Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday 30 April 2018

The strong economy: how Brexit dishonesty began

The first quarter growth figures for the UK are terrible, with GDP per head falling slightly, and they are consistent with an underlying economy which is very weak. As you can see from the chart below, quarter on previous year’s quarter growth in GDP per head was reasonable in 2014, but has been falling since. The economy has been suffering from Brexit uncertainty and the Brexit induced falls in real wages, and as I guessed immediately after the referendum the temporary boost to competitiveness has not been enough to offset this. (More discussion here.) [1]

UK GDP per head quarter on previous year’s quarter growth: source ONS

As Will Hutton says, in any other world there would be national soul searching. But the reaction of the Chancellor to the latest data is that it "reflects some impact from the exceptional weather that we experienced last month, but our economy is strong and we have made significant progress". The Chancellor says the economy is strong when GDP per head, the best measure of average prosperity we have, is falling. And the ONS said the weather had a relatively small impact.

This kind of Orwellian description of the economy (weak is strong) is something that I first noticed in the run up to the 2015 election. The first three years of the Coalition government were terrible in economic terms, and the government did not try to pretend otherwise. Everyone was expecting a recovery and it didn’t come. But that opened the way for dishonesty to emerge from 2013, as the economy began growing again.

UK growth in 2013 and 2014 was really no more than a return to normal growth, but it was enough for both the government and journalists to talk about a recovery, even though there are strong reasons for reserving the term recovery for growth that returns us to a pre-recession trend level of output. The idea that 2013 vindicated austerity was truely Orwellian: no economics student anywhere would get away with such a statement. The government started talking about a strong economy during that period.

The strong economy line became the Conservative’s key claim in the 2015 general election. The economy was pretty well their only strong point among voters, but that did not make the claim true. In reality we had the worst ‘recovery’ in centuries: it was not really a recovery at all because we did not move any closer to pre-crisis trends. Yet parts of the media - what I called mediamacro - accepted the strong economy line, and largely ignored an unprecedented fall in real wages and the associated decline in productivity growth the likes of which we have never seen before. For that reason I argued that the Conservatives won the election because of mediamacro.

When we see Brexiters repeat nonsense about borders between the EU and Switzerland, tell lies about how the EU stops trade with Africa and how they will spend the Brexit dividend they are simply continuing where Cameron and Osborne left off in describing the economy as strong. What Conservative politicians have learned is that the BBC in particular does not have either the expertise or the will to call Conservative politicians out on doublespeak. The more unscrupulous the politician the more they have exploited that weakness in our democracy.

[1] The response of Brexiters is to keep saying its not as bad as the government’s pre-referendum short term forecast. For some reason its a line that reminds me of this.


  1. "The more unscrupulous the politician the more they have exploited that weakness in our democracy."

    In round figures, at the last general election, for every 100 people who voted Conservative, 130 voted for other parties and 110 did not vote.

    Yet the Conservatives are (fairly) firmly in government because First-Past-The-Post—like the Electoral College in the USA—is a neat way of getting round democracy: it gives a muted form of democracy without actually delivering high-quality democracy. A vote in a marginal constituency is worth more than a vote in a safe-majority constituency.

    This is one of the reasons that the UK, along with the USA, counts as a second-grade democracy along with Argentina, Brazil, Chile, Namibia, Peru, South Africa, Spain and Uruguay.

    First-grade democracies include Austria, Belgium, Denmark, Estonia, Germany, Latvia, the Netherlands, Norway and Sweden.

    1. We should also remind ourselves that over 98% of the MPs elected in the 2015 election stood on a manifesto to remain in Europe even though (it now seems) the electorate were split almost evenly split on the issue.

    2. Chile has got a lot better. We used the D'Hondt system of PR in the most recent congressional election. But yes, the old system could barely be classed as democratic at all.

    3. "One should not blame a device for the damage of incompetent use."
      The First-Past-The-Post system or any other technicalty makes or breaks a democracy. The willingness of "majority" or person at the helm to mind the - near and remote - interests of others is more important.

    4. In the EU Referendum in 2016, for every 100 people who voted Leave, 93 voted Remain and 75 did not vote.

      This has subsequently been interpreted that it is the will of the people that the UK leaves the EU.

      So does the result of the 2017 general election mean that it is, rather emphatically, the will of the people that they don't want a Conservative government?

  2. Talking of dishonesty, how does the graph for GDP compare with the forecasts for the period 2016 Q3 to 2018 Q2 presented in Table 2C of the document “HM Treasury analysis: the immediate economic impact of leaving the EU”? The forecasts were unbelievably wrong.

    The top official at the Treasury recently told the Treasury Committee that the incorrect forecasts were due to wrong assumptions, for example they did not include any stimulus measures for the economy. Given that the assumptions were mandated by the Government and that the Leave side were barred from suggesting alternative assumptions, the forecasts were, in effect, wrong because they were subject to gross political interference.

    On Referendum day, I hesitated in the ballot booth. What if the Treasury forecasts were correct? What if my vote could put half a million out of work? What if it caused an immediate recession? How would I live with myself? Fortunately I have a PhD in Statistics and I was able to make an informed judgement on the matter, but I can’t help wondering how many potential Leave voters were cowed into voting Remain because of the forecasts.

