UK Fiscal Policy in International Comparison
On Monday, at the launch event for the IPPR’s collection of essays on growth, Wendy Carlin gave an excellent talk on growth, policy and rebalancing.
One graph from that talk, which I hadn’t seen before, really speaks for itself – an international comparison of fiscal stimulus/tightening in 2011.
Terrifying.
George Osborne likes to claim that international opinion is on his side. I’d love to know how he explains that chart.
Would be interested to see that eurozone chart w’out the UK, France and Germany.
I suppose his explanation would be to blame Labour. He would tell us he has been forced to clear up the mess which he inherited. Looking at all the figures (and despite the structural deficit which has been discussed in a recent blog of yours) this is sheer nonsense, but he’s been getting away with it so far.
He would probably say look what edd miliband did to his brother
I’d imagine his reposne would be three-fold:
(1) The graph shows the eurozone AND France & Germany so it’s sort of breaking first grade rules in terms of comparing like with like.
(2) The drop between 2009 & 2010 – largely a consequence of the economic decisions of the previous government – represent a comparable step change to that between 2010 and 2011, the one you’re presumably labelling as ‘terrifying’. That doesn’t absolve Osborne of the consequences of his policy choices but it does undermine any criticism levelled by the architects of the previous drop.
(3) …finally, I’ve lost count of how often – when discussing the defict or public spending levels – those of a Keynesian persuasion dismiss comparators based on ‘a % of GDP’, and usually with some justification. Not really on surely to invoke it only because it suits…
1) There’s no problem here. You can compare UK against Germany or France or an aggregate of the Eurozone. Or Germany against France or against the Eurozone. Whatever.
2) I believe the stimulus ended early in 2010. But was sufficient to boost growth through to roughly the end of the year. In May, new owners took over.
3) Duncan uses % of GDP all the time.
(1) Well yes, of course you can. And you can compare Berlin with the Eurozone or Stratchlyde with Provence or Monkton, the village where I live with Japan. What you can’t then do is draw any meaningful or robust conclusions about anything from those comparisons.
(2) I think we’re agreeing here; as you say the previous government’s fiscal plans had an impact through to year end. The paucity of that impact is clear from the graph.
(3) As do many others but it’s also criticised regularly (and I’m pretty sure Duncan has levelled such criticism too)
Liam and Will M, you’re trying to say that without France and Germany the Eurozone might look a bit like UK? Not so.
Another study Labour is not making enough of is the IMF November survey that showed UK deficit reduction is the deepest and fastest of the top 29 advanced developed economies, save for Greece. Even then it only saves a max £3 bn on debt servicing in 2015 compared with Darling’s last Budget. George Osborne: Too fast, too furious.
I’m not trying to say that at all Gerard. I’m trying to say you don’t compare datasets individually with aggregates of those same datasets. It’s been 20-odd years since I studied statistics but I’m pretty sure the whole analysis would be discarded for such a basic error.
What the datasets would actually show if compared properly is a secondary point & you make well be right on that.
Ducan,
an article on UK growth you might be interested in:
http://www.voxeu.org/index.php?q=node/6175
Very good article.
Ask Tim Geithner whether Osborne is right.
(he says that he is)
[...] Osborne seems to believe that events in Lisbon provide a rationale for his cuts package (the steepest amongst the major economies). [...]