a complete lack of action on the issue of rising fuel and food prices, that have constrained families spending even before you factor in fear of cuts and job losses, or very real cuts in income due to having to go part time to keep businesses afloat (something not adequately defined under current employment figure bulletins), and you’ve got a situation which is doubly bad.

If you can’t tempt business in to improving growth, and you are determined to take away the spending power of the public, you’ve got no-where to go on economic improvement.

I do tend to wonder if growth might not be higher without the VAT rise?

Of course, we’d need to find another way of raising money to pay for the spending (or make more cuts)…

Watchman: As far as I can see our services industries GDP is performing fairly adequately.

2002, GDP increases of 0.5 and 0.5 for Q1, Q2. 2003 saw 0.5, 0.6, 2004 1.2, 0.8, 2005 0.6, 0.6, 2006, 0.7, 0.9, then… 2010 0.3, 0.9, then this year, 2011, 0.9, 0.5

Obviously this is slightly simplistic, and there is a small drop in the business and finance category compared to pre-recession, in my view this doesn’t show anything conclusive towards VAT causing any real depression with regards to consumer spending.

I think Eoin is actually harming his case by taking that one quarterly figure as indicative of the trend under Labour. Nobody thinks the economy was set to go on growing at an annualised rate of 4.4%. But the central point stands if you’re less selective with your data.

The annualised rate of growth under Labour between Q4 2009 and Q2 2010 was 2.4%, and the Q3 2010 figure of 0.7% growth can reasonably be seen as confirming that trend. The annualised rate of growth between Q4 2010 and Q2 2011, by contrast, was around 0.27%. So growth has slowed by almost 90% under the Tories.

That’s bad enough without reading too much into the figures for single, selected quarters.

@19. Sevillista: “It’s clearly having an effect in making people fear for the future and constrain their spending…”

Prior to 2009, I was unaware of the aurally offensive neologism “staycation”. But in 2009/2010, a lot of families seem to have been put off by changing exchange rates and chose to holiday in the UK. I’d have to question that logic — there are many countries where 14 days holiday for a family is cheaper than the UK — but people made strange choices based on fear generated by politicians.

The UK economy will also be stifled by accountancy rules within public organisations. Many organisations know what the budget will be next year (lower) but demand that cost units spend their 2010-2011 budget before the end of the financial year. Whatever happened to the concept of rolling budgets?

What awful, awful diagrams… Where did they come from? And could we stop them coming from there, please?

Next time, please provide: simple lines, simple colours, none of the 3D, properly labelled axes – y’know, things to make it easier for people to see and use.

To those arguing for stimulating the economy by ramping up government spending: the extra GDP growth will be entirely artificial due to it being reliant on government spending. When the government taps are turned off the industries reliant on that spending take a hit. There is no guarantee that private spending will flow into the industries that were propped up by the government. The capital structure economy is not some form of amorphous blob, it is highly complex and therefore where money is directed will have consequences.

“It’s clearly having an effect in making people fear for the future and constrain their spending (I thought you believed in ‘rational expectations’. Osborne’s continued overblown “be afraid, we’re just like Greece” austerity talk has also had a role in crippling his growth strategy.”

Two points.

Rational expectations is sod all to do with this. Rational expectations just says that predictions about the future are randomly, not systematically, wrong. It’s Galton’s Ox again.

The second is that what you actually mean is Ricardian Equivalence. People do look into the future and do change their behaviour now as a result of what they can see as tax changes, incomes changes etc, in the future.

But that can’t possibly be correct because if Ricardian Equivalence holds then Keynesian fiscal stimulus doesn’t work. Everyone will save their extra money to pay the future higher taxes.

It is possible to believe in RE. I think it holds for some people all the time, most people some of the time. It’s also possible to believe in hte effectiveness of Keynesian stimulus: I tend to think not.

But you cannot logically believe in both. If people curtail their spending now because of future government actions then people curtail their spending now because of future government actions. Whether it’s reduced spending or higher taxes.

Over to you…….

27.

Ricardian Equivalence in the sense that people hold back spending to pay for for future taxes is clearly cobblers. No one but the most bizarre of libertarians thinks like that.

But people certainly do rein in spending if they have a daft chancellor spreading doom and gloom all over the place and cheering the fact he is about to make 400,000 people redundant.

Then it is wholly natural for people to adjust spending behaviour in expectation that they might lose all income in the future.

I bet the vast majority of people don’t give a seconds toss what tax rates may or may not be.

