Governments of fools?

Dominic Raab was widely mocked for his remarks about only recently understanding the importance of the Dover-Calais crossing (I defy anyone not to laugh at this from Artist Taxi Driver). The derision may be a little over the top, as it was when Gove was misquoted as having had enough of experts, but they and more serious admissions of ignorance are ridiculed because they reveal a deeper truth. As in the US, those ruling us in the UK do not really know what they are doing to a much greater extent than in previous years (see George Eaton here).

That last sentence perhaps requires clarification. They are not fools without any purpose. Brexit is a triumph of the heart over the head. They know what they want, and just do not care too much about the damage it will do. But the ‘misunderstanding’ by Brexiters over what they signed up to in December 2017 that persisted for weeks shows how dangerous not paying much attention to facts (in this case the words of an agreement) can be. Theresa May wasted at least a year completely misunderstanding the EU, and firing those in government that did. Perhaps her biggest act of ignoring the obvious was embarking on the Article 50 process without any prior discussion of what was possible and what was not, which as many people noted at the time was a sure way of ensuring the EU got pretty well what it wanted. If you do not believe all this, read Chris Grey here.

If you are tempted to put this all down to the unique stupidity of Brexit, or the uniqueness of Donald Trump, you really need to read my new book (short summary here). These traits were there with austerity, or the ‘hostile environment’, if you did the research. Economic historians of the future will discuss at length which did more needless economic harm to the UK economy, austerity or Brexit (assuming Brexit goes ahead). The only real debate about George Osborne, who committed the UK to pro-cyclical fiscal policy in the middle of the Global Financial Crisis, was whether this reflected deliberate deception or unforgivable economic ignorance (chapter 1.13 of my book), and if the former whether it was all about shrinking the state or a more superficial search for political advantage. In later years it became simple deficit deceit for neoliberal ends. In the US the priority of the Republican party for years has been tax cuts for the rich paid for by reducing state services for the poor, and a selective concern for the deficit combined with imagining tax cuts pay for themselves have been useful devices (lies) to achieve that. .

If politicians on the right display wilful ignorance to achieve their goals, they have knowledge of a kind that exceeds their opponents on the left by miles. They are extremely well versed in the arts of political spin, or more generally of getting votes by disguising the true objectives of their policies. Part of this works through think tanks, and part through the right wing press. In turn both these groups, plus politicians themselves, put huge pressure on the media (in the UK the BBC in particular), and that pressure works. The table below comes from this study and shows how often the BBC used political sources in 2007 and 2012:

Whereas the bias towards Labour was small in 2007, and was perhaps expected as they were also the government, by 2012 Conservative sources were almost double Labour sources. (Ironically LibDem sources declined in 2012, despite being in government.) Something similar happened to think tanks, according to this study comparing 2009 and 2015. For example in 2015 the IEA was referenced about 3 times more often than the IPPR. The detail in the paper of where the right wing bias was most prevalent is noteworthy although not that surprising.

Even when the BBC does manage to maintain balance, as it did in the 2016 referendum, this is often at the expense of facts and expertise. (Much the same occurred in the US before Trump was elected, as I recount in Chapter 7.8 of my book.) This leads to an obvious danger which we can see the political right exploiting more and more in both the US and UK. Whereas spin used to involve distorting the truth by selective use of facts or inventing clever but misleading slogans, it can now involve simple lying, as I experienced with my own work recently. Has this really got worse over time? I cannot cite any hard evidence for the UK, but there does seem to be that impression (see the first few tweets of this thread and this article by Stephen Bush). In the US there can be no doubt things have changed: not just Trump but with much of the Republican party over issues like health care or climate change.

This emphasis on the right of getting people to vote for you at the expense of examining the impact of your policies is reflected in the careers of many of the Brexiters, as William Davies points out. Trump was a TV star before he became President. Reagan was a movie star, although he at least was a Governor before becoming President. It is hard not to see these trends in right wing politics as starting with Reagan and Thatcher, and that much abused term neoliberalism. It was Thatcher that really began the politicisation of and disdain of the civil service, when being ‘one of us’ was valued over expertise.

