The time for sneering is over

Naive politics will always have to deal with economic truths. And the latest data leaves Osborne, an

I have to say, I am beginning to feel a bit sorry for our dear Chancellor, who has backed himself into a corner. He was so confident when he came into power that he was right. All that sneering about the Labour government having failed and that he was going to put us on the path to nirvana.

Unfortunately, naive politics of that kind was always going to have to deal with the economic data. Osborne's economic strategy was always doomed principally as it had zero plans for growth; indeed, we are still awaiting an announcement of a policy for growth but now it is too late. Denying the need for a plan B was always a dangerous strategy.

In a speech at Bloomberg on 17th August 2010, Osborne argued as follows:

I'm optimistic that if we:
- stick to the course we have set ourselves on;
- hold firm to our plans;
- deal with our debts;
- start to rebalance our economy;
- and provide the stability Britain has been so lacking in recent years;

then we can navigate our way through to calmer waters.

The alternative -- to change course, put off dealing with our problems, be in denial about the scale of the deficit -- is the surest way to disaster. It would wreck the British economy.

And, ludicrously, he went on to argue: "We are all in this together."

Unfortunately, as I have been predicting would happen from the formation of the coalition, sticking to Osborne's economic plans is wrecking the British economy. No stability, rising unemployment, no calm waters and no rebalancing; and, most importantly, the consumer is running scared with negative real wage growth, rising prices and rising fear for the future.

The data today on the consumer side is horrid once again and, added to that fear, is likely to be a major downward pull on growth. This is another nail in the coffin for the OBR's growth forecast. In March 2011, the OBR forecast that consumption would make a positive contribution to growth in 2011 and even more so in subsequent years. That doesn't look likely.

Retail sales volumes fell, on a year ago in August, at the fastest pace for over a year, the CBI said today. Retailers were the most negative they have been about the general business situation since February 2009. The CBI's latest quarterly distributive trades survey found that 31 per cent of retailers saw the volume of sales rise in the two weeks to 16 August, while 46 per cent said they fell. The resulting rounded balance of -14 per cent was in line with expectations (-12 per cent) and the most negative since May 2010 (-18 per cent). A balance of -11 per cent of retailers said they felt more negative about the business situation over the next three months than they did three months ago; the most negative for 18 months. Retailers are scaling back investment plans over the next 12 months, with the balance of -11 per cent the most negative since February 2009 (-26 per cent). Not good.

The Nationwide Consumer Confidence Index for July fell by two points to 49 points and now stands at a near identical level to January 2011. Over half of consumers believe that it is currently a bad time to make a major purchase. Especially worrying was how the proportion of people who believe the economic situation will be better than today in six months time decreased by 3 percentage points. Robert Gardner, Nationwide's chief economist, said:

At 49 points, the main confidence index remains well below its long-run average reading of 79. With the economic recovery still facing strong headwinds it is unlikely that we will see any considerable improvement in confidence in the remainder of 2011. Indeed, it may be that we see a further deterioration in August, following riots in a number of UK cities and the sharp declines seen in stock markets around the world. Overall, conditions for the UK economy remain challenging, especially for consumers.

Bad.

Plus, Martin Weale, one of the inflation hawks on the MPC, in a speech today in Doncaster explained that he changed his vote this month from an increase of 25 basis points -- that he had voted for in the previous seven meetings -- to one of no change. It was because of:

. . . the weaker economic outlook . . . the need for insurance is less than it was; by the time we produced our August forecast, the market path for interest rates consistent with keeping inflation close to its target was much less steeply sloped. Averaged over the next two to three years, the interest rate did not need to be as high. As a result, I did not see the case for an immediate increase in bank rate at our last meeting in August.

The economy is weakening and the chances are that the MPC will have to do more quantitative easing -- and soon.

We are not all in this together and Osborne's policies are wrecking the rapidly slowing UK economy. The time for sneering is over.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

Getty.
Show Hide image

Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.