Friday, August 22, 2008

ONS revises Q2 2008 growth to 0%

The ONS have revised down Q2 2008 growth to 0%, and Conservatives are ecstatic at the thought that the UK "may" go into recession. Before they get too orgasmic, I'd like to remind them that in 11 years of New Labour government, there has only been one quarter with zero growth (Q2 2008) and we have had no quarter with negative growth at all.

The public will only replace the government if they think the opposition can do better than Labour - i.e. the opposition need to promise to produce twelve years of consecutive growth.

But of course the Tories won't promise that, because they don't believe they can match the Labour record. After all the Tories presided over two of the worst post war recessions on record: the early eighties recession which entailed 6 consecutive quarters of negative growth (18 months) and the early 90's recession, which entailed seven consecutive quarters of negative growth (21 months, nearly three years). By contrast our record holds up very well. We also hold up well compared to all major competitors.

Do people really think that Cameron would do better, given the part he played in the early 90's? I'm sure hoards of Tories will come on here to say that Cameron had nothing to do with the early 90's recession, he was merely Lamont's tea-boy (at the age of 26!). So I'll rephrase that - do you really think that someone who was so poor at his job that he was still a tea-boy at the age of 26 could run the economy better than Labour?

For all those Tories saying they can do better - here's a challenge: Pledge to beat us and produce twelve consecutive years of growth. If you can't do that, you're all just full of hot air.

P.S. Just to give Tory fantasists a taste for the quality of Cameron's advice when he worked for Lamont - take a look at this article. Just six weeks after Black Wednesday, and the ERM debacle, Cameron was advising Lamont that the euro was the answer. Still trust his instincts or judgement? My guess he doesn't have any original thoughts at all, he just blows around in the wind appeasing whoever he needs to and adopting all manner of flaky ideas - one minute advocating the euro (which Brown's advisor Ed Balls understood wouldn't help at all, hence his advice against joining the euro and to make the BoE independent instead), the next minute sitting with Russian extremists in the Council of Europe, to appease eurosceptics in his party. In neither case did he stop and think of consequences of these decisions.


Frank said...

If I remember before the '97 election, Labour made no pledge of unending positive growth; its strange if you ask the Tories to make a similar pledge.

To be honest, I doubt we will see such a period of stability; though that will have little to do with a change of Government. Look up "The Great Moderation" on Google (Oliver Blanchard did a do summary in 2001); there has been a markedly international increase in stability from the end of the 1980s to 2007. It's thought the causes of stability were monetary policy reforms in the 1980s and globalisation; two policies embraced by Thatcher and resisted by most of the Left. Brown was lucky enough to be Chancellor during much of it.

The defense of Brown, that he avoided recessions in 2001, is laughable. Yes, the UK economy did avoid recession, though it did experience a sharp slowdown. But the avoidance was not due to great economic management, but the coincidence that the period of financial discipline of sticking to Tory spending plans post-1997 had just ended. Brown could now start his deficit funded expansion of the public sector. The Brown Bubble has started. And now, the Bubble has burst, we are about to see the after-effects.

snowflake5 said...

Labour weren't making any claims about the economy in 1997 - our campaign was all about the public services and social policy, to save the NHS for instance, and for constitutional reform, which we have delivered.

The Tories however are saying that they could have done better than Labour on the economy - in other words they are saying that not only could they deliver 11 consecutive years of growth, they could deliver more than that. So put your money where your mouth is, and pledge to deliver twelve years of economic growth.

Of course you are rapidly backtracking from doing this! In your heart you know that the Tories cannot measure up to the Labour record, and if they had been in power they would not have been able to deliver 11 years of growth.

You fall back on the idea that Labour was "lucky". The golfer Gary Player used to say, "It's funny how the harder I practice, the 'luckier' I get!". Same thing applies here. You can get lucky for about three-four years - Ken Clarke did, Bush did, Saddam did, Chavez did. Not so easy to produce 11 years of growth though.

The international period from 2001 onwards has been very choppy indeed. 9/11, world recession in 2001, dot-com bust, the NASDAQ crashing, the USA going into recession for eight months in 2001, then having to cut interest rates to 1% from 2003-2004 to avoid a second recession, Germany plunging into recession in 2003, German unemployment climbing over 10%, the highest since the 1930's, France and Italy going into recession, Japan experiencing recession and deflation and having to manipulate their currency to keep going.

I note your Oliver Blanchard ends his summary in 2001 and ignores all the bad bits! Well the world has been a very turbulent and choppy place since 2001, and the Labour government has protected the UK. And will continue to protect the UK much better than the flaky Tories.

I note you make no comment on my note about Cameron's tendency to chop and change on policy and not think things through. Do you really trust him to do a good job? I don't see how anyone can.

Frank said...

Of course you are rapidly backtracking from doing this!

Not sure how I can be backtracking from anything. My previous comment was my first on this issue; I don't have an established position to backtrack from, rapidly or otherwise.

I note your Oliver Blanchard ends his summary in 2001 and ignores all the bad bits!

I am confused by your apparent suspicions of Olivier Blanchard. It's also not surprising that he ended his summary in 2001; that when the paper was published. Even an MIT Professor and prospective IMF Chief Economist usually limit their analysis to what happened in the past as opposed to what will happen (getting hold of the data is easier). If you want more recent discussions about the Great Moderation, I would recommend a speech by Bernanke in 2004, the IMF World Economic Outlook Report in 2006, the Jackson Hole conference in 2006, Charlie Bean's (Bank of England Chief Economist) speech at the beginning of 2007. Wikipedia dates the Great Moderation between 1980 and 2007 (and I didn't publish that, honest).

