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Perhaps Iain Duncan Smith will accuse me of peeing on the data

There is more new evidence that the economy is flatlining and that Osborne’s deficit reduction programme is in disarray.

I have to tell you something. I never had any doubt that George Osborne’s austerity nonsense was going to be a disaster. None. Not even for the time it takes for light to travel a mile, which is apparently one-186,283rd of a second, did I even consider the possibility that he had any chance of success. I went so far, stupidly, as to say that I was 100 per cent certain that austerity would result in a double-dip recession. There had never been any examples in the past in which austerity led to growth in the midst of a deep recession when a country’s neighbours were also in trouble. All the empirical evidence was exactly to the contrary.

It has come as no surprise, then, to find that many of the 20 economists who wrote to the Sunday Times in February 2010 arguing that the “government’s goal should be to eliminate the structural current Budget deficit over the course of a parliament” have come running back with their tail between their legs, now that the economy has tanked. The two dissenting letters from nearly 70 economists, published in the Financial Times a few days after the Sunday Times letter and arguing that the first priority had to be growth, were prescient.

No credibility

The New Statesman was able to contact 11 of the infamous 20 for an article in last week’s issue. The cowardly John Vickers refused to say why he had got it wrong. Albert Marcet from Spain remained supportive of Osborne, even though he has a very poor forecasting record, having argued in a Guardian piece in May 2011: “There are no fundamental reasons to fear a Spanish sovereign debt crisis.” Duh! Two other plonkers told the Daily Telegraph a few days later that they also remained supportive. Neither has a terribly impressive forecasting record, to say the least.

On 3 January 2011, in the Financial Times, in response to the question “Will the fiscal consolidation be on track in a year’s time or will there be a need for serious consideration of a plan B?” the ex-Monetary Policy Committee member Charles Goodhart said: “It will succeed better than expected.” Oops! Bridget Rosewell, who was consultant chief economic adviser to Boris Johnson’s Greater London Authority and so was hardly neutral, said in the same FT article: “Surprises on the upside may well continue – but there will also be some downsides. It will be a roller-coaster year but at the end we will look back and realise it went quite well.” She even argued that, in a year’s time, there would be no need for a plan B: “Fiscal consolidation will be on track. Plan B can stay in the box.” It’s hard to take either of them seriously.

Nine of the 20 told the NS that they thought the facts had changed and it was time to invest in infrastructure. Danny Quah of the London School of Economics said: “So, have I changed my mind since signing the letter? Yes. Because circumstances have changed.” Yet, as Paul Krugman has noted in his New York Times blog, the facts have not changed materially; there was never any credible empirical support for slashing and burning in the face of a once-in- a-century financial shock. The 20 economists got it wrong and it is time they all admitted it. There is more new evidence that the economy is flatlining and that Osborne’s deficit reduction programme is in disarray. The public finance data was bad, with unexpected and large declines in corporate tax receipts. The Confederation of British Industry’s latest industrial trends survey provided further evidence that the economy is cooling. The latest release by the Bank of England’s agents (who report monthly on conditions in the private sector) makes scary reading for the recession deniers.

Their scores on a wide range of outcomes fell sharply in 2008, giving an early sign of recession approaching. Their latest report was filled with evidence of a slowing economy. There was “a slowing in the annual growth rate of consumer demand”. There were “further signs of weakening in the housing market”. Investment intentions “had softened a little”. Export growth “had slowed further on the month”. Turnover “had slowed a little over the past few months”. Manufacturing output “had weakened”. The agents also said that private-sector employers “did not expect much change in staff numbers over the next six months”. No wonder there are calls for a U-turn.

Mind the gap

Much of the strain of recession has been taken by earnings, which have fallen in real terms, not least because more people are being forced to work for fewer hours than they would have wished. Over the past year, there has also been growth in self-employment of 218,000, against a decline of 33,000 in the number of employees. In all likelihood, these new self-employed jobs are low-paid.

In the table (below), I examine the main data source on self-employment earnings from the Survey of Personal Incomes published by HMRC. The gap between mean and median self-employed earnings is greater than for employees, because their mean is pulled up by small numbers of highly paid individuals who earn many millions. But the typical self-employed person earns much less than the typical employee. Moreover, the earnings of the typical self-employed person have fallen in nominal terms, while median employee earnings have risen by nearly a third. The reason why mean self-employed earnings have risen (while median earnings have fallen) is that self-employed earnings at the top have risen by a lot. We are not all in this together.

The London Olympics certainly gave a temporary boost to employment but that is sure to dissipate. Perhaps Iain Duncan Smith, the Secretary of State for Work and Pensions, will accuse me of peeing on the data. He wouldn’t dare.

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


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

This article first appeared in the 27 August 2012 issue of the New Statesman, The end of the political cartoon?

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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.