An economic riposte in three parts

On dealing with the deficit, GDP revisions and hours worked.

By David Blanchflower Published 10 February 2012

David Smith has once again responded to my comments. This is becoming rather dull and I am not going to respond to his spin, but I do have three additional points of clarification to make.

First, it is perfectly clear that if the Labour government had won the last election they would have had to deal with the deficit. It is apparent though that they would have done so at a slower rate with a higher proportion of any deficit reduction programme directed toward tax increases rather than public spending cuts.

The distribution of the pain would have been fairer and not so focussed on the poor, children, the disabled and single mothers as George Osborne's austerity failure has been.

It might have even got the deficit down rather than increased it. I also assume any Labour government would have been more flexible in the face of a slowing economy and a developing crisis in the Eurozone. It would have had a plan B that would not put all the strain on monetary policy with the impacts on savers and the old that Saga identified this week.

It is also clear that any Labour government would not have talked down the economy by saying it was bankrupt or claiming that in some way the UK is comparable Greece, Botswana or Zimbabwe. Bond yields were also low under Labour.

Second, Smith asserts without foundation that revisions to GDP will be up. Data revisions to this point have been down over the last five years by an average of 0.1 per cent.

In the longer past revisions have been up but we are now in a once-in-a-hundred years depression the like of which we have never seen before. The past is unlikely to be a great predictor of this crisis.

I have no idea what economic model can tell you with such certainty that revisions will be up; my point has simply been that there is an equal chance that they will be down. In actual fact I suspect that revisions in a boom are generally to the upside and in a slump they are to the downside.

Third, Smith seems to believe I made an error in suggesting that total hours of work are down. It turns out they are. The latest data from the ONS website is reported below in millions of hours. Total hours are down from 929.6 in December to February 2011 to 916.3 in the latest release. That's a drop of 13.3 million hours or the equivalent of 380,000 jobs assuming an average working week of 35 hours.

**Total hours of work**
Nov-Jan 2011	925.4
Dec-Feb 2011	929.6
Jan-Mar 2011	921.9
Feb-Apr 2011	910.9
Mar-May 2011	911.0
Apr-Jun 2011	910.6
May-Jul 2011	914.2
Jun-Aug 2011	916.5
Jul-Sep 2011	913.7
Aug-Oct 2011	918.0
Sep-Nov 2011	916.3
_{source: ONS}

The end.

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View the discussion thread.

29 comments

Fri, 2012-02-10 16:55 — Awake!

'Bond yields were also low under Labour.'
er, i don't know if u do this on purpose Mr Blanchflower, but the point being made about UK having low yields is that so many other countries yields have shot up!!
EVERYONES YIELDS were lower when labour was in power because Brown, and some others, were completely mispricing risk and therefore capital. Furthermore, sir, EXTREMELY few in the economic community spotted this, despite the same warnings many people level currently at deficit deniers...

Fri, 2012-02-10 16:59 — Marco (not verified)

You have been owned time and time again Danny boy.

The best part of David Smith's comments is his emphasis on reporting good and bad. That's always been my problem with you Sir, you only highlight what suits your agenda.

It comes across political, rather than economic.

Fri, 2012-02-10 18:22 — David (not verified)

Oh come on... reading the debate it seems evident that David 'Davvy' Smith is fighting a rearguard action to salvage a few minor points after Branchflower pointed out some major failings.

Reading the debate as someone with no attachment to either party, it seems that Smith has signally failed in his lauded 'emphasis on reporting good and bad'. The UK's figures for growth, employment, etc. are generally poor, and to say otherwise seems indicative of Panglossian naivete or political cheerleading.

So too with the blame for Labour... apportioning blame to one party's term is like (though less coherent than) blaming Gavrilo Princip for WW1. The Tories could be blamed for deregulation under Thatcher, and much more besides, but that would be equally little use.