You do not need experts, or you are only interested in experts who are one of us, because you have an ideology to guide you to the truth, or you are suspicious of any expertise that does not share your ideology. One of us is one who shares an ideology, in this case the ideology of neoliberalism. Neoliberalism wants as much as possible to be organised as a market. If that includes democracy itself (democracy is just a market for votes) then there is nothing preventing you employing all the tricks of advertising, preferably not encumbered by any regulators. Politics becomes the art of selling, rather than the assessment of policy. [1]

Why do I call the period after 2010 in the US and UK neoliberal overreach, as opposed to straight neoliberalism in the 1980s? After all there are some similarities in the UK between the two periods. Both Osborne and Thatcher started their terms in government with economic experiments that went against received economic wisdom. Both tried austerity (a fiscal contraction in a recession). I don’t want to minimise the harm Thatcher did to parts of the country, but her austerity was temporary [2] and the monetarist experiment was quickly abandoned, with the result that the recovery was only delayed by a year or two and the economy in aggregate eventually recovered in the true sense of the term. In contrast the slow recovery in the UK, US and Europe since 2010 seems to have had permanent and large negative effects. An interesting question is how much this difference between the two periods in the UK reflects different degrees of control over the media.

But the main reason I call what happened after 2010 overreach is that the neoliberalism of both Reagan and Thatcher was in many ways popular, and so there was less need to dress policies up as something they were not. In 2010 there was no popular demand for a reduction in the size of the state, so it required a form of subterfuge: what I call deficit deceit. Tight targets for immigration made no sense for neoliberals who wanted to reduce red tape for firms, but it was useful as a way to deflect anger over austerity and win votes.

A better way to describe Brexit than heart over head is the triumph of ideology over knowledge. Neoliberalism isn’t the only ideology behind Brexit. There are elements of English nationalism that William Davies discusses in his piece noted above and Anthony Barnett discusses so well in the Lure of Greatness. But the disinterest in facts or experts  and the absence of shame in telling whatever lie is required to get what they want is very much part of what I call neoliberal overreach. To those to whom evidence based policy is natural they appear fools, but they know exactly what they are doing and in terms of deception they are rather good at it.

[1] In this particular sense Labour from the 1990s to 2015 were not at all neoliberal. For example contrast Labour's 2003 Five Test analysis with the current government's lack of interest in the analysis of different types of Brexit. The glaring exception was Iraq, and that reflects what happens when you erroneously believe the national interest is to follow neoliberals in the US.

[2] Fiscal policy was tightened from 1980 to 1982, but this was almost completely reversed by 1984. In contrast fiscal policy was tightened in 2010 and it continued to be tightened until the present day.

Delegation as a reaction to the politicisation of advice

In my last post I used the example of Brexit to show that politicians, even when their ideas are seen as seriously harmful by most experts, will still find policy entrepreneurs to give them enough information to sound knowledgeable when they appear on the media. But this may be an extreme example of a more general phenomenon, which I would describe as the breakdown of the way expertise is utilised by government: a breakdown of what I call the Knowledge Transmission Mechanism.

It is nothing new, of course. The first example I ever had experience of was as an economist at the Treasury when Mrs. Thatcher became Prime Minister. As far as her new Treasury team were concerned, most Treasury civil servants were not ‘one of us’, and they had little time for their advice. When Treasury economists predicted a recession in 1980, they were ignored. (There was a recession.) As the young Treasury economist I was then, the contrast with the ever curious Denis Healey was quite shocking.

Even back then, Conservative ministers tended to seek advice from City economists rather than academic economists, which may be one reason why the record of Conservative Chancellors in running the economy from Thatcher onward is so much worse than the 13 years of Labour government. Part of the role of right wing think tanks is to hide that fact, which they do very successfully. It is why the 364 academic economists in 1981 who attacked Conservative macro policy are generally thought to have been wrong, when in reality they were broadly right. This was perhaps the beginning of the Conservative party’s disdain of experts who interfered with their ideological projects.

