What Osborne won't admit: growth has increased because of slower cuts

The Chancellor's claim that "the pace of fiscal consolidation has not changed" is not supported by any of the available data.

Many others – perhaps Fraser Nelson does it best – have poked fun at the most Panglossian elements of the Chancellor’s speech on Monday. But I’d like here to address the substantive arguments he makes about what the path of the UK economy over recent years says about the impact of fiscal policy on growth.

The Chancellor doesn’t deny that growth has been much weaker than forecast, although it’s worth repeating the scale of this underperformance. In June 2010, the Office of Budget Responsibility predicted that by now the economy would be about 7 per cent larger, driven by a sharp rise in business investment and exports, while the deficit would have fallen by two-thirds. What has actually happened? In fact, GDP has grown at less than a third of that rate, business investment has fallen, and the path of deficit reduction bears no resemblance at all to the original projections (which is, as I'll elaborate below, a good thing).    

But, the Chancellor argues, this underperformance has nothing to do with fiscal policy:

the composition and timing of the slowdown in GDP growth relative to forecast is better explained by external inflation shocks, the eurozone crisis and the ongoing impact of the financial crisis on financial conditions. 

The Chancellor claimed his analysis was supported by many "independent economists" - although, oddly, he failed to mention the IMF, which has been the most prominent independent organisation to argue the contrary. Of course, the IMF and those of us who thought the fiscal consolidation plan was too aggressive never denied that these other factors played a par (and that their reversal will indeed help boost recovery).  As I put it here:

it now seems clear that the negative impact of ‘Plan A’ on growth has been significantly greater than expected, although matters have also been exacerbated by even more damaging policy mistakes in the eurozone, as well as high commodity prices.

Coincidentally, on the same day the Chancellor made his speech, other "independent economists" (Oscar Jorda and Alan Taylor) published a widely reported paper suggesting precisely the opposite (an earlier, non-technical summary is here). They find, as shown in their chart:

Without austerity, UK real output would now be steadily climbing above its 2007 peak, rather than being stuck 2% below. 

And they conclude:

Fiscal contraction prolongs the pain when the state of the economy is weak, much less so when the economy is strong....Keynes is still right, after all: “The boom, not the slump, is the right time for austerity at the Treasury.

However, despite the weight of academic research, the Chancellor goes on to claim that current developments support his interpretation of recent past history:

Proponents of the ‘fiscalist’ story cannot explain why the UK recovery has strengthened rapidly over the last six months. The pace of fiscal consolidation has not changed, government spending cuts have continued as planned, and yet growth has accelerated and many of the leading economic indicators show activity rising faster than at any time since the 1990s.

But this is an obvious sleight of hand.  The claim that "the pace of fiscal consolidation has not changed" is not supported by any of the available data. Here is the OBR’s own chart. As Robert Chote, the OBR’s Chair puts it, "deficit reduction appears to have stalled".

Indeed, the OECD, the government’s favourite of the international forecasting bodies (since, as noted above, the IMF shares my interpretation of the impact of fiscal consolidation on growth) goes even further. According to its calculations, the UK is actually expanding its structural deficit in 2013. In other words, the government is engaging in fiscal stimulus.  Personally I find this implausible - the OBR's estimate is that the structural deficit was broadly flat in 2012-13 - but the data hardly seem consistent with the Chancellor's view.

How did this happen? As I explained earlier this year:

So what's going on? As I noted earlier, most of the deficit reduction has come from cutting public sector net investment (spending on schools, roads, hospitals, etc) roughly in half. Pretty much all the rest came from tax increases (note that the investment cuts and tax increases were both, to a significant extent, policies inherited from the previous government). And we can see when it happened - between 2009-10 and 2011-12.

But these sources of deficit reduction stopped in 2011-12, because the government belatedly realised that cutting investment was a major mistake and that the economic imperative was actually to do precisely the opposite (not that there was much investment left to cut); and it stopped putting up taxes overall. So we can see also what's happened since - with the impact of the weak economy on tax receipts reducing revenues, the deficit has been flat and is projected to stay flat.

So the Chancellor’s argument is simply a non sequitur, supported neither by the research evidence nor the data. 

