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27 January 2011

Memo to Benedict Brogan: stick to the politics

“This quarter is bound to be better.” How does he know?

By David Blanchflower

The non-economist Benedict Brogan is at it again, this time in today’s Daily Telegraph. I need to counter the claptrap he is spouting. Three comments especially drew my ire. First:

Certainly: the 0.5 per cent contraction in GDP in the last quarter of 2010 was worse than Mr Osborne had anticipated. His repeated mentions of the cold winter could not disguise that even if we had been blessed with the balmiest Christmas on record, there was no growth to speak of. This quarter is bound to be better.

This quarter is “bound to be better”, he says. How does he know that? What he means is that he is really, really, really hoping that the next quarter will be better or else his lot are in big trouble. Trained economists like me tend to focus on the data, which is suggesting that the economy is slowing fast. The construction sector was slowing well before the bad weather. Consumers are reporting that they are fearful about their finances and are holding back on spending and that they expect unemployment to rise. House prices continue to fall, as Hometrack made clear today. Business and consumer confidence has dropped.

The comments on the latest CBI UK retail sales data, out today, from Chris Williamson, Markit’s chief economist, seem relevant: “A downturn in the number of orders that retailers are planning to place with suppliers in coming months reveals growing unease regarding the outlook for retail sales and bodes ill for consumer spending in general, which accounts for just under half of all expenditure in the UK.”

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The next quarter is probably not going to be better. There is every likelihood that it will also show negative growth as the VAT hike hits and people respond to the fiscal retrenchment that is coming by cutting their spending. And real incomes continue to fall.

Second, Brogan writes:

Mr Balls arrives in the job ready-made. His history before the election is a millstone around the Labour leadership’s neck. At every stage, he was implicated in the decisions that led to the country’s financial collapse.

Actually, Ed Balls was responsible for making the Bank of England independent and for helping to formulate a package of measures that prevented the UK from entering a depression. David Cameron and George Osborne opposed these measures but offered no alternative. They opposed any moves to regulate. It is becoming increasingly clear that the main problem is that Ed knows what he is doing and the Tory-led government does not.

And third:

The Bloomberg speech he (Ed Balls) delivered last summer ­- widely admired as the most pungent of the Labour leadership contest -­ identified him as a deficit denier who would rather public spending kept on rising along with taxes.

In reality, his speech was very well received by a number of economists, including Martin Wolf in the FT and yours truly. The most telling part of the speech was his labelling of Osborne as a “growth denier”. Balls and Miliband have made it clear that they would not “rather public spending kept on rising along with taxes”. Richard Lambert’s comments this week suggest that he also believes that Osborne is a “growth denier”. It looks like Ed had a point.

Brogan should stick to politics, as it is clear that he doesn’t understand economics.