Special Factors?

The ONS, has just released the GDP figures for Q2. It shows that growth fell from the 0.5% figure for Q1, to just 0.2%. In other words, in the last nine months, which is the period from when the Liberal-Tories introduced their austerity Budget, growth has been just 0.2%!!! Given that there is a 0.2% margin of error on the figures, that means that in reality the economy has not grown at all. Were it not for the growth that was continuing from the measures introduced by Labour, the economy would not have grown even in the last year. The real picture of that can be seen by looking at the graph of how growth hyas proceeded under Labour and under the Liberal-Tories.

According to the ONS, had it not been for the special factors such as thye Royal Wedding, and the effects of the Japanese Tsunami the figure would have been 0.5% higher for the quarter at 0.7%. That quite honestly is not believable. The effects of the Japanese Tsunami on production in Britain can only have been minimal, because Britain's manufacturing sector as a whole accounts for only 12% of GDP, and the other parts of the economy, in services would not have been affected at all.

As for the Royal Wedding,we were being told beforehand that it would act as a significant stimulus to the economy, because of all the crap memoribilia that would be produced around it. Now we are being told it actually cost the economy up to 0.5% of total production!!!

Given that UK GDP is £1.4 trillion, then if the Royal Wedding cost the country 0.5% of that I think we should be sending the Royals a very big big for them to pay!!!

In fact, every economist and business representative interviewed has poured scorn on the idea that these special factors could have had such a large negative effect. Even Ruth Lea, who can hardly be described as a Left-wing critic of the Government, called the 0.7% figure "bizarre".

Not only is there little to suggest these effects could have had that size of effect - essentially 2.5 times the effect that three months other economic activity had - but all of the survey data points in exactly the opposite direction.

The survey data shows that in the last three months, business and consumer confidence has continued to fall, and is continuing to fall. Inflation is pressing down on disposable incomes, as wages are frozen. Businesses faced with falling sales are cutting back their own spending. The Japanese tsunami, and the Royal Wedding are not responsible for the increasing number of shops that are closing on every high street.

If you want to knwo what is happening to the economy it is necessary to look at that actual survey data of how the trend is developing, and the graph above shows that trend in its reflection in GDP, it is a steadily downward trend dating from when the Liberal-Tories began to talk down the economy, and frighten people with their proposals for austerity.

In fact, the reason the economy is tanking, and is set to get much worse as the real effects of the Liberal-Tory spending cuts come into effect, is precisely those policies of austerity and cutting. In fact, the same policies that Vince Cable described as those of "right-wing nutters", when he was referring to their application in the US!!

Apparently, even Cameron has been running scared of just how much damage his Chancellor is doing to the economy, the same Chancellor who it seems from reports has already done him considerable damage, as it was him that advised Cameron to take on Andy Coulson.

Yet, Osbourne having lashed himself to the mast is standing firm, in sending the economy onwards towards the storm, and the reefs that lie just below the water. And, given their atatcks on much of the State apparatus, they are heading for the storm with a mutinous crew.

Business has joined Labour in demanding selective VAT cuts, and other economists are calling for a cut in Income Tax to stimulate demand. Cable is arguing for more Quantitative Easing. But, these measures are doomed to failure.

The dynamic which the Liberal-Tory economic policy has set in motion is one of decline and retrenchment. If you think you are about to lose your job, if you see your wages falling in real terms, the sensible course of action is to batten down the hatches, put money to one side for whatever might come. A cut in VAT, will, under those conditions mean that people take advantage of a temporarily lower price, and put the savings to one side, to be used should an emergency arise. The same is true with an Income Tax cut, the extra money in your pocket will go into the bank, even at such low interest rates, just in case its needed. And, Quantitative easing is only any use, if there is demand for the money that is printed.

There is no shortage of money circulating in the economy. In fact, there is so much of it compared with the demand for it, that interest rates are at record low levels, and large chunks of it sits in Banks, and on the Balance Sheets of large companies unused. Simply printing more of it, will not mean more gets circulated, it will just mean more gets hoarded, or gets shipped overseas to pay for imports of Chinese goods. Keynes describes this phenomena as "pushing on a string".

If you want the additional money to circulate to create additional demand, then its first necessary to create an amount of additional demand, by increasing Government Expenditure. Then, as the economy begins to grow, and confidence is restored, money in people's pockets causes them to be more prepared to spend than to save. The Liberal-Tory policies are bound to result in the exact opposite no matter how much money they print.

Can the Liberal-Tories change course? Well they have been forced to do U-Turns on pretty much all the rest of their policies due to their inherent incompetence, and the fact that they appear to have created a climate of sullen resentment, and opposition within the ranks of the Permanent State Bureaucracy, which is not surprising when those very people are being told they may lose their job, they will definitely see their pay cut, and will have to pay more into their pension, work longer, and get less pension when they retire. Divisions in the ranks of the Tories has now seen Health Minister, Andrew Lansley, whose Health Service reforms were roundly attacked by other Ministers, come out and attack the proposals for cutting Pensions in the NHS. You scratch my back, and I'll scratch yours, which is the usual method by which decision making occurs in Cabinets and other bureaucracies, also works in reverse. But, the austerity measures are central to the Liberal-Tory narrative. If they reversed course now, their raison d'etre would disappear, and an election could not be far away.

Its possible that, under those conditions, Labour could win an election on a programme of bringing growth back to the economy, and such a programme could also win the support of important sections of Capital, worried at the damage that the austerity measures in the UK, and Europe is doing. Social-Democracy has always been the real ideological representation of the interests of Big Capital, whereas the Conservative policies of the Tory Right, or the Republicans in the US have always been more closely a reflection of the interests of small capital, of the petit-bourgeoisie, and more backward sections of society. The undermining of the Murdoch Empire, which has also championed that set of ideas in Britain, the US, and elsewhere, could be the beginning of a turn away against them, and a reassertion of the interests of Big Capital.