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30 January 2011

The unedifying sight of the Chancellor in denial

There is a better-than-even chance that the growth figures will be revised down.

By David Blanchflower

There was an interesting editorial by the Daily Telegraph on Saturday:

Mr Cameron finds himself fighting a war on many fronts. But, despite the scale of the challenge he faces, we must not pay too much attention to the crowing of the doom-mongers. Many of the head-shaking economic pundits never wanted the size of the state to shrink in the first place. Their arguments are based on political preference as much as economics: they are opposed to the Coalition’s public service reforms and long for a return to the days of Gordon Brown’s ever-expanding state. They employ dense economic jargon, and some of their criticisms are intelligent, but fundamentally they believe in a model of society that the government has decisively rejected. This makes them cross, and so they leap on bad news with glee. It is not an edifying sight.

I have a rather different view.

Cameron finds himself fighting a war on many fronts. But, despite the scale of the challenge he faces, he argues that there is no alternative to his policies. He argues that public spending cuts and tax increases, along with all this talking down of the economy, will not push us back into recession despite the growing evidence to the contrary. Many of his supporters, especially his Chancellor, George Osborne, wanted the size of the state to shrink in the first place and this was a perfect excuse.

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The economic pundits who support the government base their arguments on political preference as much as economics: they support the coalition’s public service reforms and long for a return to the days of Margaret Thatcher. Many share her view that “there is no such thing as society”. They employ dense economic jargon and some of their criticisms are intelligent but, fundamentally, they believe in a model of society that the people of this country rejected in the general election in May. The opinion polls suggest that they continue to think that it is a bad idea now. This makes them cross, so they ignore bad news and claim it is all due to the weather or GDP in the fourth quarter will somehow get revised upwards. The truth is that there is a better than even chance the data will be revised down, just as those of the previous three quarters in 2010 have been. It is not an edifying sight that they deny the need for a Plan B.