The use of partisan think tanks and experts by the political right is now well established in both the US and UK. In contrast the last Labour government was much more open in its use of at least economic advice, but its biggest mistake was in ignoring expert advice on Iraq. There may be some on the left that would like to replicate the way the political right works for Labour under its new leadership, by suggesting for example that conventional economists are inherently hostile to its policies.

But this is not how the Knowledge Transmission Mechanism (KTM) is supposed to work. Good ideas and good evidence do not have to come with a left, right or centre political label attached. When I have advised political parties or governments or economic institutions I have not given them advice which is only appropriate if the recipient wears a particular political colour. A good understanding of how the economy works does not require a particular political allegiance.

I wonder how much the trend towards the delegation of decisions to independent bodies, and suggestions to do more of that, is a reaction to this growing politicisation of expert advice. I was listening to an interesting Resolution Foundation podcast based on a new book from Paul Tucker, which was all about the conditions for successful delegation. One of the participants, Kate Barker, gave an example where she thought proposals for delegation went too far: the LSE’s Growth Commission.

I turned quickly to the Growth Commission’s 2017 report to see what Kate had in mind. I suspect it could be this.

“The ultimate objective is a long term industrial strategy that is isolated from political cycles. An independent body should strive to overcome fragmentation across different levels of government.”

Now there may be a case for delegating the implementation of an industrial body to an independent body, just as the implementation of monetary policy is delegated to the Bank in the UK. Just as Chancellors may alter the timing of interest rate changes for political ends, ministers may also skew the distribution of industrial policy to favour some constituencies over others. To a considerable extent this is what the Growth Commission proposes. But I suspect saying that you want industrial policy “isolated from political cycles” portrays an underlying deep discontent with how the Knowledge Transmission Mechanism has broken down.

This is not a post about the merits or otherwise of delegation (on which Paul Tucker has sensible things to say), but an attempt to describe one reason why experts or civil servants may be increasingly inclined to suggest delegation. Put simply, if politicians base policy on an ideology that requires shutting expertise out, independent bodies that let expertise back in become increasingly attractive.

Academic knowledge about economic policy is not just another opinion

Does the financial crisis reveal that economists are at the leeches and mercury stage of their subject, and as a result policy makers and the public have every right to ignore what they say? Does the fact that economists working in finance failed to recognise the prospect of a systemic crisis, and that macroeconomists both took finance for granted and as a result failed to investigate financial-real links, mean that we should ignore what economists say when it comes to Brexit?

Speaking for my own subject, I think the financial crisis does raise serious questions about the methodology macroeconomists rely on, as I have explained at length elsewhere. But does it mean that everything macroeconomists have learnt in the last 80 years is virtually worthless, or at least no better than the opinion of the average politician? Why don’t we look at what has happened since the financial crisis.

Macroeconomists, having learnt the lessons of the 1930s, immediately recommended that policy makers do three things after the crisis: cut interest rates sharply, embark on fiscal stimulus and bailout banks. Policy makers took that advice in 2009, and as a result we avoided another Great Depression. Many said that rising government debt was sure to send interest rates on that debt rising: academic economists using basic ideas from Keynes said they would not and they were proved right. Many others said that Quantitative Easing (central banks creating money to buy government debt) would cause hyperinflation, but again academic economists looking at more modern New Keynesian models said that was nonsense and again they were right.

You might claim that in all this economists were just advocating what was obvious. The acid test came in and after 2010, when fiscal stimulus turned to austerity. What evidence we have suggests this move was opposed by a majority of academic economists, a majority that grew over time. There was a minority that supported austerity, at least for a time, and they gained a lot of publicity because politicians latched on to what they had to say. But the majority followed both textbook and state of art economics, and this majority was right. The recovery would have been stronger and faster if politicians had gone with this majority.

