Sunday, January 16, 2005
Labour's Sixties stunt is bad economics, baby
Posted by David Smith at 10:00 AM
Category: David Smith's other articles

This time last week I drove past a lurid pink poster, assumed it was advertising shampoo or 18-30 holidays, and thought nothing more about it. Then, a couple of days later Gordon Brown, Alan Milburn and John Prescott turned up — looking as mean as three of the Reservoir Dogs without the sunglasses — to “launch” that poster and three others.

The message I had missed first time was an economic one, and it is a message Labour will use to convince doubters during what promises to be a long and sapping election campaign. It’s not quite “you’ve never had it so good”, but “you haven’t had it so good for a very long time”. And the risk, according to the chancellor and his colleagues, is that the Tories will ruin it.

I will return to that in a moment. But is it wise of Labour to evoke the spirit of the 1960s, which two of its posters did? There are some superficial similarities. Tony Blair is better looking than Harold Wilson was, but has shown that he is every bit as cunning an operator as his rogueish predecessor, who was at the height of his powers in the 1960s.

Blair went into last weekend on the defensive over staying on holiday too long after the tsunami disaster, and for his childishness in arranging a press conference to coincide with a speech by the chancellor. He emerged from it stronger, thanks to the serialisation of a pro-Brown book that made the chancellor look like a destabilising troublemaker. All Brown can do in these circumstances is sulk, and it is not very becoming. Blair even managed to turn a Commons attack by Michael Howard, based on the rift, to his advantage.

There is also a superficial similarity between Brown and his Labour predecessor George Brown, a party heavyweight of the 1960s. He was regularly stitched up by Wilson, to the point where the prime minister closed down his Department of Economic Affairs (DEA). Some in Downing Street, including allegedly Lord Birt, the prime minister’s one-man think tank, would like to do that with large parts of the Treasury.

In addition, there is an economic question about whether it was wise to evoke the 1960s. Inflation and mortgage rates, to be sure, are at their lowest since then. Unemployment has not been this low since just after the 1960s. The current run of economic growth, as I have pointed out before, is even better than the “golden age” of the 1950s and 1960s.

The trouble with the 1960s is that, while the economic numbers look pretty good with hindsight, it was also a time of appalling economic management. The DEA was closed down when it became clear that it was standing in the way of faster economic growth. The 1964-70 Wilson government, which admittedly had a poor inheritance from the Tories, spent half its time in office trying to avoid the 1967 devaluation of sterling and the other half imposing austerity measures to make it work.

Worse still, and I am not just stating the obvious, the 1960s were followed by the 1970s, a decade of enormous economic turbulence. Some of those seeds were sown in the swinging 1960s, at the end of which inflation was rising strongly.

This government has much to be proud of when it comes to the macroeconomic record. The doubts are over its other policies. While there is now a glimmer of hope, with private-sector productivity rising by nearly 5%, it is not clear how sustainable that is — and public-sector productivity looks like a lost cause.

Meanwhile, critics say rising taxes and Labour’s re-regulation of the economy add up to a disastrous supply-side policy, which will unwind badly in the coming years. One of those critics is Derek Scott, the prime minister’s former economic adviser. If his one-time master shares even some of those concerns, as he appears to, it is easy to see why there is a bit of edge in the Blair-Brown relationship.

The real criticism of Labour’s invocation of the Austin Powers era, however, is that it suggests the current period of stability is just a passing phase. Its propaganda says the re-election of a Tory government could give us the return of 15% interest rates, 10% inflation, 3m unemployment and recession.

There are a couple of things wrong with that. The first is that, according to Labour’s version of things, economic stability and success did not start until after May 1, 1997. That is wrong. Low inflation was well established before Blair was elected, and the current record run of growth began in 1992.

Brown’s great achievement was making the Bank of England independent, but the Tories had already given the economy a system of quasi-independence, with the Bank for the first time giving public advice to the chancellor on rates. Brown hit the target, but the Tories had set him up with an open goal.

The second problem lies with Labour’s central claim, that the election of the Tories would ruin everything. How so? Would the Tories abolish the Bank’s independence? No, they would stick with it. The idea that this system could throw up 10% inflation and 15% interest rates is frankly preposterous.

Perhaps Labour has in mind that the Tories would embark on an orgy of irresponsible tax-cutting, creating huge budget deficits and leaving the Bank no option but to jack up interest rates to recession-inducing levels. Again, it is some way from reality. Rightly or wrongly, Oliver Letwin, the shadow chancellor, has said he will abide by the chancellor’s golden rule. Meanwhile, Brown has shown himself pretty adept at creating big budget deficits.

Labour’s campaign merely succeeds in giving the impression that there is nothing permanent about the stability it has created. That is wrong. The strength of its reforms should be their ability to survive a change of government, as undoubtedly they would. Labour has always insisted good economics and good politics go hand in hand. Its campaign, however, is bad economics, to the point of economic illiteracy. The chancellor would have served himself better by staying away from it.

PS: Gordon Brown has been encountering the devastating effects of HIV/Aids on his trip to Africa. But just how bad is its economic impact on that continent? A fascinating article in the latest edition of World Economics, by Clive Bell and Maureen Lewis, looks at the economics of epidemics through history.

Some big epidemics have limited economic effects. The worldwide influenza epidemic of 1918-19 killed 40m people — nearly five times the number of military deaths in the first world war, and well over double the total deaths in that conflict. The economic impact was, however, limited. The flu may have contributed to the short post-war recession but was soon gone, and followed by the strong growth of the 1920s. The Sars outbreak of 2002-3 was similar in its impact — a short setback but no permanent economic damage.

Going back further, the Black Death in Europe, at its most intense from 1347 to 1351, took away between a quarter and a third of Europe’s population, slowed economic growth for up to a century, and delayed the continent’s progress. Europe’s emergence into the modern industrial era was probably held back by the plague.

Which brings us to HIV/Aids. The numbers currently infected are similar to those killed by the 1918-19 flu epidemic. The long-term economic effects will be significant, reducing South Africa’s gross domestic product by 17% over the period 1997-2010, for example.

This raises a worrying parallel. While the authors say it is too early to say whether HIV/Aids will be as serious in its impact as the Black Death, they fear it could be.

From The Sunday Times, January 16 2005

Comments

More worrying these posters give the impression that Brown and Blair have become so obsessed with politics that they no longer really care or understand why the economy has been growing.

Posted by: Giles at January 17, 2005 06:23 PM
Post a comment









Remember personal info?








    •