Osborne's Little Swelling

                    George Osborne: "My God, they're swallowing his cack!"

George Osborne, the Chancellor of the Exchequer,  has got a swelling. It’s not very big and it’s not growing very fast. In fact it grew just 2.8% last year and it’s thought possible that it will grow another 2.3% this year. But the strange physiology of this bump is that the slower it grows, the more fatal it will be for the patient.

As you’ve no doubt guessed from my ponderous attempt at humour, I am referring to the British economic recovery. But what is wrong with growth of 2.8% I hear you ask? After all Britain is currently outpacing all its European rivals. And as regards employment Britain has not just exceeded the job creation of each of its EU peers, it has created more jobs than all of them put together. Not exactly Asian tiger pace perhaps but hardly a damp squib either. Maybe I’m just one of those sad people that can never be happy?

But comparisons with Europe are not particularly helpful. It’s a bit like comparing the vital signs of a terminal patient with those of a corpse and getting all excited because your one is still breathing. The problem with Osborne’s little swelling is not only its paltry size, but its shape and what it cost to achieve it.

Size  

With recoveries size matters. The pace of recovery from recessions is generally proportionate to the depth of the production dip. The deeper the recession the more exhilarating the recovery. The economic cycle has a lot in common with a roller coaster in this respect. Or at least that has been the experience for centuries until the coalition came to power.

This time the deepest recession since the 30s, and in fact comparable in depth to that slump, has been followed by the latest and weakest recovery in the modern era. Three years after the pit of the recession in 2012 the UK grew by just 0.7%. By way of comparison in 1934 three years after the bottom of the 30s slump the UK grew 6.8% almost ten times as fast. And while it’s true to say that the economy picked up a bit after 2012 this recovery still compares very miserably with every other in the previous century.

But that’s not the worst of it.

Shape

A few days ago they released the latest trade figures. In February alone  the former workshop of the world imported £10, 300, 000,000 more in goods than it exported. Yes, that’s right. That’s the figure for just one month. Every day the container ships arrive in our ports from Asia fully loaded and often depart completely empty. The curious thing about this mind-blowing scandal is how blasé economic commentators and pundits are about it. Some even note that this is further evidence of how well we are doing compared to the rest of Europe. Apparently our great economic success is sucking in imports from less happier lands.

That brings me to the shape of Osborne’s little swelling. In short it’s all wrong. Back in 2010 when the coalition came to power they were agreed on one thing. The years of Labour’s irresponsible debt fuelled consumption were over. In fact they argued that Britain had no choice. George Osborne even managed to put a positive gloss on things by calling for a “march of the makers”.  Britain was going to pay its way in the world again. Consumption would have to take a backseat for a while.

Now five years down the road let’s break down the components of Osborne’s economic miracle. First off if you are not working in the service sector there has been no recovery, none. Compared to 2008 levels manufacturing is still down 5%, construction is down 7% and overall production is down a massive 10%. Services are doing pretty well at about 108% of their 2008 level, but that’s it. That’s the great British recovery that the Conservatives are boasting about from every billboard. That’s why we are importing £10 billion a month more goods than we export.  Just how long do Cameron and co think we can continue with our biggest ever trade deficit? Just long enough to win the election is my guess.

But that’s not the worst of it.

Cost

Even accepting that medical intervention rarely comes cheap, the cost of Osborne’s little swelling is prohibitive.

The coalition by their own admission had only one choice back in 2010. Under the Labour government one and a half million jobs had been lost in manufacturing. To give just the most important problem the proportion manufacturing supplied to the gross domestic product was (and is) at 10% even below the world average of 12%. The productive heart of the economy on which everything ultimately depends was in a critical condition. Vast and entrenched vested interests had to be faced down. The bloated state which was crushing the life out of the productive sector had to be cut down to size, taxes reduced, regulation slashed, alternative energy subsidies scrapped entirely, and attitudes to business and profits changed. It would be tough but there was no alternative.

      

They had only one choice but they refused to take it. In short the coalition’s solution for a Britain teetering on the edge of bankruptcy in 2010 was to go on a borrowing binge of unprecedented proportions in peacetime. Never mind that Labour’s 60% increase in real spending between 1997-2010 had left huge scope for savings, government spending has actually increased throughout this government’s period in office.

In troubling times the world still trusts Britain, a country that has never defaulted on its debt, and George Osborne has exploited that trust to borrow more than half a trillion. This in addition to Labour’s attempts to solve the crisis in 2008/9 has doubled the national debt.

The sheer scale of the dissolute borrowing almost defies description. Half a trillion in debt has been handed on to the next generation to buy a pretend recovery that will last only as long as the world is willing to extend us credit. Eventually interest rates will start to rise, at first apparently manageably then suddenly ruinously. Half a trillion of debt that will blight the economic prospects of our children, just so those living high on the hog off the state can put off the evil day when they have to work for a living again.

To be fair to the coalition the one choice that had to be made was always going to be a hard sell. When even just reducing the rate of increase in spending is met by hysteria from liberal journalists, pundits and even economists it’s easy to see that real reform would be an uphill struggle of Everest dimensions.

It’s clear that few of our journalists, economists and liberal commentators have much of a clue where all the wealth comes from to fund their generosity. The basic assumption seems to be that they can stick it to those funny little people in the productive sector as much as they like and nothing very terrible will ever upset their comfortable world.

They might profit from reading a little Kipling. Here’s a verse from The Gods of the Copybook Headings from a century ago:

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

Osborne and the coalition had only one choice in 2010. But they didn’t have the courage to make it. Now Osborne’s got a little swelling that could and should have been a glorious recovery like in the 30s or the 80s.

Now there are no choices left for Britain, just two possibilities: a lingering death or a sudden death.  

Sudden death is preferable, so my advice is to vote Ukip so we get Miliband and Sturgeon. In the collapse and inevitable pain that results there will be a chance of real reform and rebirth.