If we look back before the financial crisis at UK macro policy, we can again look at the record of economics compared to politicians. The obvious place to start is with the 364 economists, who despite all attempts by politicians and think tanks to suggest otherwise were right: tight fiscal policy in the 1981 budget delayed a proper recovery by over a year. We can look at the following recession in the early 1990s. A key driver behind that was the UK joining the ERM at far too strong an exchange rate. Here it gets personal. With colleagues at the National Institute I undertook what was acknowledged at the time to be the most comprehensive analysis of the appropriate entry exchange rate, and we argued that our entering at the then current rate was folly. We were ignored, and as a result the UK was the first to be kicked out of the ERM in 1992.

The next time the UK had to decide to join in this case the ultimate fixed exchange rate regime, the Euro in 2003, it was the economics that persuaded the Labour government not to join. In this case macroeconomic analysis played a critical role in making the right decision.

All this suggests to me that macroeconomics, if we compare it with medicine, is well beyond the bloodletting stage. It would be very surprising if we were not, given 80+ years of study and the huge amounts of data now available. Of course that does not mean academic macroeconomics will not make mistakes, and of course unconditional forecasters of the kind you read about endlessly in the papers will always get things wrong: our own models tell us they will. But when it comes to macroeconomic policy, experience suggests you are much more likely to get economic policy right if you ask an academic macroeconomist than if you ask anybody else. [1]

The other key thing to say is that the discussion above has virtually nothing to do with the long term impact of Brexit, which depends on international trade. The key bit of analysis that means trade with the EU cannot be simply replaced with trade elsewhere are gravity equations. Gravity equations do not come from theory but from the data: countries are much more likely, even today, to trade with near neighbours than far away countries after allowing for other factors. So when Rees-Mogg suggests that the Treasury must have fiddled the numbers, when the government’s analysis confirms those of other studies that Brexit will be costly for all of us, we know he is slandering civil servants for his own political gain. That he is also the favorite to replace May as leader of the Conservative party tells you all you need to know about the current mess the UK is in and why it is in this mess.

Of course we do not condemn engineering science when a new bridge wobbles or an oil rig fails, and we do not say that all medical science is nonsense when medics get things wrong, as they frequently do. But with economics, there are too many people who either want to replace the mainstream with their own school, or who like Rees-Mogg want to discredit economics because they suggest his preferred policy is harmful. As a result, whenever economics does make mistakes, as it will, there will be plenty of people around who want to bury the whole discipline. But when you look at all the evidence and not just one observation, as economists are trained to do, you find that you are better off following the advice of academic economists when it comes to economic policy than anyone else.

[1] The argument that academic economists should be modest or humble when giving their views should be seen in this light. They should certainly be honest about their own views compared to their colleagues, and they should also if they are given the opportunity express the uncertainties. But being modest and humble should never mean leaving politicians unchallenged when they proclaim economic nonsense. 

The politics of ignoring knowledge

Simon Tilford has a post where he explores the roots of Brexit in a kind of UK exceptionalism. He argues that “the underlying reason [for the Brexit vote] is the hubris and ignorance of much of the British elite, not just the eurosceptics among it”. I want to expand on that. I do not think this ignorance and hubris is confined to the UK’s role in the world. It also extends to an attitude to knowledge of all kinds, and I suspect it is possible to date when this began to the revolutionary zeal of the right under Thatcher.

The Thatcher government that gained power in 1979 were going to do away with what they saw as Keynesian nonsense, and run the economy using money supply targets. Treasury civil servants produced a forecast that said their policy would lead to a recession, and this turned out to be what happened. The forecast when it was made was dismissed by the politicians in government as the product of outdated civil service advice reflecting a failed consensus.**

It is of course the prerogative of politicians to reject a consensus, particularly if there is a reasonable minority of experts who think the consensus is wrong. It is what happened next that was the problem. Monetarism was a monumental and predictable failure, but Conservative politicians and their supporters spent considerable effort and resources turning this failure into a triumph of Thatcher over an establishment civil service and academic economists. One example is the letter from 364 economists objecting to a deflationary fiscal policy in the 1981 budget. The right, and in particular the IEA, have successfully cultivated a belief that this letter was wrong when in fact it was right. The recovery (using the term as it should be used) was delayed by over a year by the 1981 budget. More generally the view was that social scientists or civil servants were probably antagonistic to the neoliberal project and could safely be ignored. They were, in Thatcher’s words, not one of us. [1]

