An economic riposte in three parts

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

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.