“That’s A-level economics.” If one politician wants to dismiss the economic views or policy of another, what easier way than to suggest that they really don’t have a proper understanding of the subject?
A-level economics is much maligned. Over the years, I’ve been hugely grateful to Mrs Goodson, the fierce Scottish lady who spent two years nagging, cajoling and berating the “idle fellows” before her towards an understanding of supply and demand, the theory of the firm, national income, the circular flow of money and (in 1981) the differences between the Keynesian and Friedmanite policies followed by recent governments. I try not to over-reach in the presence of those who clearly do know more about it than me, and I don’t use phrases like “post neo-classical endogenous growth theory” in everyday conversation (but then who outside Gordon Brown, Ed Balls and the members of the Monetary Policy Committe does?). While I haven’t scaled the heights of some of her other students (one of whom is now Group Chief Economistand head of global research for HSBC), I’ve found the level of understanding it has given me to be incredibly useful.
Perhaps my little knowledge is a dangerous thing. But there are times when I wonder what it is that those who apparently have a more sophisticated understanding of economics can see that I don’t. So, as I have said elsewhere on this blog, I don’t understand how sucking the demand out of the economy is a recipe for recovery, and I was consequently astonished by the shocked reports last week that senior executives who had expressed their support for the Chancellor’s approach were now concerned about a retail recession, as if it was a revelation that now most people’s finances are under pressure, they are not intending to spend as much.
Similarly, I have been at a loss to understand the calls for interest rates rises to combat inflation. Yes, inflation is almost double target. As far as I can see, much of that is as a result of temporary factors, which will work their way through the system. There is a global rise in commodity and input prices pushing up costs. But there is little prospect of wages rising to match this in the near future, and this will act as a brake to prevent it running away. So it’s hard to pass those costs on in prices; business are having to accept a squeeze on their profit margins. Inflation has been the main economic concern of our lifetime, but I can’t see how anyone can argue that it is the major factor at the moment, and turning economic policy towards tackling it would be foolish. Increasing the cost of mortgages and debt at this stage would just put more households and businesses under even greater pressure and push more towards the brink.
And then yesterday’s inflation (down) and employment figures (up) moved in the right directions, and all of a sudden all the fears were dispelled. The first green shoots appear and the Tory blog- and Twittersphere ask where Ed Balls is when he’s proved wrong. As I recall, when Norman Lamont first saw his green shoots, it turned out that he was mistaken. One month’s figures do not show the tide has turned. Do they? Or do they know something I don’t?
No doubt the big brains at the Treasury will be thinking about this. But the Treasury’s economic forecasts are often (usually?) wrong. Perhaps Margaret Thatcher, in her own Yes Minister sketch, had the right idea:
“Thatcher: I want you to abolish economists … all of them. They never agree on anything. They just fill the heads of politicians with all sorts of curious notions, like the more you spend, the richer you get.
Hacker: I see your point, Prime Minister. Can’t have the nation’s time wasted on curious notions, can we?”