The reality was that the Thatcher and later Major governments did subsequently often take note of what experts were saying, but the myth on the right prevailed. Before the Conservatives regained power in 2010, they thought very little of going against the advice of the majority of economists over austerity, although to be fair they were later supported in this by senior civil servants and the governor of the Bank of England. Policy based evidence replaced evidenced based policy. But this was the relatively sane wing of the party, as we discovered during the referendum campaign.

We know the EU referendum campaign largely ignored experts, whether they were economists, lawyers or experts in international relations. What I think surprised many is that the Leavers fantasy was not just a device to obtain votes, but actually reflected what the Brexiteers believed. Since the referendum the government has clung to the fantasy, and ignored or dismissed all the advice it was getting from its civil servants. (In two cases dismissed meant sacking or resignation.) As Steven Bullock says, the EU side are in despair that the UK has yet to work out a realistic position on many issues. Because large parts of the UK public, relying on the right wing press for their news, still believe in the fantasy, some in the main opposition party think their best strategy is to ape their opponents.

As a result, we are in a strange bifurcated world. One part consists of pretty well anyone who knows anything about the economics, politics or legal aspects of Brexit. They realise how hard Brexit will be, know how much damage it could do, and by and large think it will be disastrous for the UK. (Experts tend to recognise and respect knowledge in other areas.) The other part lives in a different world, the world of the media and politicians, where everyone still lives the fantasy.

In this respect, we are no different from what is happening across the Atlantic. Angus Deaton notes the tragic irony that in the year the great nobel prize winning US economist Ken Arrow dies, the Republican administration is ignoring one of his great achievements, which was to show why a simple market in healthcare will not work. The only ‘expert’ this Republican administration seems to recognise is Ayn Rand. If it is successful in replacing or sabotaging Obamacare, millions will lose coverage and thousands will die as a result. The experts (such as the CBO) who predict this are accused of inaccuracy by a White House that cannot even be bothered to check its spelling of 'inaccurately'.

May holding Trump's hand shortly after he became president was indeed symbolic. Those who justify ignoring experts often talk about them as ‘unaccountable elites’ who have ulterior motives in giving the advice they do. In reality ignoring expertise means dismissing evidence, ignoring history and experience, and eventually denying straightforward facts. It leads to the politics of barefaced lying, such as asserting that a new trade agreement can be negotiated in little over a year. [2] This disdain for knowledge is not a prerogative of the right: you can find it on the left among those who say, for example, that all social science is inherently value laden and therefore political. (Ironically often dismissing mainstream economics as a buttress of neoliberalism, the same economics that the right are so keen to discredit.) The difference is that that the knowledge dismissing right have power in the UK and US, and so we are suffering the consequences of their evidence-free politics.

[1] Sir Keith Joseph tried to abolish the Social Science Research Council.

[2] It seems finally that the government has accepted a reality that was obvious months ago to those who listened to experts. 

**Postscript 21/07/17 As Sasha Clarkson reminds me, one of that group now spends his time denying climate change.

Economic Competence Revisited

My last post was designed to show clearly that the UK has not been a strong economy since the Conservatives started running it. Now I would be the first to say that this proves nothing about how competent the Conservatives are. It may be just bad luck. My point was about the media debate. This should be about whether it is the government’s fault that we have a weak economy, or alternatively whether they have done the best they could in the circumstances. Instead of that discussion, we have mediamacro’s presumption that we have a strong economy when clearly we do not.

The political debate should really be about economic competence. Mediamacro assumes that the Conservatives are more competent at running the economy because that is what the polls say, and the polls say that in part because mediamacro assumes it. It is a self-reinforcing loop, where the last thing the media thinks of doing is asking academic economists. How would I, as an academic macroeconomist, assess competence when it comes to running the macroeconomy?

