The story presented in much of the UK media is simple and intuitive. The previous government messed up: they spent too much, and it left the UK economy on the brink of financial meltdown. The coalition came to the rescue: clearing up the mess was tough at first, but now it is all coming good.
In previous posts I have shown that this is almost complete fiction. The increase in the government’s budget deficit under Labour was all about the recession, which in turn was created by the global financial crisis. There was no prospect of a UK financial crisis in 2010, which meant that austerity was not something the government was forced to undertake. Reducing the deficit could have been left until the recovery was secure (and crucially interest rates had risen above their lower bound), but the coalition chose to do otherwise. As a result they delayed the recovery by three years, at great cost. Even since 2013 we have simply seen a return to normal growth rates: there has been no catching up of lost ground. In that sense growth under the coalition hardly deserves the term recovery, and we have seen an unprecedented lack of growth in living standards. Productivity growth has been non-existent, yet the government has feted the employment growth that is its counterpart.
The government’s claims of macroeconomic success can therefore be dismissed without saying a word about the nature of the GDP growth that has taken place. But what growth there has been is itself worryingly unbalanced, as a new report discussed here sets out. Growth is too dependent on consumption, there is not enough investment, and the current account deficit is very large.
A large part of the media sees their role as supporting the government’s line, however far from the truth it may be. For whatever reason, most of the remaining media has bought this line, and failed to expose it as fiction. Even a headline in the Guardian yesterday talked about “rip-roaring growth rates of 2013 and 2014” when growth in GDP per head in those years was at best just average, and growth in income per head non-existent.
It is still commonplace to hear media commentators say that the economy is doing great, and ask why the government is not reaping the benefit in terms of political support. In truth the puzzle is the opposite - given how poor economic performance under the coalition has been, and that this poor performance has hit most people in their pockets, the real puzzle is why so many people think the government is economically competent. And the answer to that puzzle in turn lies in the myths that mediamacro has allowed to go unchallenged. Perhaps the latest growth figures might begin to dent them, but a remarkable feature of these myths is that they seem impervious to actual data.
I coined the term mediamacro because I obviously find it strange that public discourse on the macroeconomic fortunes of the UK economy seems so different from what the data and simple economics would suggest. For once I can be the one handed economist that Truman demanded, because the evidence is so clear and the economics (what little there is) so uncontentious. But mediamacro has implications well beyond macroeconomics. If the media has been capable of distorting reality by so much for so long in this case, are there other areas where it has done the same, and what does that tell us about the health of our democracy?
Previous posts in this series
(3) The 2007 boom