Tag: economy coalition

Why did Britain’s political class buy into the Tories’ economic fairytale?

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Ha-Joon Chang
Falling wages, savage cuts and sham employment expose the recovery as bogus. Without a new vision we’re heading for social conflict

Sunday 19 October 2014 17.46 BST

The UK economy has been in difficulty since the 2008 financial crisis. Tough spending decisions have been needed to put it on the path to recovery because of the huge budget deficit left behind by the last irresponsible Labour government, showering its supporters with social benefit spending. Thanks to the coalition holding its nerve amid the clamour against cuts, the economy has finally recovered. True, wages have yet to make up the lost ground, but it is at least a “job-rich” recovery, allowing people to stand on their own feet rather than relying on state handouts.

That is the Conservative party’s narrative on the UK economy, and a large proportion of the British voting public has bought into it. They say they trust the Conservatives more than Labour by a big margin when it comes to economic management. And it’s not just the voting public. Even the Labour party has come to subscribe to this narrative and tried to match, if not outdo, the Conservatives in pledging continued austerity. The trouble is that when you hold it up to the light this narrative is so full of holes it looks like a piece of Swiss cheese.

First, let’s look at the origins of the deficit. Contrary to the Conservative portrayal of it as a spendthrift party, Labour kept the budget in balance averaged over its first six years in office between 1997 and 2002. Between 2003 and 2007 the deficit rose, but at 3.2% of GDP a year it was manageable.

More importantly, this rise in the deficit between 2003 and 2007 was not due to increased welfare spending. According to data from the Office for National Statistics, social benefit spending as a proportion of GDP was more or less constant at about 9.5% of GDP a year during this period. The dramatic climb in budget deficit from there to the average of 10.7% in 2009-2010 was mostly a consequence of the recession caused by the financial crisis.

First, the recession reduced government revenue by the equivalent of 2.4% of GDP – from 42.1% to 39.7% – between 2008 and 2009-10. Second, it raised social spending (social benefit plus health spending). Economic downturn automatically increases spending on many social benefits, such as unemployment benefit and income support, but it also increases spending on things like disability benefit and healthcare, as increased unemployment and poverty lead to more physical and mental health problems. In 2009-10, at the height of the recession, UK public social spending rose by the equivalent of 3.2% of GDP compared with its 2008 level (from 21.8% to 24%).
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When you add together the recession-triggered fall in tax revenue and rise in social spending, they amount to 5.6% of GDP – almost the same as the rise in the deficit between 2008 and 2009-10 (5.7% of GDP). Even though some of the rise in social spending was due to factors other than the recession, such as an ageing population, it would be safe to say that much of the rise in deficit can be explained by the recession itself, rather than Labour’s economic mismanagement.

When faced with this, supporters of the Tory narrative would say, “OK, but however it was caused, we had to control the deficit because we can’t live beyond our means and accumulate debt”. This is a pre-modern, quasi-religious view of debt. Whether debt is a bad thing or not depends on what the money is used for. After all, the coalition has made students run up huge debts for their university education on the grounds that their heightened earning power will make them better off even after they pay back their loans.

The same reasoning should be applied to government debt. For example, when private sector demand collapses, as in the 2008 crisis, the government “living beyond its means” in the short run may actually reduce public debt faster in the long run, by speeding up economic recovery and thereby more quickly raising tax revenues and lowering social spending. If the increased government debt is accounted for by spending on projects that raise productivity – infrastructure, R&D, training and early learning programmes for disadvantaged children – the reduction in public debt in the long run will be even larger.

Against this, the advocates of the Conservative narrative may retort that the proof of the pudding is in the eating, and that the recovery is the best proof that the government’s economic strategy has worked. But has the UK economy really fully recovered? We keep hearing that national income is higher than at the pre-crisis peak of the first quarter of 2008. However, in the meantime the population has grown by 3.5 million (from 60.5 million to 64 million), and in per capita terms UK income is still 3.4% less than it was six years ago. And this is even before we talk about the highly uneven nature of the recovery, in which real wages have fallen by 10% while people at the top have increased their shares of wealth.

But can we not at least say that the recovery has been “jobs-rich”, creating 1.8m positions between 2011 and 2014? The trouble is that, apart from the fact that the current unemployment rate of 6% is nothing to be proud of, many of the newly created jobs are of very poor quality.

The ranks of workers in “time-related underemployment”, doing fewer hours than they wish due to a lack of availability of work – have swollen dramatically. Between 1999 and 2006, only about 1.9% of workers were in such a position; by 2012-13 the figure was 8%.

Then there is the extraordinary increase in self-employment. Its share of total employment, whose historical norm (1984-2007) was 12.6%, now stands at an unprecedented 15%. With no evidence of a sudden burst of entrepreneurial energy among Britons, we may conclude that many are in self-employment out of necessity or even desperation. Even though surveys show that most newly self-employed people say it is their preference, the fact that these workers have experienced a far greater collapse in earnings than employees – 20% against 6% between 2006-07 and 2011-12, according to the Resolution Foundation – suggests that they have few alternatives, not that they are budding entrepreneurs going places.