The obvious thing to do is to look at key macroeconomic decisions made by governments, and how they turned out. I would be particularly hard on governments when they chose to go against the prevailing academic consensus, and this choice did not turn out well. I have written about this before on a few occasions: see here and here for example. Let me summarise why I think, once again, it is the Conservatives rather than Labour who have a lot of explaining to do.

We can start with monetarism, which in its most basic form is setting policy according to movements in monetary aggregates (the ‘money supply’). It was a short lived failure. A particular failure was the 1981 budget, raising taxes in the middle of a recession, which was famously opposed by 364 economists. The economists were right: the recovery (properly defined) was delayed by 18 months. This is not the story told by mediamacro, but it is an account that fits the facts.

The next economic disaster was the Lawson boom of the late 1980s, which combined a monetary and fiscal stimulus that increased inflation. I was once told by someone close to decisions at the time that Lawson wanted to reduce the top tax rate to 40% in 1988, and it was thought to be politically expedient to combine this was a standard rate cut even though we were in the middle of a boom. Monetary policy involved shadowing the DM, so could not counteract the fiscal stimulus and other inflationary pressures.

By 1990, the Lawson boom was becoming a recession, and the Conservative government decided to formally fix the exchange rate. Their chosen rate was much too high, as the work I carried out with colleagues at NIESR clearly showed. Black Wednesday, when the UK was forced to abandon the fixed exchange rate regime, rightly lost the Conservatives their reputation for economic competence for some time to come.

Between 1992 and 1997 the management of the economy was better, but without any major decisions or events. Widening the definition of policy you can justifiably credit Thatcher with weakening trade union power, but her failure to emulate Norway and establish a sovereign wealth fund from North Sea Oil revenues was a clear mistake.

Under Labour there were three major macroeconomic decisions, and all three were successes. First most academics agree with central bank independence, and I think most would agree that the design of the Monetary Policy Committee in 1997 was particularly good. Second, the decision not to join the Euro in 2003 was clearly correct, which was taken after extensive economic analysis. Third, the decision to embark on fiscal stimulus after the Great Recession was correct, in much the same way as Obama’s slightly later stimulus was correct.

Should we count the financial crisis, and the failure to prevent it happening, as a clear negative against economic competence? I would argue not, as (a) the opposition argued for less financial regulation, and (b) the government did follow the consensus view at the time. If any institution is to blame, it is the Bank of England for ignoring the rise in bank leverage. As to a profligate fiscal policy, this is simply a myth.

The incoming coalition government set up the OBR, which deserves credit just as setting up the MPC under Labour does. However their decision to embark on austerity in 2010 was a huge mistake, which once again probably went against majority academic opinion, particularly as it involved cutting public investment sharply. And then we have Brexit. Although arguably mandated by a referendum, the decision to leave the Single Market and customs union are down to the Conservative government alone.

We will be able to compare the economic policies of the two parties this time when they publish their manifestos. This post is about track records. It shows clearly that Labour tend to get things right, while the Conservatives have created a number of major policy-induced disasters. As with the ‘strong economy’, mediamacro have got it completely wrong about macroeconomic competence. But I’m afraid, as was the case in 2015 and 2016, it will be mediamacro rather than reality that carries the day. That, alas, is how democracy currently works in the UK.  

When is an economic recovery not a recovery?

This post may seem to be unusually pedantic, but please be patient

What do we mean when we say the economy is recovering from a recession? Do we mean it has started growing again, or do we mean it is returning to its pre-recession trend? Brief research suggests there is no standard definition, but Wikipedia is clear it is the latter:

“An economic recovery is the phase of the business cycle following a recession, during which an economy regains and exceeds peak employment and output levels achieved prior to downturn. A recovery period is typically characterized by abnormally high levels of growth in real gross domestic product, employment, corporate profits, and other indicators.”

