George Osborne with Christine Lagarde, Managing Director of the International Monetary Fund. (Photo via)
Yesterday, George Osborne told us that the economy has "turned a corner". That – after growth in the second quarter climbed to 0.7 percent – he's fixed it, basically, and we were wrong to ever doubt him. He gave the speech at a previously mothballed building site, constructing a series of flimsy arguments about the country’s recovery and his performance as Chancellor.
The overlying logic in Osborne’s argument is fairly straightforward. The government had a plan to fix the economy by aggressively cutting spending and printing money. Since this plan was put into action there’s been a recovery – a tentative one, but a recovery nonetheless, and Osborne has taken that as irrefutable evidence that he and the government were right. However, this viewpoint ignores much of what's actually happened to the UK economy over the last three years. It also ignores Osborne's performance as Chancellor in that time. His speech seemed like a prolonged "I told you so," but was his crowing really justified?
The Conservatives sold us the austerity agenda by promising to cut the government deficit. They would stop spending so much and we would recover more quickly: that was the deal. It was also the crucial difference between Osborne's "Plan A" economics and Labour's "Plan B", which was to rein in the deficit more slowly and try to support growth through government spending. In his 2010 budget speech, Osborne promised to turn a deficit of 4.8 percent of GDP into a surplus of 0.3 percent in four years. However, by April of 2013, a year before he was supposed to make good on that promise, the deadline for a balanced budget had been pushed to 2017 or 2018, and we were borrowing considerably more than he had forecast. At the outset Osborne had a plan for a recovery, but it didn’t look anything like this.
On top of that, the level of growth that he and the government were expecting hasn’t materialised: “The economic collapse was even worse than we thought," he said yesterday. "Repairing it will take even longer than we hoped. But we held our nerve when many told us to abandon our plan. And as a result, thanks to the efforts and sacrifices of the British people, Britain is turning a corner."
How does he come across sounding like he’s won the argument here? It's about the way he’s framed the debate. Osborne says the anti-austerity argument has lost because there are signs of unexpected green shoots of recovery. The problem is that those green shoots aren't unexpected – no one in the anti-austerity camp thought there would be no recovery, just that government spending cuts would have a worse effect on the economy than Osborne thought. Recent reports that this has been the slowest recovery from a recession in 100 years would seem to bear that out. Oh, and advocates of Plan B also worried that cuts would have a negative impact on society as a whole – if you've been following the bedroom tax, housing crisis and food bank narratives through the news, it's tough to dispute that that prediction was wide of the mark.
When they haven't been Osborne and his team have blamed the slower-than-expected recovery on external inflation shocks caused by the eurozone crisis. Anyone who’s followed the various budget announcements over the last few years will recognise this argument because every time we don’t meet a growth target or manage to cut spending, it turns out it was Europe's fault. In fairness, it's an argument that carries some weight, but it doesn’t tell the full story; austerity slashed our services while doing very little to improve the state of government spending. If eurozone members had opted for sustainable investment instead of austerity, millions of jobs would have been saved. Worse still, Osborne has already set up his next round of excuses: “The main external risks we face today are these: the slowdown in emerging markets; the possibility of further turbulence in the eurozone and the risk that instability in the Middle East will push up oil prices.”
Whoever wins the war of words on the economy that takes place over the next 18 months will probably win the election (unless, of course, there’s a different type of war that distracts us in the mean time). The danger is that, after moving the goalposts on the justification for austerity once, Osborne is setting the country up for further cuts. “The job is not yet done,” as he puts it at the end of his speech. Osborne is right – there are unexpected signs of recovery and things looks well balanced, too. But let’s not forget how we got here and that the man who did get us here might be a pretty crap guy to have at the wheel.
Follow Chris on Twitter: @MediaSpank
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