There's a big problem with economists who conduct their analysis along party political lines and fail to provide interactionist accounts. To paraphrase Conan Doyle: they twist facts to suit theories, instead of adapting theories to suit fact.

Fri, 2012-02-10 18:46 — Shinsei67

"It is also clear that any Labour government would not have talked down the economy by saying it was bankrupt or claiming that in some way the UK is comparable Greece, Botswana or Zimbabwe."

You repeat this over and over and over again and it is simply not true.

Osborne never said the UK was bankrupt or like Greece; he said that dealing with the deficit was essential to preventing the UK from becoming like Greece.

And as for "talking down the economy":

"cuts worse than Thatcher's" Darling.

"savage cuts" Nick Clegg

Mon, 2012-02-13 20:27 — Indu Pendent (not verified)

@danny

Labours plan was to hike up NI which would increase the cost of labor relative to capital. Surpise me, how would that have created real jobs?

We do not have austerity in the UK. Just a lot of people who want the rewards before earning them e.g. how many more people demand as a birth right their own home in their 20's early 30's? Sorry, its not austerity for them to live in rented and save a deposit for 10 years.

You need to take out non-productive hours worked in the public sector from Jan 2011. Eliminating these roles has reduced the deficit and helped to subdue wage inflation.

Lower public sector hours worked also equates to less imports and a high multiplier than it would have been under Labour (did you factor in).

Fri, 2012-02-10 18:52 — Shinsei67

"Bond yields were also low under Labour."

No they weren't.

In 2010 UK 10 year bond yields at 4% ahead of the May general election.

They are currently at 2- 2.2%.

Thu, 2012-02-16 16:24 — matthew fox (not verified)

Since you don't know Inastew I will tell you.

Corporation Tax raises about £10 Billion a year, and seems to have been static for the last few years.

If you understood supply side economics, one of the principles, is that when tax rates are cut, revenues increases.

In the case of Ireland, this has not happened.

It looks like supply side economics are for people who aren't terribly bright.

Fri, 2012-02-10 20:55 — David Blanchflower1

Shinsei67
Now get your facts straight.

Try this from Osborne's speech to the Tory party conference, 5th March 2011
http://www.newstatesman.com/blogs/the-staggers/2011/03/britain-budget-la...
Osborne said this
Our nation was on the brink of bankruptcy.....

Britain next in the queue behind Ireland and Greece.....

Here is a truth universally acknowledged: every Labour Government destroys our economy and brings us to the brink of bankruptcy......

They've brought our country to the brink of bankruptcy in the past and they do it all again if they ever got the chance."

I rest my case. No wonder animal spirits collapsed.

Danny Blanchflower

Sun, 2012-02-12 13:54 — Awake!

@ Marco. it goes something like this.

Blanchflower: ' Bond yields were also low under Labour.'
Shinsei: 'No they weren't. In 2010 UK 10 year bond yields at 4% ahead of the May general election. They are currently at 2- 2.2%'
awake!: 'er, Blanch, isn't the point about low yields now in UK is that they've stayed low whilst others have risen sharply?'

You won't get an answer Marco, if u do it will be black is white or white is black.
Marathon man, if ure reading- why do i keep having a go at this clown? because even regarding something as blatent as historic interest rates Blanch is lying to make a point against his accuser, namely that Blanch is a lyer (effectively)! LOL. Yet he gets paid to write this propaganda (what else is it?? rates are the most easily checkable stat, he's insane). So, why does he write this? And can anyone trust someone who lies so blatently?
Well, Blanchflower writes in answer to attacks by danny smith, and he's so desperate he'll say anything- lies, incorrect, lazy... and this simply is not good enough for this site/institution. NS was a name in the day, needs to fire the maniacs, the left needs a base with history and gravitas... unless u want Bob crow!! LOL (although, in light of the revelations in the last few years, he does actually do what it says on the tin- get his members more! and since everyone else is at it...) Bob crow over blanchflower ALL DAY LONG... can't believe i'm thinking that, indicative of the general level though.