Monday, March 12, 2012

How Long Does It Take British Conservatives to Admit They Have the Wrong Economic Policy?

No One Knows, Because Despite Overwhelming Evidence Against Them They Never Have

This Forum has frequently contrasted the economic policy in Britain with the economic policy in the U.S. with respect to confronting the recession.  In the U.S. the Obama administration attacked the recession with a Stimulus program.  Although the program had a terrible composition, and was insufficient it was a stimulus program, and results are that in the U. S. the economy is continuing to improve.  The job creation activity in the U. S. in February was again relatively strong.

In Britain the Conservative government has said that deficit reduction is the key goal, and they have pursued policies to achieve that goal by raising taxes and massive cuts in spending and government emplyment.  Basic economics, the type that is independent of blind ideology says that will only make things worse.  Those who favor emotional irrationality say no.  Irrationality rarely works, so it is no surprise to the rational set that British policy is failing

Hopes that the U.K. economy will avoid falling into recession at the start of 2012 were dented Friday after official data showed industrial production fell at the fastest rate in more than two years.

Meanwhile, construction output plunged and higher oil prices piled more financial pressure on manufacturers.

"The prospect of a technical recession looked pretty distant until today. Not anymore," Royal Bank of Scotland economists Richard Barwell and Gareth Anderson said in a note following the release of the figures.

The Office for National Statistics said industrial production—which includes manufacturing, mining and quarrying, electricity, gas and water supply—fell 0.4% in January compared with December and dropped 3.8% on an annual basis, the fastest decline since November 2009.

The person most responsible for British economic policy is Chancellor of the Exchequer (a fancy name for Secretary of the Treasury) George Osborne, a wealthy Brit whose willingness to inflict pain on others is heightened by the fact that the pain will not fall on him.  He is due to present economic policy in several weeks.

The weaker than expected data come less than two weeks before Chancellor of the Exchequer George Osborne presents his March 21 budget and increases the pressure on him to instigate measures to stimulate economic growth.

The slump in industrial production is a particular blow for Osborne, who has vowed to rebalance the economy towards manufacturing and industrial production in order to reduce its over-reliance on the financial services sector.

Every time there is bad economic news Mr. Osborne says his policies are working and he will not change.  Wonder what he says this time?


  1. Dear DPE,

    I suppose this is the "give it time" argument which can be applied to any failed policy. The reason for the failure given is always that the policy wasn't applied with the correct amount of vigor or given enough time to succeed.

    Given present indications the economy in the UK shall turn around in one Friedman unit.

    Yrs, Elsie

  2. Elsie is right on. The Friedman unit, which is a rolling 6 month period (always six months from now) is about right.

    One is reminded of the story when the Maine farmer was asked if it would ever stop raining. "Well, it always has" was the response.