The Fisk

Phil Taylor: Fisking fiction

Sunday night's Waking the Dead was a great example of the BBC view of the world, ie Tory government bad.  It featured a murder on Black Wednesday which most commentators identify as the point at which the Tories lost their reputation for economic management.  It also happens to be the foundation of the UK's relative outperformance economically speaking for the last fifteen years - an inheritance from the previous Conservative administration that Chancellor Gordon Brown has never had the good grace to acknowledge. 

 

Trevor Eve's character Peter Boyd filled his young assistant in on what Black Wednesday meant - it cost taxpayers £4 billion and there were £3 million unemployed. 

 

Let's look at this in more detail. In 1997 the Treasury totalled up the cost of Black Wednesday. This came out a £3.3 billion.

 

Sure this is a lot of cash but just about everyone in the commentariat thought that we should be in the ERM, even Gordon Brown (see what Sam Brittan has to say).  So this was a decision taken with the grain of pervading expert opinion that turned out wrong.  The current Chancellor Gordon Brown never got such a bad press for his decision to sell gold.  This was taken against the grain of expert opinion and cost £2 billion .  In terms of financial loss pretty much an equivalent cock up.  Brown got away with it. Lamont did not. 

 

As Samuel Brittan wrote in a paper for The Institute of Economic Affairs in October 2004 (Page 62):

"One favourable surprise after Black Wednesday was the speed with which an alternative policy was put together.  Nearly all of the characteristics of the present - and so far successful - stable monetary regime were announced within a few weeks of the exit from the ERM.  These included the inflation target; the Bank of England's quarterly inflation report; the formal monthly meetings, followed, when Kenneth Clarke became Chancellor in 1993, by publication of the minutes of these meetings.  These paved the way for operational independence of the Bank and the establishment of the Monetary Policy Committee.  Many of these policies were first contained in embryonic form in a letter dated 8 October 1992, from Norman Lamont to the Conservative chairman of the House of Commons Treasury Committee.  They apparently emerged from a meeting between the Prime Minister, the Chancellor and senior Treasury officials in Brighton, on the fringes of the Conservative party conference."

A quick trip to the National Statistics website reveals the numbers behind the 3 million unemployed claim.  The September 1992 figure was 2.85 million.  So rounding it up you do indeed get to 3 million.  By the May 1997 election the figure was down to 2.06 million and the latest figure stands at 1.70 million but the direction of travel is upwards again.  The reality is that unemployment is an intractable problem but it got a lot better in the four and a half years after Black Wednesday, it improved at a slower rate for 8 years under New Labour but the trend has been in the wrong direction for 18 months now.

 

Anyway our fictional copper Boyd doesn't know much economics.

Wat Tyler: Blair's commentary on inflation

Yesterday’s shock inflation figures were the subject of a typically misleading Blair commentary at his monthly press conference:

"Inflation has risen in most of the major countries because of rising energy prices, rising oil prices, which have doubled, tripled over the last few years. That, however, is expected to come down in 2007 and we expect to come back to 2% inflation."

It is completely untrue that "inflation has risen in most major countries". The reality is that Britain’s inflation rate has risen much more than elsewhere. 

Even sticking to the government’s preferred but rather narrow measure - the Consumer Price Index (CPI) - over the most recent twelve months, our inflation rate has increased by more than one-half, from 1.9% to 3%. In the US the rate is down by 1.5%, in Germany it’s down by 0.6%, in France it’s down by 0.2%, across the Euro area as a whole it’s down by 0.3%, and across the G7 it’s down by 0.6% (source ONS - January CPI Release and HM Treasury Pocket Databank - January). 

We’ve all heard of damned statistics, but most people would mark that down as an outright lie. And quite why wage negotiators would attach any credence to his 2% forecast for the rest of the year is a complete mystery. Blair went on:

"The underlying position of the British economy, even with the recent interest rate rise, is one of strong economic growth, historically very low interest rates, inflation under control and employment and living standards high,"

Again, the reality is different. Much of the growth Britain has enjoyed over recent years has been driven by public spending and debt, not by any fundamental improvement in productive potential. Indeed productivity growth has slipped markedly since he took over. And combined with higher interest rates, that debt is now starting to squeeze living standards.

What’s more, although employment has continued to rise, because of mass immigration, unemployment- the key component, along with inflation, of the traditional “misery index”- has increased sharply. In the last twelve months, Britain’s unemployment rate has risen by over half-a-percent, while it has actually been falling in the US, Germany, France, and the G7 as a whole (source: HM Treasury Pocket Databank - January).

With inflation and interest rates both rising, what chance Blair’s next economic commentary will at least nod in the direction of honesty?