The thump and grind of economic opinion on days such as Friday is formidable. The reason that last week ended in such a frenzy was that the Office for National Statistics released data showing that Britain’s economic output had increased. Compared to growth in the second three-month period of 2013, growth in the third three month period was 0.8 per cent higher.
Growth—the magic word. The twittersphere lit up with government crowing, as MPs and commentators were elated by, as they saw it, the victory of Osbornian austerity. On the other side of the divide those unsympathetic to the government’s policy were withering, among them Danny Blanchflower, the labour market economist, who commented on Twitter that “the economy grew 2.3% [from the 4th quarter 2009 to the third quarter of 2010] in 12 qtrs since then grown 2.6% & still 2.5% below start level”.
His argument, shared by many of a similar political outlook is that the government has got growth, but if it had followed a less austere policy it would have got more growth sooner. The suggestion of Blanchflower’s criticism is that Osborne shut off a recovery that was already under way when he came to office.
He may be correct in this assertion, which is also the analysis put forward by Labour’s front bench. The problem with it is that it is unprovable. What might have happened, had something else been done, cannot be known and this is awkward for Labour, which bases its principle economic argument on precisely this tendentious ground.
This kind of economic discourse has a central, very frustrating problem, which is that two economic views are being clanged together, one from the right, the other from the left, and they are irreconcilable in their world view. But clanged together they are nonetheless, in a cacophonous orchestra of ideological huffing—here the Keynesians, and there the Hayekians, there Laffer Curvers and over there the fiscal stimulus society. The overwhelming feeling of the debate is that it follows the law of Excluded Middle, such that if one thing is not the case, then its negation—its opposite—must be. So either we are Hayek OR we are Keynes and between the two there exists a void where no one may stand.
There is a third possibility, however, in this argument—that both sides of it are correct.
This suggestion may well draw a wry smile, scorn even from economists. We live in a time of intellectual pugilism in which a good many economists and commentators have risen to prominence on the back of strongly-held and tartly-expressed political economic analyses. Just as it has assisted the political needs of both Labour and the Government to exaggerate the scale of “the cuts”, so political economy has bifurcated into two rival groups of head-bangers, whose positions are dependent to a large extent on the strength of the opponents against whom they rail.
But bloviating economists are no match for the straight-forward tactic of looking out into the outside world; and if such a look is taken, then two things are immediately and glaringly apparent. First, that the US adopted a stimulative economic approach and is experiencing growth, and second, the UK did the opposite—and is also growing.
A reductio ad absurdum, perhaps. But what could be more absurd than two groups of economists, armed to the teeth with PhDs, who read the same books, study the same data sets and who arrive at diametrically opposing views?
The Clang of economics
October 28, 2013