“To those arguing for stimulating the economy by ramping up government spending: the extra GDP growth will be entirely artificial due to it being reliant on government spending. ”

A little simplistic. The point of putting government money in to stimulate the economy is the political equivalent of a splint. It props up your economy while it needs to mend, and then when you take it away…yes it’ll take a little while to get back to normal, if it’s ever “normal” again, but it’ll be able to grow of it’s own discretion once again.

The stimulus idea doesn’t mean the stability goes away when it is “turned off” (as if it were as abrupt as simply reverting all spending commitments to zero anyway).

@timworstall

A quite pompous response.

I meant rational expectations in that people and businesses factor in all relevant information into their behaviour, including Osborne’s pre-announced cuts and their impact on their future incomes and sales. If you believe in rational expectations you cannot claim the cuts are having no preemptive impact on the real economy (unless you think people don’t believe him).

Ricardian Equivalence is a different concept. And only works under certain assumptions, as you well know. It assumes those given a tax cut are not credit constrained from consuming at their optimal level (given expectations of their future incomes). It also assumes that the value of tax cuts today will be the same as tax rises tomorrow at the individual level, abstracting from distributional issues within a redistributive fiscal system. 

If tax cuts or benefits today for the poor (with a high marginal propensity to consume) are funded by taxes tomorrow on the rich (with a low marginal propensity to consume) it will stimulate the economy even in a Ricardian world. Empirical evidence would appear to back this view.

Back to you – why do you think the Osborne’s cuts are having no impact yet (even accepting the wrong premise they haven’t started yet)?

@24 – Many of them go stay with some relatives, or don’t go at all as well.

@ BenM

Seriously, go actually read and learn some economics. If not that, please actually look at the data.

Yes, there are going to be 400k people laid off. Except that the data shows that the PRIVATE sector is providing jobs roughly as fast as the government thought it would….hence the unemployment rate going down, not up. It also doesn’t take into account the government moving people from IB to JSA, which actually makes the numbers worse….so the performance of the economy isn’t too bad in that respect.

((though it tells me all I need to know about you when you only focus on public sector workers)).

As for the GDP figures, professional analysts aren’t calling them the disaster lefty journo’s are. Why?

Holidays did have an effect, as did the Tsunami on manufacturing. Believe it or not the olympics tickets farce also cost 0.2% of GDP as people had to pay for all their ttickets up front (which is money that couldn’t otherwise be spent) yet only get the refund later, whilst the GDP contribution for the tickets is only counted in summer 2012….!

@Tyler

0.2% growth in 9 months is not a disaster? Really? And you think hot weather in April is a credible explanation? I bet the rainy July will be the excuse in the next figures.

And the consensus among professional analysts is that these were poor figures. But they urge Osborne to stick with his “no growth” plan as, looking at the long-term, mass privatisation and cowing the working classes to accept a lower and lower share of GDP and giving tax cuts for the wealthy have attractions for the businesses these analysts work for.

Even without the statistical manipulation and incorrect projections, the terrible design of these graphs is enough to make me shudder.

3D, textured, column charts when a 2d solid colour would do? Someone’s trying to misrepresent some data.

If I take on a lot of debt that I hope someone else will one day pay back (or not), I can also generate a lot of growth.

@ 33 Sevillista

Hmm…all the guys I get research from (Goldman, JP Morgan, Deutsche lus many many others) say the data wasn’t great, but would have been 0.6-0.7% had it not been for primarily the Tsunami and the olympic ticket sales oddity (where the GDP will only “happen” next year, but the money has been paid now and even more was locked up in the ticket lottery for ages. About 2.5bn in total for 500m ticket sales…worth around 0.2% of GDP). All told they are pretty neutral on the data.

What they are certainly not neutral on however, is the massive budget deficit and the over-represented state in terms of GDP. They agree that more could be done to spur the economy, but that is in terms of reform, not by increasing deficit spending or increasing the size of the already bloated state.

But you go on believing it’s some sort of right-wing conspiracy to crush those already downtrodden poor. I wonder who will pay all those taxes and provide all the jobs when you do finally get rid of us?

@Tyler

“But you go on believing it’s some sort of right-wing conspiracy to crush those already downtrodden poor”

A massive culling of the public sector, privatisation, massive tax cuts for the rich to “stimulate the economy” and eroding the working classes pay and conditions have obvious attractions to the rich – they can increase their income and wealth at the expense of others.

How is that a conspiracy theory? It’s logic based on what the incentives of different groups are.