The second sentence is crucial here. All economies grow on average: they have a positive trend growth rate. An economic downturn (or worse still a recession) involves the economy dipping below trend (or in a recession not growing at all). Typically whenever that has happened in the past, most economies make up for the growth they lost in the downturn, by growing more rapidly than trend once the downturn is over. This had certainly been true for the UK. We expect economies to grow over time because of technical progress, so it seems almost obvious that a recovery must involve above average growth until we return to something like an underlying trend.

Imagine a 5,000 metres race. Suppose an athlete trips and stumbles, leaving the main pack behind. If 5 minutes later I said the athlete was recovering, would you think this meant that they were getting back to their previous pace but still well behind the main group, or that they were getting back in touch with the main pack? I suspect you would think it meant the latter, and you would call a complete recovery when they were back within the main group. If you think about the main group as the underlying trend path of the economy, then a recovery in growth means getting back towards this trend path.

For this reason I would define a recovery from recession as above trend growth, and I think most macroeconomists would do the same. Here is recent quarterly growth in UK GDP per head.

The red line is the pre-crisis trend growth rate. You can see from this that only 2014 could possibly be called a recovery, and even that is a bit of a stretch. The UK is far from unique in this respect, but unlike other countries the UK economy has a pretty clear and unchanged trend growth rate since the 1950s. Until now that is. This global lack of recovery begs many important questions, which those who read economics blogs will be very familiar with: has the financial crisis had a permanent negative effect on productive potential, was the pre-crisis period really a disguised boom, are we suffering from secular stagnation, what role did austerity play?

Yet all of these important issues are sidelined in popular discussion if we misuse the term recovery, and instead describe any positive growth after a recession as a recovery. This is not a problem for economists, who tend to talk numbers, but it does matter for the public debate. I cannot help feeling that calling any positive growth after a recession a recovery also adds to a sense of disconnect people have, particularly when (as in the UK) there has really been a recovery in employment, such that productivity has been virtually flat. People ask how come there has been a recovery and yet my wages are still so much lower in real terms than they used to be?.

When the underlying trend may have slowed or shifted, then it becomes difficult to know what is or is not a recovery, but that is no reason to misuse the term. When we are talking about the past, then things should be clear. Here is the same data for 1981.

It is obvious from this data that the recovery from the 1980 recession only really began in 1983. The two previous years saw as many periods of below trend growth as above trend growth: given normal growth, the economy was effectively standing still. Unless, of course, you have a political point to prove. In 1981 the Conservative government of Margaret Thatcher raised taxes substantially in the Spring Budget, despite just seeing 5 quarters of falling output per head. They increased taxes after falling output because they wanted to reduce the budget deficit. 364 academic economists quickly wrote a letter denouncing the policy - a Brexit like majority at the time.

In 2006 Philip Booth of the Institute of Economic Affairs wrote this:

“The economic recovery that the 364 said would not happen began more or less as soon as the letter appeared.”

This sentence has been repeated time after time by right wing economists and politicians: so often that it is now repeated as fact by BBC journalists. It has become what I call a politicised truth: something that is false but is perceived to be true by journalists who talk to politicians but not academics. And the statement that the recovery began as soon as the letter appeared is simply false if you use the term recovery properly: the recovery began a year and a half later. Had fiscal policy not been tightened in the 1981 budget, the recovery might have begun earlier than the end of 1982. In that sense, the economists were vindicated by subsequent events.

In 2010, George Osborne was warned by many academic economists - almost certainly a majority at the time - that embarking on austerity so soon after the recession was folly. But, just as in 1981, he wanted to reduce the deficit. It is not difficult to imagine that as he pondered these warnings from academics, he thought to himself that Margaret Thatcher got the same advice in 1981 and everything he had read said the advice was wrong because the recovery started immediately after taxes were increased. He would have been emboldened to do the same, with what we now know were disastrous consequences. Just two years later, GDP per head had lost another 3% or more relative to trend.

This is partly a story about the dangers of propaganda that you begin to believe yourself. But it is also about the potential ambiguity of one single word: recovery.