John Weeks - Osborne, the budget and deficit mendacities
In the 1930s an infamous practioner of the dark art of propaganda operated on the principle that a lie repeated with sufficient frequency assumes the aura of truth among the public. The effectiveness of repetitive mendacity continues into the twenty-first century in George Osborne's repeated claims 1) that the deficit he so fervently seeks to reduce is the fault of the Labour government, and 2) he has made substantial progress in reversing that deficit.
We find these allegations, "Labour broke it and Osborne is fixing it", endlessly repeated in the media, not least in "news" stories and opinion columns in The Guardian. So pervasive is the belief in the Labour-to-blame and Osborne-to-the-rescue thesis that even progressives accept it. I wish that I had a pound for every time a progressive friend or acquaintance told me, "cuts are necessary, but instead of welfare cut Trident" (or some other anti-social expenditure). If granted my wish, I could made a substantial contribution to the completely unnecessary goal of balancing the public budget.
Both claims are wrong, and completely, 100% wrong. The Labour government did not contribute to, much less cause the public sector deficit. Mr Osborne has made no substantial progress towards reducing the deficit. He has made none at all. The second mendacious misrepresentation is easily refuted. Chart 1 shows the overall central government budget balance as a proportion of national income (gross national product) by quarter, mid-2008 through the third quarter of 2012, eighteen quarters in all.
During the first nine of those 18 quarters Gordon Brown served as prime minister and the budget balance averaged minus 5.3 percent of GDP. During the subsequent nine quarters David Cameron led a coalition government with George Osborne as chancellor. During the latter nine quarters, the average rose, to minus 5.8 percent of GDP. A look at the chart shows that the current chancellor cannot credibly claim a trend towards improvement. The pattern for the last nine quarters looks no different from the previous nine; i.e., random variation.
Chart 1: No improvement under the Coalition
Public Sector Deficit as a percentage of GDP, 2008Q2 - 2012Q3
In the House of Commons the chancellor excused his dismal record by blaming the deficit on the Labour government. He alleged that at least he prevented the public finances from further deteriorating. Mr Balls found himself tongue-tied in response to such chutzpah*, as well he might have. Mendacities rarely come as bald-faced as this.
If "Labour-to-blame" has any content beyond political opportunism, it must mean that the deficit Mr Osborne encountered in May 2010 resulted from excessive expenditures. Further, if the term "excessive expenditures" itself means anything it must refer to expenditures in excess of revenue. A government that fully funds its expenditure practices sound finances no matter what the level of expenditure. Thus, a simple statement of the Osborne hypothesis might be, "when it was in power Labour spent like a drunken sailor with no concern about where the money would come from".
The hypothesis must refer to some time period immediate before the onset of large deficits. For this reason, Chart 2 takes the statistics back to the beginning of 2004. The reader should inspect the numbers for the first quarter of 2004 through the second quarter of 2007. During these three years (plus one quarter), central government expenditure increased by £206 billion, measured at today's prices (actually the price level for the third quarter of 2012). For the same period the increase in public revenue was £232 billion at constant prices. Far from indulging in fiscal mismanagement, the Labour government fully funded its expenditures, plus a surplus.
Then, in late 2007 the global financial crisis hit, bringing large deficits to almost every country. From mid-2007 until the end of the Brown government three years later, quarterly increases in expenditure were lower than they had been over the previous three years (14.4 billion versus 12.9 billion at constant prices). Far from being spend-thrift, the Labour government reduced the rate of increase in real spending during the great recession. This was an unwise policy for a contracting economy. Explaining why is for another article.
A glance at Chart 2 should make the cause of the deficits obvious to all. Over the same previous three years public revenue had grown by over £17 billion every quarter (2004-2007). By contrast, the average quarterly increase in revenue during the waning three years of the Labour government was less than £400 million. Over the fifteen months from late 2008 through the end of 2009, revenue fell continuously, a total decline of £71 billion. With national income falling, tax revenue declined, a causality that now undermines Coalition public finances.
Chancellor Osborne cannot blame Labour for his woes. They are self-inflicted. The public sector balance remains deep in the red because of the pathetically weak growth of public revenue, by less than five billion pounds per quarter over the twelve months, October 2011 through September 2012. By contrast, the Labour government left Mr Osborne an improving budget balance, because the UK economy was in the early stage of recovery (see my previous Compass article, "Mr Osborne misses his target").
This nascent recovery that Labour bequeathed the Coalition demonstrates the old saying, "no good deed goes unpunished". Far from building on hesitant improvement, the Coalition Government embarked on recession generating budget cuts, that have failed miserably in their aim of deficit reduction, then blames Labour for it.
The evidence is clear, the Coalition Government has made bad economic conditions worse. Why, then, does every major media outlet repeat the false tale of a chancellor struggling to repair the damage left to him by a spend-thrift Labour government? If we could answer that question we would be well on the way to a strategy to rid ourselves of this government.
Chart 2: Labour Government not the cause of the deficit
Changes in Public Revenue, Public Expenditure and the Budget Balance, billions of pounds, 2004.1 - 2013.3 (constant prices of 2012.3)
Sources: All statistics from HM Treasury, Public Finances Databank, 24 January 2012, Tom Chappell editor (excel document), up-date from Institute of National Statistics, Statistical Bulletins, www.statistics.gov.uk.John Weeks is Professor Emeritus of the University of London, and author of The Economics of the one percent: 1% economics, 99% ideology. His frequent commentary can be found at http://jweeks.org.
* The definition of this Yiddish word is typically demonstrated as follows. A teenage boy murders his parents. He is apprehended, tried and convicted. When the judge asks him if he has any final words before he is sentenced, the boy asks for leniency on grounds that he is an orphan.
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