From the TUC

The Chancellor’s Odd Claim – a Quick Analogy

11 Sep 2013, by Guest in Economics

Whilst I was down in Bournemouth at the TUC’s Congress, the Chancellor made a very odd speech. His basic argument was that the recent pickup in economic data proves he was right after all and the stance of fiscal policy has been correct for the last three years.

For a detailed rebuttal of this nonsense argument I’d recommend Jonathan Portes, Simon Wren-Lewis, Paul Krugman and Richard Exell.

As I’ve written before:

What we now have is a recovery that is coming three years later than expected, with unemployment higher than expected, little evidence of rebalancing (yes manufacturing is doing better but the recovery is being led by consumer spending, business investment remains weak), the deficit much higher than anticipated and living standards undergoing a severe squeeze.

If this is the definition of successful economic policy, I’d hate to see a failure.

The most important point to remember in this ‘debate’ is that those who supported looser fiscal policy in 2010-2013 never argued that the economy would never grow again without a fiscal stimulus.

The economic case for a fiscal stimulus has always been that, faced with a large output gap, looser fiscal policy would lead to faster growth and higher employment than would otherwise be the case.  This argument is not proved wrong by a pickup in growth. The point is that growth and employment could have been stronger than they were between 2010 and 2012.

To go back to economic motoring analogies, it is as if the Chancellor was a driver faced with two possible routes a destination.

The first route, let us call it Route A, would get him to his destination in around 4 hours. The second route, or Route B, would take less than hour. Many experts advised that the second route would be the better option.

The Chancellor instead decided to press ahead with route A. Route A actually turned out to be even longer than anticipated and the drive has taken the Chancellor around 6 hours. Some of this additional delay being due to external factors such as bad road conditions, but the primary reason for the late arrival being the choice of route in the first place.

At several points along the way, he could have turned off to route B, but each time he refused.

Now, hours later, arriving at his destination the Chancellor is shouting at passersby, “Ha! I’ve arrived and it only took six hours. Those people advising me to take route B were a bunch of idiots and the fact that I am finally here proves that beyond any doubt”.

As I said, it was a very odd speech.

3 Responses to The Chancellor’s Odd Claim – a Quick Analogy

  1. Tanweer Ali
    Sep 11th 2013, 5:30 pm

    This is an excellent analogy. The right have been generally more successful at using metaphor to drive their point home, and in the economic debate the simple household metaphor works wonders as it conforms to most people’s idea of common sense. This motoring metaphor needs to be repeated again and again, by economists, politicians and campaigners whenever the UK economy comes up for discussion. People will ‘get’ this.

  2. Dave Holden
    Sep 12th 2013, 9:49 am

    To continue the driving analogy – once the car was out of the ditch he decided to drive back round the block and revisit the same estate (chez housing bubble) that led us into the ditch in the first place! #electioncomingup

  3. Julian Pendock
    Sep 13th 2013, 10:39 am

    I agree with you (for once!!). I have trouble with any of this: it’s the same in the US. Lies, damned lies and statistics. Unemployment rates are irrelevant when a job in R&D at GE counts as the same as a “McJob”, published inflation figures are laughable but a necessary smokescreen to pursue policies which lift asset prices (a symptom, not cause, of recovery). People are conflating “self-sustaining recovery” with “sustainable policies that giver appearance of recovery”. The jury is still out, in my opinion.