As I wrote here at the turn of the year, we should give the government credit for not digging us further into a hole by trying to stick to its original plans. Fiscal consolidation has slowed, at least for the time being, and as a consequence it is playing a considerably smaller role in driving economic developments than it did two years ago. Meanwhile, the eurozone and global environment is, at least at present, considerably more favourable. Poor policy and bad luck has delayed recovery, relative to NIESR's original forecasts and everyone else's, but has not removed the ability of the UK economy to generate growth. 

So it is perfectly reasonable to ask economic forecasters (including both the OBR and us at NIESR) why we appear so far to have underpredicted the strength of the current upturn. But claiming that this improvement vindicates the earlier damaging mistake the government made by going for front-loaded fiscal consolidation in 2010 just doesn’t make any economic sense. 

George Osborne makes a speech on the economy at a construction site in east London. Photograph: Getty Images.

Jonathan Portes is director of the National Institute of Economic and Social Research and former chief economist at the Cabinet Office.

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What David Hockney has to tell us about football

Why the sudden glut of blond footballers? A conversation I had with the artist back in 1966 gave me a clue. . .

In 1966, I went to interview David Hockney at a rather run-down flat in Bayswater, central London. He was 28 and had just won a gold medal at the Royal College of Art.

In his lavatory, I noticed a cut-out photograph from a newspaper of Denis Law scoring a goal. I asked if he was a football fan. He said no, he just liked Denis Law’s thighs.

The sub-editors cut that remark out of the story, to save any gossip or legal problems. In 1966 homosexual activity could still be an offence.

Hockney and a friend had recently been in the United States and had been watching an advert on TV that said “Blondes have more fun”. At two o’clock in the morning, slightly drunk, they both went out, bought some hair dye and became blond. Hockney decided to remain blond from then on, though he has naturally dark hair.

Is it true that blonds have more fun? Lionel Messi presumably thinks so, otherwise why has he greeted this brand-new season with that weird blond hair? We look at his face, his figure, his posture and we know it’s him – then we blink, thinking what the heck, does he realise some joker has been pouring stuff on his head?

He has always been such a staid, old-fashioned-looking lad, never messing around with his hair till now. Neymar, beside him, has gone even blonder, but somehow we expect it of him. He had foony hair even before he left Brazil.

Over here, blonds are popping up all over the shop. Most teams now have a born-again blondie. It must take a fortune for Marouane Fellaini of Man United to brighten up his hair, as he has so much. But it’s already fading. Cheapskate.

Mesut Özil of Arsenal held back, not going the full head, just bits of it, which I suspect is a clue to his wavering, hesitant personality. His colleague Aaron Ramsey has almost the full blond monty. Paul Pogba of Man United has a sort of blond streak, more like a marker pen than a makeover. His colleague Phil Jones has appeared blond, but he seems to have disappeared from the team sheet. Samir Nasri of Man City went startlingly blond, but is on loan to Seville, so we’re not able to enjoy his locks. And Didier Ndong of Sunderland is a striking blond, thanks to gallons of bleach.

Remember the Romanians in the 1998 World Cup? They suddenly appeared blond, every one of them. God, that was brilliant. One of my all-time best World Cup moments, and I was at Wembley in 1966.

So, why do they do it? Well, Hockney was right, in a sense. Not to have more fun – meaning more sex – because top footballers are more than well supplied, but because their normal working lives are on the whole devoid of fun.

They can’t stuff their faces with fast food, drink themselves stupid, stay up all night, take a few silly pills – which is what many of our healthy 25-year-old lads consider a reasonably fun evening. Nor can they spend all their millions on fun hols, such as skiing in the winter, a safari in the spring, or hang-gliding at the weekend. Prem players have to be so boringly sensible these days, or their foreign managers will be screaming at them in their funny foreign accents.

While not on the pitch, or training, which takes up only a few hours a day, the boredom is appalling, endlessly on planes or coaches or in some hotel that could be anywhere.

The only bright spot in the long days is to look in the mirror and think: “Hmm, I wonder what highlights would look like? I’ve done the beard and the tattoos. Now let’s go for blond. Wow, gorgeous.”

They influence each other, being simple souls, so when one dyes his hair, depending on where he is in the macho pecking order, others follow. They put in the day by looking at themselves. Harmless fun. Bless ’em.

But I expect all the faux blonds to have gone by Christmas. Along with Mourinho. I said that to myself the moment he arrived in Manchester, smirking away. Pep will see him off. OK then, let’s say Easter at the latest . . . 

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times