George Osborne was presumably aiming at himself and his friends, when he vowed “to speak truth to power and wealth” at the Tory party conference this week, but dare he speak economic truth to the rest of us? – simultaneously published on Left Foot Forward >
On the narrowest of bases, he might still claim he spoke “truth” to the weak and powerless when in the House of Commons debate on the economy on August 11th he made this challenge:
“Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year?”
It was a ‘brave’ claim when he made it, and it’s looking even ‘braver’ – and more disingenuous – now.
Following very recent revisions to US and UK data on GDP for the first half of 2011, the position is as follows, broken down into different quarters:
Q1 +0.4% (revised down from the previous +0.5)
Q2 +0.1% (revised down from the previous +0.2)
Q2 +0.325% (revised up from 0.25%)
So by the triumphant margin of 0.075%, taking the period in total isolation, Osborne just scrapes home. But this ignores the fact the UK quarter 1 figure of +0.4% followed the disastrous Q4 figure of -0.5%, compared to US Q4 growth of more than +0.5%.
Without this Q4 quirk, his tenuous case would collapse.
For when we compare the US and UK over the last three quarters (including Q4 2010), we find that the US grew by 1%, whilst the UK grew not at all. A difference of one per cent in favour of the US economy.
And over the 12 months to the end of June, i.e. the lifespan of the coalition government, the US rate of growth is likewise 1.0% greater than in the UK (US 1.6%, UK 0.6%).
Taking the last 18 months, we get the following medium-term picture:
2011 first half +0.4%
18 months +3.4%
2011 first half +0.5%
18 months +1.9%
In other words, the US economy has grown by 1.0% more than the UK over the last 12 months, and 1.5% more over the last 18 months, to end June 2011.
The US has many problems, but it has applied some meaningful, if now fading, stimulus.
So if George Osborne really does wish to speak truth, to power and wealth, and to the rest of us, let him own up – it is simply not true the UK’s austerity-based economy has grown faster than the USA’s. On the contrary, coalition government policies have led us deeper and deeper into the mire of unemployment, bankruptcies and economic stagnation.
You make a useful and compelling argument but, as I felt after reading your book “The Economic Consequences of Mr Osborne”, a distinction needs to be made between investment in infrastructure and other such spending that makes the economy more productive, and spending that does no more than support inflated lifestyles.