So, in between the additional people in underemployment (6.1% of employment) and the precarious newly self-employed (2.4%), 8.5% of British people in work (or 2.6 million people) are in jobs that do not fully utilise their abilities – call that semi-unemployment, if you will.

The success of the Conservative economic narrative has allowed the coalition to pursue a destructive and unfair economic strategy, which has generated only a bogus recovery largely based on government-fuelled asset bubbles in real estate and finance, with stagnant productivity, falling wages, millions of people in precarious jobs, and savage welfare cuts.

The country is in desperate need of a counter narrative that shifts the terms of debate. A government budget should be understood not just in terms of bookkeeping but also of demand management, national cohesion and productivity growth. Jobs and wages should not be seen simply as a matter of people being “worth” (or not) what they get, but of better utilising human potential and of providing decent and dignified livelihoods. Ways have to be found to generate economic growth based on rising productivity rather than the continuous blowing of asset bubbles.

Without a new economic vision incorporating these dimensions, Britain will continue on its path of stagnation, financial instability and social conflict.

http://www.theguardian.com/commentisfree/2014/oct/19/britain-political-class-tories-economic-fairytale?CMP=fb_gu

FT journalist in Piketty takedown accused of ‘serious errors’ of his own

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By James Bloodworth | Published: May 30, 2014

New analysis by the economic consultant Howard Reed supports Piketty’s view that inequality is on the rise

Thomas PikettyjRight-wing journalists and commentators were cock-a-hoop this time last week after Thomas Piketty, whose bestselling book Capital in the 21st Century has taken the left by storm, was accused of cherry-picking data to support his view that inequality in on the increase.

The Financial Times was at the forefront of the attacks, with its journalist Chris Giles highlighting what he perceived to be “a serious discrepancy between the contemporary concentration of wealth described in Capital in the 21st Century and that reported in the official UK statistics”.

But new analysis by the economic consultant Howard Reed supports Piketty’s view that inequality is on the rise. And Reed has hit back at Piketty’s critics, accusing Giles of making “serious errors” of his own.

According to Reed, the apparent discrepancies in Piketty’s account were caused by the author making allowances for the different estimates of wealth in the data sources he used to calculate the trend since the early 19th century. Giles, Reed says, failed to adjust for these “discontinuities” in the data:

“Taken as a whole, these discontinuities imply that the estimate of the top 10 per cent share of wealth is 22.5 percentage points lower by 2010 than it would have been if the wealth statistics had been collected on a consistent basis after 1974, as they were before 1974. As I show, the main difference between the Piketty time series for UK inequality and the Giles time series for UK inequality is that Piketty corrects his data series to allow for this 23 percentage point drop (caused by changes in the methodology used to measure the wealth distribution) whereas Giles does not.”

The coup de grace comes later, however, when Reed says that it is Giles himself who is guilty of an inaccurate portrayal of the figures:

“To believe that the Giles series represents an accurate picture of the evolution of wealth inequality in the UK over the last 50 years, one would have to believe that the wealth share of the top 10 per cent really did fall by 12 percentage points during the 1970s, and by another 11 percentage points between 2005 and 2006. Does anyone really believe this? Of course not.”

He also accuses Giles of making “serious errors of his own”:

“However, Giles then goes on to make a very serious error of his own in handling the UK data: he treats changes in the way wealth inequality is measured over the decades as if they were real changes in the underlying distribution of wealth. This error leads him to the misleading conclusion that wealth inequality fell in the UK between 1980 and 2010, whereas in fact it has increased (although not by quite as much as Piketty’s published results would suggest).”

Reed does, however, acknowledge that Giles has “uncovered some errors and inconsistencies which Piketty will hopefully address in future work”.

You can read Reed’s full blog here.

FT journalist in Piketty takedown accused of ‘serious errors’ of his own

By George, Britain’s Austerity Experiment Didn’t Work!

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December 7, 2013

The New Yorker

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George Osborne, the patron saint of austerity enthusiasts on both sides of the Atlantic, was in the House of Commons on Thursday, reveling in the fact that the U.K.’s economy is finally growing again, and claiming that “Britain’s economic plan is working.” Delivering his annual Autumn Statement—he was a bit late—the Chancellor of the Exchequer pointed to forecasts from the quasi-independent Office for Budget Responsibility, which point to G.D.P. growth of 1.4 per cent this year and 2.8 per cent in 2014.

For Britons who have been laboring through more than five years of recession, or near recession, that is welcome news. By some measures, the U.K. has been through a worse slump than the one it experienced during the Great Depression, and now, at last, it appears to be over. Recent figures from the Office for National Statistics show that the economy has expanded for three quarters in a row, with manufacturing, services, and construction all sharing in the growth. Small wonder that Osborne was smiling and taking the credit.

It’s a clever political line, and it appears to be having an impact. The rebound in the economy, which caught by surprise most forecasters, including those at the Office for Budget Responsibility, has transformed the political situation at Westminster and given the Conservative-Liberal coalition, which has been lagging badly in the opinion polls, new hope of winning reëlection in May 2015.

