Saturday, August 30, 2008

Alistair Darling's interview

Not sure what Alistair Darling was smoking when he told the Guardian that current economic times are "are arguably the worst they've been in 60 years".

60 years ago, we were labouring under national debt that was 250% of GDP, we still had rationing, top rate of tax was 99%, we had borrowed desperately from the USA (that loan was only paid off in 2006), the conditions of the loan required that the pound be made convertible, oil and gold priced in dollars not sterling and the commonwealth opened up to American trade. Not surprisingly our currency reserves drained away within weeks of making the pound convertible. This was really serious stuff.

I'm sure Darling was indulging in hyperbole when he suggested the current situation is as bad as 60 years ago. One quarter of zero growth does not turn things to how they were 60 years ago (or even to the early 90's, when we had seven consecutive quarters of negative growth - 21 months, or early 80's when we had six consecutive quarters of negative growth - 18 months).

Revised US growth figures came out on Thursday. According to the latest estimates, their growth has been as follows:

Q4 2007 -0.05% (annualised equivalent -0.2%)
Q1 2008 0.2% (annualised equivalent 0.9%)
Q" 2008 0.8% (annualised equivalent 3.3%)

So they appear to have come out of their troubles. Our cycle is lagging behind theirs, but their recovery is hopeful given their massive effect on the world economy. In September tax rebates go out to Brits, oil is lower, wheat and corn prices are lower, most householders do not need to borrow further money. There is no reason there shouldn't be a recovery. Of course disasters could still happen - the American mortgage companies, Fannie Mae and Freddie Mac may go under, but it is certain that the US government will step in and take over the liability, and life will go on.

Alistair Darling needs to be careful how he speaks. Economies run on confidence and one of the main jobs of the Chancellor of the Exchequer is to provide reassurance and confidence. It's not a co-incidence that our poll rating really took a dive after the spring budget. Voters knew there was a global crisis and were looking for staunch reassurance from government. For the first time in eleven years Labour did not provide it. Not surprisingly his ratings are almost as bad as Gordon Brown's, but unlike Brown he hasn't been the recipient of sustained personal attacks, the ratings are a perception of how he is doing at the Treasury.

You would not catch a statement like the one Darling just made from the US treasury or the French and German finance ministries. Mr Darling needs to get to grips with the fact that his primary purpose is to inspire confidence and ignorance about economic history (the 60 years comparison), and related scaremongering certainly don't inspire that.


Unknown said...

Very good......

Anonymous said...

excellent article

Anonymous said...

If we can't trust the Chancellor to tell us the truth about our real economic situation then who do we trust?

snowflake5 said...

anonymous - of course we want the Chancellor to be frank as well as reassuring. But pretty much everyone realizes that it simply isn't correct to claim that things are as they were in 1948.

Anonymous said...

Well done, Chancellor! It's a welcome breath of fresh air when a top politician speaks plainly instead of resorting to the old maligned politics of 'spin'.

Let's face it, 'spin' by any other name equates to a form of deceit, and that would be the last thing required in these difficult times.

The Chancellor has certainly gone way up in my estimation and in the eyes of others who have discussed this point with me.

Anonymous said...

Please, snowflake5, appreciate that the Chancellor has not said that "things are as they were in 1948" - as you chose to put it. Of course they are not; there are many important differences between the circumstances of the post-World War II 1946-1949 period and the world as it is today, and that is plain to see.

The economic challenges we are facing may be the worst in 60 years, and superficially the *immediate* situation today might give many people only a very slight indication of what lies ahead.

The Chancellor has stressed that the world, not just the UK, is facing a major economic crisis; and today Justice Secretary, Jack Straw, clearly emphasised on BBC One's Andrew Marr Show that the Chancellor had *not* spoken out of turn regarding this subject.

Anonymous said...

Amazing we have a politician in a very senior position i.e Chancellor who tells it as it is; and is the best qualified person (by a country mile) to know the true state of the economy and everyone else rushes around pretending they know better and questioning his integrity!

I guess the truth hurts!

snowflake5 said...

Broncodelsey, glad you put so much store in Darling's integrity.

Now you trust him so much, when he tells you in a year's time that things have improved markedly, you will no doubt cheer and refrain from the usual conservative practice of pretending that the improvements arn't real!

Anonymous said...

I checked your figures on the ONS website. Both the 1980Q1-1981Q1 recession and 1990Q3-1991Q3 recession are 5 quarters of negative growth. Still bad, but not seven or six quarters. You are looking at YoY numbers, which is not the way in which recessions are calculated and on the basis of which, the UK is still in positive territory. Aside from that not a bad post.

snowflake5 said...

Ken, I've been going by a Strathclyde university paper that quotes the recessions as 1980 Q2 to 1981 Q3 and 1990 Q4 to 1992 Q2

Anonymous said...

The Strathclyde university study is wrong - it is indeed using the YoY comparison. The reason why we use QoQ to measure recessions is that it better reflects the "trough" of activity. The YoY almost never catches the first bad quarter and then extends past the first positive quarter. Remember that the OECD forecast of a technical recession is based on QoQ. I would be very careful citing this Strathclyde paper for anything else if they didnt know this basic point.