Tuesday, May 20, 2008
Nice By Luck
Surveying the wreckage of Gordo's economic miracle, it's interesting to ask if the whole thing was pure luck in the first place. Because as Governor King implied while we were away last week, it was a nice decade to be Chancellor.
As always, it's useful to step back and take the long view.
The name of the Big Game is economic growth, and the chart above shows how we fared over the last three-and-a-half decades in terms per capita income, relative to the three other big Western economies (OECD data for incomes converted using Purchasing Power Parity, and in terms of our relative performance on the chart, lower is better).
The first thing to note is that the seventies were indeed dire. All three competitors pulled away. We lost about 15% of our relative income against France and Germany, and even managed to lose against a stumbling US. It was the doomed dismal decade of Heath, Wislon, and Callaghan.
Under Thatcher/Major (blue vertical line) things turned around. We improved against all three overseas economies, although clearly our period of ERM membership represented a huge bump in the road, with crippling interest rates set far too high in order to defend sterling.
And Brown? Well, the thing that jumps off the chart is that the change of government in 1997 (red vertical line) made absolutely no impression on the benign trends that were already firmly in place well before then (if anything, it slowed them down). His great good fortune was to ride a giant wave that had been set in motion by our exit from the ERM.
Sadly, that wave has now expended itself. The chart shows it was already slipping back by 2006, and it will have rolled back a whole lot further by now.
Brown's boom depended on a particular conjunction of events that owed little to him. Apart from the benign long-term post-ERM trend, low global inflation made it easier to accomodate stronger UK growth without jacking up interest rates. And lower interest rates encouraged punters to borrow more, thus pushing up house prices and making home owners feel wealthier.
So did he contribute nothing? Well, he did turn on the public spending taps, which definitely did something. But of course, any fule can spend other people's money: it's a classic straight from the H Wislon Book of Crap Policies. And now as then, the bills are never far behind.
PS Talking of damaging EU policies, the Lisbon Treaty is still heading our way. For obvious reasons, the Commissars don't want ordinary people to have any say in the matter. But in Ireland, for constitutional reasons, it can't be avoided. So Irish voters will have their say on 12 June. The rest of us must hope they veto the whole deal, and to help them decide there's a new site where we can register our encouragement - No To The Lisbon Treaty. Tyler has already posted a comment and may we urge you to do the same. Ireland, you are our only hope - speak for Europe (htp One Man).