By Skidelsky, Robert
New Statesman (1996) , Vol. 141, No. 5124
Refreshed by his summer holiday, David Cameron vowed to "get Britain moving again". A slew of kick-starting initiatives has followed, most of them the brainchild of his government's one-man think tank, Vince Cable.
The figures are dire. After a tepid recovery from the collapse of 2008, the British economy has started shrinking again. Most forecasters expect a negative growth outcome for this year. The same is true of the eurozone.
What has gone wrong? In the spring of 2009 all the major economies, including Britain's, were given a large fiscal and monetary stimulus. Then in June 2010 George Osborne, the Chancellor, entered the Treasury with a large dose of austerity. It is true that a correlation isn't a cause, but could it be that the earlier recovery had something to do with the stimulus, and the subsequent decline with the austerity? At any rate these are striking coincidences. By contrast, the United States, which escaped Dr Osborne's cure, has continued to grow, albeit feebly.
It would be foolish to say that Osborne's budgets have caused the slump. The charge is that his budgets, far from offsetting, have aggravated the collapse of demand that followed the banking crash of 2008. Austerity has not caused the economy to shrink, but has kept it from recovering. Meanwhile, it is wonderful to see how we clutch at straws. For example, the fall in retail sales in July compared to July last year has been attributed to people preferring to watch the London Olympics rather than go shopping. Could it just be that they had less disposable income than last year? Then there was the Queen's Diamond Jubilee. This was blamed for the poor second-quarter showing. In a healthy economy, however, parties don't typically lead to such severe hangovers.
The government clutches at straws of its own. The Prime Minister and the Chancellor assert ad nauseam that Britain's recovery was derailed by the eurozone crisis. Unfortunately, the dates are wrong. The British recovery petered out before the eurozone crisis started. It actually petered out as soon as the coalition got started.
Yet surely it was only the government's austerity policy that prevented Britain from going the way of those big European spenders? Here is David Cameron in the Mail on Sunday (2 September): "When I became Prime Minister our market interest rates were the same as Spain's. Ours are now less than 2 per cent; theirs more than 6 per cent. Why? Because we threw a lifeline around the British economy and pulled it back from the cliff edge."
But wait a minute: Spain had a budget surplus and a low public debt in the run-up to the crisis. Since then Spain has followed much the same austerity policy as the UK. So how can the difference in the yields of the two governments' debt be due to the differences in their fiscal policies? There must be "other factors".
Now we come to some good news. "Yes, growth has been disappointing," Cameron admits, "but in the past two years we've also seen more than 900,000 jobs created in the private sector." This may be true, but the number we are most interested in is net, not gross, employment. In fact, unemployment has risen in the two years of coalition rule, from 2.48 million to 2.59 million. More importantly, almost half of the new jobs created under Cameron are part-time. Agreed, better some employment than no employment, but hardly the resounding success story it's made out to be.
There is still a puzzle. The government takes comfort from unemployment having fallen recently, even though the economy has continued to shrink. The headline figure of 2.59 million unemployed is actually slightly lower than it was six months ago. The reason for this is almost certainly that employers are hanging on to skilled labour for fear of losing it altogether, with the consequence that there has been a fall in recorded productivity. As the Guardian put it, "... it now requires many more of us to labour away to churn out the reduced volume of stuff" (15 August). …