The press have reacted angrily, accusing the chancellor of getting his sums wrong. To the most part this appears to represent anger about how little they can really attack Labour for its macro-management of the economy.
Looking back over the last 25 years the most easily defendable claim about the UK economy is that our relative performance compared with other western economies has improved. This is why Gordon Brown can get away with all his comments about how much better off we are than other economies -- this is how you rate the UK economy these days. And certainly he is correct that -- in large part thanks to his economic policy -- we have weathered the global downturn better than most of our trading partners.
Brown has made two good decisions, one deliberately and the other luckily. By design was Brown's decision in 1997 to give the Bank of England independence. As Brown noted, the previous Lamont framework delivered low inflation but not low inflation expecations. Today inflation expectations for the UK are lower than the US or Europe, a remarkable achievement for the inflation prone UK economy, and much to Brown's credit -- no Conservative prime minister ever dared.
More lucky has been his fiscal Keynesianism stepping in to provide growth when the private sector has run out of steam. . It is remarkable how many commentators believe fiscal activism is the correct policy for America, but not for the UK, and believe Brown should cut spending at this difficult time. Has nothing been learnt from the last century? It's not as if Britain has a debt problem (well at least a public sector debt proble), despite the furore over his rising borrowing forecasts. Even if they prove too optimistic it is testament to Labour's restraint between 1997 and 2001 that the outlook for the UK public finances is so secure. A return to the banana-republic deficits of the Major years seem unlikely.
Indeed what is remarkable about the past 25 years of British economy policy was how bad macro-policy was for much of that time. If you were to rate the Conservatives' economic policy you would give a B- to their micro-policy (good, but poor education & skills achievement and probably too dependent on foreign investment), but a D or worse to their macro-policy. From monetary targeting, to exchange rate targeting, it was all over the place and failed either to tame inflation or unemployment. By the time Thatcher left office inflation was almost 11%, by the time Major left office unemployment was still way over 2m. Brown has managed to achieve both low unemployment and low inflation.
Where Brown does deserve criticism is his micro-management of the economy. Here every budget seems to bring new credits, taxes, vouchers etc, without any tangible benefit. UK productivity growth remains lower than most of its economic partners. Of course much of that is the flip-side of high employment growth, and its arguable that a high employment, low productivity economy is preferable to the reverse (ie France). However given the time and effort Brown has invested in increasing productivity for such little result clearly a rethink is in order.
posted by Matthew @ 4/11/2003 12:31:00 PM
Comments: 0
