What a great week it was last week for those who get excited about the difference between causality and correlation. The ONS reports that the UK economy grew by 0.3% in Qtr1 2013 and 0.7% in Qtr2 2013. The Chancellor sees this as a resounding endorsement of his unswerving commitment to Plan A – remember TINA. Others are somewhat less convinced that Plan A (or should that be A.1, A.2..) has been the primary cause of the better news on GDP. I haven’t been able to find out what the ONS margin for error is on the GDP statistics – the Chancellor didn’t seem to make reference to this in his recent pronouncements.
Let us also leave to one side the rising voices which argue that GDP is at best an incomplete measure of the socio-economic health of a nation. An argument which is gaining increasing traction as the ‘problem’ of the ‘too low’ unemployment figures given the low levels of GDP growth continue to occupy commentators and politicians minds. The greater issue here is probably the effect on sentiment and hence behaviour of economic agents (ie you and me) as a consequence of this latest data that there appears to be sluggish GDP growth emerging. Rightly or wrongly, GDP is upheld as the great totem or guiding star. So it may be that this latest news on GDP incentivises people to spend / invest a bit more than they would otherwise have done – which if enough people do a little more of could add up to quite a significant increase in economic activity.
Of course the Chancellor took this opportunity to, unintentionally, give further credence to the idea that the economy (as with many areas of life) is far too important to be left solely to the control of the incumbent government with his rather political and questionable claims that, amongst other things:
– the crisis that we are (just, perhaps, maybe) emerging from had its roots in unsustainable public sector spending in the years 2000 – 2008. No mention of the collapse in tax revenues causing a % increase in the deficit in 2008-09. Nor any that whilst in opposition, he pledged to stick to Labour’s spending plans. Ho hum!
– he stuck to Plan A in the face of critics. Again, not quite correct as Plan A had as a goal the elimination of the deficit within one parliamentary term. Also Plan A didn’t originally contain within it pump priming the housing market in a bid to boost consumer confidence.
– those in favour of Plan B have lost the argument. An untestable statement as we don’t know what would have happened if a more Keynesian Plan B had been adopted. Although perhaps the performance of the USA gives us a hint that such a Plan B might have been better.
So, is it good that GDP seems to be increasing – yes, I think most would agree with that. But whether the policies adopted by the Govermnet since 2010 have helped or hindered this nascent recovery is an entirely separate question – more suited to the realms of theology and political theory than anything appraoching science.
If you would like more information on this topic, please contact Stephen Gregson on 01772 821021.