In a speech at the 2009 Conservative party conference in Manchester, George “Slasher” Osborne offered a sneering overview of Labour policy with all sorts of claims about how the streets would be paved with gold if only the Tories were to win the next general election and he was made chancellor. The following spring, after an election a ham sandwich could have won but no one did, the Tories had to form a coalition with a turncoat party that for years had opposed austerity but paused a few days and reversed all of that, once ministerial cars were on offer.
The Lib Dems banked all on the UK economy rising from the ashes; they hoped that there would be an “expansionary fiscal contraction” and growth would emerge before 2015. The governor of the Bank of England, Mervyn King, has what must be the worst economic forecasting record of any governor in living memory. He failed to spot the recession and the subsequent double dip; he thought that the UK and the US had decoupled; he thought that there would be a wage spiral as a result of union power and appeared to have no clue that LIBOR (the London Inter-bank Offered Rate) was being fiddled, even though it was arguably his job to know. King told the coalition posh boys to slash away and all would be well. But it wasn’t.
Some of us even had the audacity to say all of that stuff was for the birds and warned that the government was committing economic suicide; but nobody much listened and on they ploughed. Sadly, the government is now in deep trouble and knows it. It will be interesting to hear how Slasher plans to wriggle out of this mess at the Tory conference in Birmingham.
Look back in anger
Before that, it seems appropriate to go back and look at the claims Osborne made, in his speech in 2009, about what he would deliver. First, he said that the Tory party would “lead the economy out of crisis”. That could hardly be further from the truth, as the coalition has pushed us into an even deeper crisis. We are in the slowest recovery since the Second World War and are perhaps even heading for a triple dip.
The chart below shows the current estimates of GDP growth along with the initial estimates, as data gets revised all the time. The economy was growing nicely when the coalition took over; it grew for five successive quarters from the third quarter of 2009 up to the third quarter of 2010, under Alistair Darling’s policies. Output is now 4.4 per cent lower than it was at the start of the recession in 2008 and has shrunk in five of the past seven quarters. It takes time for policies to feed through to the data, so if we assume that the coalition owns the data from the fourth quarter of 2010, the economy has shrunk 0.6 per cent.
The recession deniers are clueless. The recession hasn’t been revised away and isn’t going to be; the revisions average 0.1 per cent down over the past 20 quarters. Consumer and business confidence today is lower than it was when the coalition took office. The latest European Union sentiment index for the UK (reported in the second chart, below), which is a combination of business and consumer surveys, stands at 91.9, against 102.4 in May 2010, when the coalition took over. It is markedly lower than in Sweden (100.0), which recently moved to inject a stimulus into its economy. Confidence is especially low in the services sector, with a score of -22, compared to -10 in May 2010.
In November 2010, there were 2,477,000 unemployed, with an unemployment rate of 7.9 per cent. The latest data shows 2,645,000 unemployed in July 2012, with an unemployment rate of 8.2 per cent. Over the same period, average weekly earnings rose 3.3 per cent, while the Consumer Price Index has risen by 6.5 per cent, so real earnings have fallen sharply.
Far from leading us out of crisis, Osborne has made matters worse and pushed the UK economy into a double-dip recession. The latest UK PMI for manufacturing was disappointing, falling from 49.6 to 48.4 (anything below 50 indicates decline). This is the third month of declines and job losses are beginning to mount. The PMI for construction in September showed the biggest decline in new business since April 2009, so there’s little sign of green shoots.
I have every expectation that GDP in the next quarter may be positive but the fourth quarter is likely to be negative. Plus, the deficit is up by 22 per cent so far this year. As the shadow chancellor, Ed Balls, said in his Labour conference speech, we are seeing “rising borrowing, not to invest in the jobs of the future but to pay for the mounting costs of this government’s economic failure. There is nothing credible about a plan that leads to a double-dip recession . . . That’s not credible, that is just plain wrong.”
Holidays in the sun
Second, Osborne argued in 2009 that the Tories would protect public services, claiming: “We’re all in this together.” He had the audacity to repeat this phrase seven times. He then claimed: “Our determination as compassionate Conservatives [is] to protect the most vulnerable.” In truth, the poor are all in it together and the rich are holidaying in the south of France.
Sensibly, Balls hasn’t fallen into the same trap as Osborne did just before the election. He doesn’t need to say too much about what Labour would do, other than to reiterate that he will wait and see how serious is the mess he is likely to inherit. He is entitled to say he warned that this economic disaster was looming and things would have been a lot better had he been in charge. My main advice to Balls, though, is to stay away from the pork pies. We all know who told “shameful lies”.
David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire.