The Corner

Blighty, Blighted (2)

With the British economy in poor shape—and extremely uncomfortable focus—you can expect to hear it being cited with ever greater frequency here in the US as an example of the failures of austerity.

Over at his blog, veteran the Conservative MP John Redwood, a Thatcherite if ever there was one, offers some helpful context:

Since April 2008 there has been a surge in public spending and borrowing. In 2009-10 the state borrowed 11.1% of our National Income, in 2010-11 another 9.9% and in 2011-12 another 7.9%. Before my critics point out that borrowing was bound to be higher owing to the poor state of output, let me also give the cyclically adjusted figures which allow for this. On that basis the state borrowed 8.9%, 7.4% and 5.3% of National Income adjusted for the extra borrowing needed for the weak output levels.

This level of extra spending and borrowing is far higher than previous recessions. In the early 80s recession the cyclically adjusted borrowing was 4% of National Income. In the early 90s European Exchange Rate Mechanism induced recession it peaked at 5.5%.

Current public spending has been rising in cash and real terms. Public sector growth has added to the output of the total economy. So no-one can say that the public sector “cuts” account for the disappointing levels of output. The disappointing levels of output are despite the increased size of the state sector.

In Redwood’s view there are two main reasons “why growth has been elusive”. He blames a continuing credit crunch, but I’m not so convinced of that. I have seen at least some credible evidence of a reluctance to borrow as well as a reluctance to lend, but he’s on surer ground here:

The second is the high tax rates and the big prices rises put through in the public sector have squeezed people’s incomes, cutting confidence and demand. High rail fares, high energy costs, higher VAT, National Insurance, and Income Tax for those pushed into the upper bands have all conspired to cut demand. Inflation has been a big problem, producing a large fall in real incomes for many.


But we cannot avoid the fact (and I doubt that the splendidly euroskeptic Mr. Redwood would wish to) that the woes of the euro zone, a major source of business for Britain’s exporters, are also likely to have been a major drag on the UK economy.

But none of this should be allowed to conceal the most uncomfortable reality of all. The prosperity of the Blair-Brown years, built on a reckless government spending binge and a dramatic expansion in the financial sector that was itself built on, well, what exactly, was an illusion.

There were signs of trouble even back at the height of that era fool’s gold prosperity, most notably in the problem of persistent (if often concealed) unemployment, but now the truth cannot be avoided. Repairing a house built on sand will involve lengthy remodeling of its foundations, and that will take time.

Trudge, trudge, trudge. 

Most Popular


My American Dream

This morning, at 8 a.m., I did something I’ve wanted to do for as long as I can remember: I became an American. I first applied for a visa in early 2011, and since then I have slowly worked my way through the system — first as a visa-holder, then as a permanent resident (green card), and, finally, as a ... Read More

The Gun-Control Debate Could Break America

Last night, the nation witnessed what looked a lot like an extended version of the famous “two minutes hate” from George Orwell’s novel 1984. During a CNN town hall on gun control, a furious crowd of Americans jeered at two conservatives, Marco Rubio and Dana Loesch, who stood in defense of the Second ... Read More

Billy Graham: Neither Prophet nor Theologian

Asked in 1972 if he believed in miracles, Billy Graham answered: Yes, Jesus performed some and there are many "miracles around us today, including television and airplanes." Graham was no theologian. Neither was he a prophet. Jesus said "a prophet hath no honor in his own country." Prophets take adversarial ... Read More