A week is a long time in economics!
Harold Wilson said that a week is a long time in politics. It sometimes feels that way in economics too. From Sunday to Tuesday, I was in Paris with TUAC, the Trade Union Advisory Committee to the OECD. Trade union economists from the US, across Europe, Japan, Indonesia, India and many other corners of the globe gathered in collective gloom about the state of the world economy. Even in the last few weeks, it feels as if another world downturn is much more likely than it had been earlier in the summer.
Much has happened, even since I got back. President Obama has addressed both Houses of Congress, announcing proposals for an American Jobs Act. For Obama personally, the stakes couldn’t be much higher. US unemployment stands at 9% and no US President has ever been re-elected with such a high proportion of Americans out of work. Obama won’t expect any personal favours from Republicans, but this is about more than one man or one person’s job. What is more, Republicans should be careful. Americans facing unemployment and poverty won’t take kindly to political games that could prolong their agony and, indeed, Republican poll ratings have fallen alongside those of the President since the debt fiasco. The US recovery has stalled and action is needed to get it moving. Republicans and Democrats both have a responsibility to make that work.
Meanwhile, the OECD has published its latest forecast, arguing that the UK will have the lowest growth in the second half of the year of any major G7 economy apart from Italy. Bizarrely, the OECD Chief Economist, Pier Carlo Padoan, has urged the UK to stick to its rapid pace of fiscal consolidation. I prefer the assessment of Christine Lagarde, the IMF’s new Managing Director who, in a triumph of diplomatic language, continued to support the Government’s deficit reduction, but warned that the deteriorating global economy means the Chancellor must remain “nimble”.
What does “nimble” mean? I suspect it means flexible, adjusting to changing circumstances as necessary. Common sense, some might call it. But nimble isn’t the first word that springs to mind about UK economic policy, as growth becomes more and more unlikely, unemployment is about to hit 2.5m, youth unemployment is reaching record levels, millions struggle to pay their bills – but the Government refuses to countenance any kind of Plan B. George Osborne, the Chancellor, was at it again this morning, calling his deficit reduction plan – spending cuts to you and me – a “rock of stability”. He even argued that this plan had delivered record low interest rates. Er, no. We have record low interest rates, in spite of inflation at twice the Government’s target, because with stagnant growth, a rise in base rates now would be the last nail in the coffin of the British economy.
Yet in spite of this gloomy prognosis, there is space for some compromise. What the UK needs – as does much of the rest of the world – is a way of boosting jobs and growth in the short to medium term, while reassuring the markets that the deficit will be tackled in time. The TUC are not deficit deniers and we agree that action to reduce the deficit must be implemented, just not so quickly that we squeeze the life out of the economy in the short term. A longer term deficit plan, but a plan nonetheless, is where policy makers should try to meet each other.
So I think we can deal with the “what”, but we are a long way from the “how”. Trying to boost growth by cutting Corporation Tax, scrapping red tape and, eventually, ending the 50p top rate of tax will never work. We need a meaningful growth strategy, based on investment, skills, the intelligent use of procurement policy and fair taxation. On that one, the TUC is as far from the Government as ever.