Monday, February 06, 2012
Oh Danny Boy
Posted by David Smith at 11:00 AM
Category: Thoughts and responses

blanchflower.jpg

In his article in the latest New Statesman, here, David "Danny" Blanchflower accuses me of being a "Tory cheerleader" for suggesting that the fourth quarter GDP figures, which showed a fall of 0.2%, were likely to revised higher.

I am tempted to respond by calling him a Labour lackey but I would not stoop so low, not least because to descend to this kind of name-calling is usually the last resort of the desperate. As it is, I'd remind Danny I made the same point about the GDP figures in the third and fourth quarters of 2009, when Labour was in power, and when the Office for National Statistics also pitched its initial etimates too low. I also defended Alistair Darling's November 2008 fiscal stimulus against Tory attacks.

As for other points about the fourth quarter GDP numbers. I know Danny does not follow the details, but the Office for National Statistics dwelt at some length on the impact of the one-day public sector strike and the impact of the mild weather on gas and electricity supplies is clear from the figures. However, as I said in the very next sentence: "I am not pretending that these were anything but disappointing figures." Not much cheerleading there.

I used to like Danny. He was one of the more surprising appointments to the Bank of England's monetary policy committee but livened up the debate. But he behaved badly in badmouthing his former colleagues at every opportunity when he left the committee, knowing as public officials they could not respond.

Had he presented the kind of analysis he did in his latest New Statesman column while at the Bank, he would have been laughed out of the building. Apparently there have been three stages in the economic cycle in recent years: the global recession (i.e. nothing to do with the government) from 2008 Q1 to 2009 Q2, the "Darling recovery" from Q3 2009 to Q3 2010 and the "Osborne collapse", from Q4 2010 onwards.

Why? Why doesn't the coalition get half of Q2 2010 and the whole of Q3? Or, if you're applying lags, why should they stop at the start of Q4 2010, which happens to be the point at which GDP goes into reverse? What about the fact that Darling's fiscal tightening kicked in in 2010-11?

Danny's problem is that he may be the only economist in the country - or, rather, viewing the country from New England - who thinks Britain's slowdown is entirely due to the fiscal tightening. There may have been a "global recession" for the UK in 2008-9 but the global slowdown and the eurozone's woes apparently had nothing to do with the UK's slowdown in 2011. Nor, it seems, did 5% inflation (which I seem to remember him advocating), responsible for the biggest drop in household real incomes in the post-war period. His is not, I'm afraid, a serious analysis.

As for other criticism of me, that I predicted that private sector jobs will more than outweigh losses in the public sector, it will be astonishing if they do not. During the long upturn from 1992 to 2008 Britain added 4m net new jobs. All of them, in net terms, were in the private sector. Public sector employment fell sharply in the 1990s before rising in the 2000s.

That was then, what about now? In the two years to September 2011, public sector employment fell by 366,000 but private sector employment rose by 581,000. The position is more balanced in the latest 12 months; 275,000 public sector job losses against 262,000 private sector gains but that reflects many more public sector job losses than were expected at this stage by the Office for Budget Responsibility. There may be an element of bunching.

Only if we get large-scale private sector job losses alongside the public sector ones will we get the 4m or 5m unemployment confidently and so far inaccurately predicted three years ago by Danny. It would be a great pity if that were ever to happen, while he would no doubt celebrate his vindication. My only bias is against those who constantly talk down the economy, particularly from a distance.