So you can check for future backtracking, let me be clear what my position is: The Labour Government and the Brown Chancellorship was not primarily responsible for the stability of the UK economy between 1997 and 2007. I would argue that their influence was marginal at best; the Tory reforms of the 1980s were probably more important to the economic stability we have seen. Whether the Tories would have done better in Government after 1997 is difficult to say; unfortunately we can't wind the clock back and give them a go.

But, what is facile is comparing the Labour record on economic stability against the 1979-1997 Tory Government's record without any consideration of the international economy. To take your golfing metaphor, it would be like unfavourably comparing this year's Open Champion, who won with a score of +3, with the previous year's champion who won with a score of -7. The two games were played in different conditions on different courses (and incidentally won by the same player).

So, will the Tories have to see 12 years of uninterrupted growth to have managed the economy better? No, because it will depend on the conditions. It is also debatable (and is indeed debated) whether stability is the right criteria for judging economic success in the first place.

snowflake5 said...

The point I'm making about Oliver Blanchard and his "stable benign economy" is that his analysis stops in 2001, and 2001 onwards has been anything but stable! You are conveniently ignoring the last seven years because it doesn't fit your theory that the Labour government is "lucky"!

what is facile is comparing the Labour record on economic stability against the 1979-1997 Tory Government's record without any consideration of the international economy

But that's the point - I am taking into account the international economy - the 1998 Asian crisis/Russian default and credit crunch, 9/11, the dot-com bust of 2001, the weakness in the American, European and Japanese economies from 2003-2005, the oil crisis now. the world has been a rough old place.

It's you who is refusing to take account of international conditions during the Labour period, and claiming that there were only international headwinds during the Tory period. The truth is that there is always turbulence in the international economy, mainly because we can't control the rest of the world. But the mettle of a government is how they protect their own country from it all. The Labour government has faced very strong headwinds, but held things together at home. The conservative government faced headwinds and made things worse at home. That is the pertinent difference between the two parties.

It's no good Tories looking at the difference between the two records and then trying to rewrite history to claim that there was no international turbulence these last eleven years and that therefore the Labour record happened by "magic".

Labour are simply better at running the economy than the Tories. End of. If Tories really think they can do better, then promise to beat our record - after all if we could do it with all the crap that has been going on in the world this decade, surely you can. You won't promise, because in your heart you have no confidence in Cameron and Osborne.

I note that you still make no comment on Cameron's record for flaky thinking and chopping and changing. Your silence is telling. Admit it - in your heart you don't have any confidence in the man, do you?

Frank said...

You are conveniently ignoring the last seven years because it doesn't fit your theory that the Labour government is "lucky"!

Did you read my last comment, or miss the cited reports up until 2007. All these reports maintain that there was an on-going international period of economic stability and resilience, much beyond 2001. It will be interesting to see whether 2007q2 is the end of this period.

I commend you on your bravery to hold that this period of economic calm ended in 2001. It takes a brave person to go against the established literature. I look forward to your paper.

snowflake5 said...

??? I think you are brave to pretend that there was no 9/11, no dot-com crash, no world recession in 2001, no desperate cutting of US interest rates to 1% to stave off another recession in 2003-2004, no German unemployment climbing up levels last seen in the 30's etc etc.

If that's your idea of "economic calm" then what's your idea of stormy?

Face it - you can't bear the fact that Labour got Britain through a rough patch, so you are simply making things up as regards the world economy to make yourself feel better. And you also know in your heart that had the Tories been in power they wouldn't have done as well.

I also note again that you still haven't responded to the charge that Cameron is unfit to run an economy. That's because in your heart you have doubts about him too. So why vote for him?

Anonymous said...

You say Labour got us through the 2001 slow down, but they did this only at the expense of ramping up the budget deficit.
Now when we really are about to go into recession the budget deficit according to Eurostat for 2007 is 43.8% of GDP. The last time we went into recession (1991) the budget deficit was 34.4%. As a result of that recession within 5 years it had risen to 51.3%.
Recessions push up deficits since tax revenues fall and spending on benefits rise. Unless we have major spending cuts (not good in a downturn) then the risk is the deficit will sprial above 50% again.
Then where will Labour's reputaion for competence be.

snowflake5 said...

devonchap - most Brits appreciated the Labour government protecting them from recession in 2001-2005. There is this fallacy that recessions are "good things" and help clear things out. But if you look at Germany - going into recession in 2003 didn't help them at all - it just terrified their population into not spending. As a result all their growth comes from exports. As soon as countries like the UK and France stop importing from them, Germany suffers again. And this terrifies people even more, and they cut back even further on the domestic consumption, making a horrible downward spiral.

You are correct that recessions increase the budget deficit - but it depends entirely on the length and depth of the slowdown. Don't forget that the early 90's slowdown lasted 21 months. In 1992, 55,000 businesses went bust. But currently, insolvencies are actually falling with just 938 firms folding last quarter. That's just normal creative destruction stuff you get in any healthy capitalist economy, rather than the fierce headwinds of recession.

I know that Tories like yourself are making strenuous efforts to pretend that the current slowdown is like the early 90's recession - but it's so mild as to be a boom compared to the early 90's.

Anonymous said...

Snowflake, I wish I had your crystal ball. I don't know how bad the coming recession is going to be. All I can go on is that we are under-shooting the forecasts and setiment seems very down.
I've never said that this down turn will rival 1991/2. Our economy has done well since 1994 and any period of growth is bound to build up bubbles and problems that will have to be unwound. Shame the government didn't try to pick asset price bubbles such as the housing market sooner.

The flexible labour markets and open economy that have allowed Britain to take advantage of the NICE decade were the work of the Thatcher/Major government. Brown's independce for the BoE added to that framework. But you can not abolish the economic cycle.
Many people have said this, but having claimed credit for the good times Labour will get the blame for any bad times, and I'd eat my hat if before 2010 we don't have 2 quraters of negative growth.