    As for the current performance of the economy, we should remind ourselves that one of the objectives of recent Governments has been to ‘rebalance the economy’. It is generally accepted such a rebalancing would entail some cost in terms of economic growth. Since the Referendum we have seen a degree of rebalancing accompanied by some moderation of growth. That moderation of growth palls in comparison to the ‘dishonest’ predictions of the Remain side.

  3. Given the gross discrepancy between the actual GDP figures shown in the graph and the Treasury forecasts for the same period, I have to ask myself what other statistics I now believe. Economists have told us that the recent acceleration in immigration has had little detrimental effect, if any, on salaries or housing costs. This view was so widely reported that I believed it, despite the fact that it defies commonsense and the law of supply and demand.

    In reality, we have experienced a period of economic disruption and austerity, so it is difficult to measure ancillary effects. It is now my judgement that the working class population have suffered significantly in terms of earnings and housing costs from accelerated immigration and that the contrary view is based upon a biased analysis supported by elitist politicians and economists to further their own agenda.

    1. It's about the distributive consequences. Economists argue that the economy has been boosted by immigration. But I agree, I do not think these benefits have filtered down to native low skilled labour, and I think it has probably reduced the incentive for these people to move to more prosperous regions (increased wage competition and high costs), or for firms or governments to retrain them or to get them into secure jobs. Why - when they can get reliable labour on the cheap?

  4. Amongst all the hyperbole I admit you do have a point. Like you I see this as, at least partly, a delayed effect of the Brexit vote which always had a high probability of affecting sentiment in a negative way and causing at least a postponement of some spending. Whether it's permanent is really beside the point because I believe that we are overdue a recession in any case and of course Brexit will be blamed for this in its entirety.

    It will be made worse because the EU is also going south and this is not good news as a downturn will only exacerbate the underlying problems of the Euro. I don't say that the Euro will collapse in short order but any downturn is another nail in the dysfunctional coffin of the currency. The EU will not exist in its present form in twenty years time and this criticism of Brexit will seem very unimportant.

  5. "GDP per head, the best measure of average prosperity we have, is falling" - surely the graph actually says that GDP per head is rising? The current value of 0.5% is above zero so while small, it's still going up.

    1. It fell compared to the previous quarter. The graph looks at the change compared to the previous year.

  6. We could send you a very funny woman from the US who would tell your Chancellor what a tosser he is, but we're keeping her here to annoy our POTUS and our media.
    Mickie Morganfield, USA

  7. Simon - what do you make of this pro-Brexit economic message from the left - lot's of data from MMT guys.

    1. Not much. It is poor economic analysis motivated by ideology. Much like right wing arguments for Brexit.

  8. I've always thought that the massive downwards trend in honesty in politics started with Blair's dodgy dossier on Iraq. It was obvious that the majority of the country was unconvinced, but it didn't stop him taking that disastrous decision... And he wasn't held account for his failures.

    I think that paved the way for Cameron and Osborne's lying about the need for austerity when they came to power, and their continued ramping up of those lies with the strong economy narrative.

    By the time that Brexit came along, it was openly acknowledged by both sides of the debate that a large percentage of the tripe coming out of the campaigns was misleading, if not outright lies (although it is clear that the scale and prevalence of lying about Brexit was significantly worse on the Leave side).

  9. GDP per head has been almost flat since the crash with only working age population increase causing the anaemic GDP growth were experiencing. The increase in population has mostly come via people come to work in this country from outside as our birth rate is almost the same as death rate.

  10. "‘When the news is good, the BBC view is “get the Government out of the picture quickly, don’t allow them to say anything about it”. When the news is bad, [it’s] “let’s all dump on the Government”,’ he went on.

    He also claimed the BBC ‘sought every little bit of bad news’ on jobs, adding: ‘Last month, there was a marginal rise in youth unemployment so they centred on that.

    ‘This time it came down so they cast doubt on the figures. [Flanders] said it could be industry is so bad they have to take on two people where one person could do the job.

    ‘She was peeing all over British industry and the private sector. It was terrible. Our private industry is unbelievably robust compared to much of Europe.

    ‘We were all told, “It’s no good, you can’t lay off these public sector workers, they’ll never find jobs, the private sector will never expand.”

    ‘When we got elected the public sector was squeezing the hell out of the private sector. Now it has created nearly one million new jobs.’ Mr Duncan Smith has made a formal complaint to BBC head of news Helen Boaden about its coverage of the Government’s crackdown on the workshy and benefits scroungers."

    (Simon Walters, Mail on Sunday Political Editor, 18 August 2012).

  11. Menzie Chinn wrote an Econobrowser blog post on this as well:

  12. "Dishonesty" takes the moral angle. Looking with both eyes, one always has another view. We can consider the (de)merits of a "catch me if you can" strategy for several contingencies in a way Machiavelli did it: Does it work well?
    Some questions are worth more alive then killed by the answer. (Test-questions never were.)


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