Despite the major economic news being manufacturing is growing at its fastest rate in eight months the BBC was pretty much ignoring that and instead is blitzing us with stories about productivity, or the lack of, in the economy and are trying to present it as a result of ‘Austerity’….that’s despite the lack of productivity being a very old story. Robert Peston was on the R4 news telling us that if we hadn’t had austerity growth would have been 15% higher…and so would wages….a Labour narrative and pure speculation…there is no counterfactual, Peston is claiming something he can’t prove…and therefore should not be saying it.
But who did he get that figure from in the first place? An economist named John Van Reenen, who was an advisor to the Labour government and has always opposed austerity...even before it began...
Van Reenen, John (2010) Extreme austerity is the wrong medicine British Politics and Policy at LSE (28 Jun 2010)
Here is his thoughts on the Labour economy in 2007…..just before the SHTF….(not saying that he’s a bad economist but he had no idea that the worst recession in one hundred years was about to hit)
Labour’s Economic Legacy
John Van Reenen
The economy is probably the most successful legacy of the Blair years. Ironically, New Labour’s economic policies have been set by his heir, chancellor Gordon Brown. Blair leaves behind an economy in better shape than any previous Labour leader.
Here we see where Peston gets the figure of 15% from…and it is the worst case scenario…why did he pick that?…
John Van Reenen of the LSE, who also disagreed with austerity, said “UK GDP is about 15% below where we would have expected on pre-crisis trends… Premature austerity has damaged UK welfare and, as I and others argued at the time, delaying consolidation would have left the UK in a much stronger position than it is today.”
Note that Peston’s article is one of those rapid rebuttals the BBC issues when things are going pear shaped for Labour…such as one hundred businessmen writing in the Telegraoph that Labour’s economic policies will damage the country just as Miliband is trying to say he is business friendly…
Peston says…
On the day that more than 100 past and current business leaders have written to the Telegraph that the “Conservative-led government has been good for business and has pursued policies which have supported investment and job creation”, a survey of academic macro-economists has come up with a different conclusion.
Trouble is it wasn’t ‘on the day’...it was last Saturday this poll was released….the letter in the Telegraph appeared on Wednesday.
Here you can see the cogs working and evidence that he is trying to counter the Telegraph letter…
Now to be clear, this is not a scientifically robust poll of those who know best. But nor is the Telegraph’s letter – and those those who took part in the economists’ survey are no less distinguished in their field than the business signatories.
Who would I trust? I’d follow the money and the people who make the money not those who have political axes to grind and don’t dirty their hands actually producing the stuff they talk so knowledgeably about.
Here is Peston’s unemotional report on productivity…
We should be both grateful and worried that British productivity has been so lousy since the great crash and recession.
Lousy only since the crash? Hmmm…productivity in the UK in comparison to other countries has always been ‘lousy’…here’s what the IFS says……
The UK–US productivity gap narrowed over the late 1980s and early 1990s but has widened slightly since 2004. In 2008 – the latest year for which international comparisons are available – US worker s were 33% more productive than those in the UK. The UK’s lower level of productivity has contributed to a lower level of GDP per capita. In 2009 GDP per capita, measured in US dollars, was $37,391 in the UK and $46,008 in the US .
GDP was growing under Labour but what was the cause of that? Was it productivity? or was it merely the huge number of immigrants flooding here increasing GDP but lowering wages and not actually adding to the economy overall? The London School of Economics tells us that it was not a rise in productivity…..
Since 1997 total GDP growth has been driven mainly by increases in employment and capital (especially information technology) rather than increases in overall efficiency.
Even Peston’s new friend, John Van Reenen, admitted in 2007 that UK productivity was low under Labour…
Gordon Brown and British business leaders alike have jealously eyed the US “productivity miracle” for more than 10 years – after 1995 US output per hour growth doubled compared to the previous 20 years.
The US continues to lead in productivity, the measure of output per employee. According to the Office of National Statistics, GDP per worker in the US was 27% higher than in the UK in 2005.
Yet the UK is showing little sign of catching up.
Peston tells us…
The point is that a big contributor to the absence of any growth at all in output per worker and output per hour is that employment has grown much faster than national income….Lower productivity undermines the competitiveness of British firms in the global economy.
And the absence of productivity growth undermines the ability of British firms to increase our pay.
Many issues with that…first…we’ve always been less competitive as the IFS showed and Van Reneen admitted…second Peston claims lack of productivity undermines pay growth and that output per worker and output per hour are the measure of productivity.
Another way of measuring it would be to assess output per pound paid in wages….employers are keeping people in jobs at lower wages…but they are still producing the same amount….for less money…so productivity per pound is probably still good….or else why would employment be rising so fast? After all employers are not charities they employ someone for a good reason, a reason that will result in profits for the business.
There is no ‘puzzle’ to the apparent lack of productivity…it is just that the wrong measure is being used.
Wages are part of the equation when measuring productivity….maybe not in the textbooks, or in BBC studios, but on the factory floor it is.
One reason wages are so low is because of the mass immigration and flood of cheap labour that means employers don’t have to compete for workers by offering higher wages.
Wonder why Peston doesn’t dwell on that?