But from an economic perspective, Osborne’s argument is hogwash. His effort to cure the patient by subjecting it to the equivalent of leeching—big cuts in government spending and higher taxes—a return to pre-Keynesian policies watched closely the world over, failed abysmally. Imposed at a time when the U.K.’s economy was recovering from the financial crisis of 2008-09, it subjected his countrymen and countrywomen to three more years of slump-like conditions, and it produced a dearth of public-sector and private-sector investment that will hobble Britain for years to come. It even failed to meet its own targets of drastically reducing the budget deficit and bringing down Britain’s over-all debt burden.

Back in June of 2010, just after the Conservative-Liberal coalition took office, but before Osborne introduced big spending cuts and raised the national sales tax to twenty per cent, the Office for Budget Responsibility predicted that the economy, after contracting sharply in 2009, would expand by 1.3 per cent in 2010, and that growth would then accelerate to 2.6 per cent in 2011 and 2.8 per cent in 2013. By the standards of previous recoveries, this growth forecast looked pretty modest, and it reflected the fact that the previous Labour government had already promised modest cuts in spending growth to bring down the budget deficit, which reached about eleven per cent in the fiscal year 2009-10. (In Britain, the fiscal year goes from April 1 to March 31.)

However, after Osborne introduced his austerity drive, economic growth slowed down rather than speeding up. For 2010, the economy outperformed the official forecast, growing by 1.7 per cent, reflecting the fact that it had quite a big of momentum when the new government took over. But in 2011, growth dropped to 1.1 per cent, and last year it fell to 0.2 per cent, leaving inflation-adjusted G.D.P. below the level it reached in 2007.

How much of this dramatic shortfall in growth was due to Osborne’s policies, and how much was caused by other factors, such as the crisis in the Eurozone, Britain’s biggest trading partner? As always in economics, it’s hard to know for sure. A recent study by Òscar Jordà and Alan Taylor, two economists at the University of California at Davis, which employed some sophisticated statistical techniques, concluded that the shift to austerity was the main culprit, accounting for sixty per cent of the fall-off. “Without austerity,” Taylor wrote in an article presenting their results, “U.K. real output would now be steadily climbing above its 2007 peak, rather than being stuck two per cent below.”

One can quibble with Jordà and Taylor’s precise figures. The fiscal “multipliers” they use are derived from data from seventeen O.E.C.D. countries covering the period from 1978 to 2009, and it’s not clear why they should apply exactly to the U.K. in isolation for the period from 2010 to 2013. But if the sixty-per-cent figure is biased, there is reason to believe it is biased downward. For the past few years, short-term interest rates in Britain, as in the U.S., have been close to zero, and it’s long been known that fiscal policy is more potent when interest rates are very low. In such circumstances, cutting government spending and raising taxes is doubly damaging.

Simon Wren-Lewis, a professor at Oxford, has used the results Jordà and Taylor provided to convert the losses in G.D.P. over the course of Osborne’s policy experiment into everyday terms. Here is his conclusion:

 

(A)usterity has cost the average U.K. household a total of about £3,500 [about $5,700] over these three years. Although all governments like to give the impression that they can have a big impact on people’s prosperity, few actually do. These numbers suggest that the current U.K. government has managed to do so, but unfortunately by making us all poorer.

O.K., a committed Austerian might respond, that doesn’t sound very good. But if the Chancellor has succeeded in putting the finances of the U.K. government in order, and prevented Blighty from turning into Greece, the sacrifices might well have been worth it. And, in fact, Osborne has pushed this very line. “The hard work of the British people is paying off, and we are not going to squander their efforts,” he said in his Commons speech.

The problem with the argument is that the “hard work” hasn’t paid off. After three and a half years of austerity, the outlook for the government’s finances doesn’t look any better than it did when Osborne entered office. In fact, it looks worse. Let’s go back to the Office for Budget Responsibility’s June, 2010, forecast, which didn’t account for any of Osborne’s “deficit reduction” measures. Based on its expectation of steady growth in G.D.P., it predicted that the U.K.’s public-sector net-borrowing requirement, the closest equivalent to the U.S. budget deficit, would be 6.6 per cent of G.D.P. in 2012-13, five per cent in 2013-14, and 3.9 per cent in 2014-15.

Osborne, on introducing his austerity policies, claimed that the deficit would come down a lot more rapidly than the Office for Budget Responsibility had forecast. He also pledged that a measure of the so-called “structural” budget deficit—i.e., one that strips out the effects of the economic cycle—would be balanced by 2015-16. But what has actually happened? In 2012-13, the deficit came in at 7.3 per cent of G.D.P.—that’s 0.7 percentage points higher than the official forecast made in 2010. (This figure doesn’t include some tricks that Osborne used to make things look better, such as selling off part of the Royal Mail to investors and counting the proceeds as revenue.) All that austerity didn’t reduce the deficit: it made it bigger than had been expected!

Looking ahead, the picture doesn’t appear any brighter. According to the latest forecast by the Office for Budget Responsibility, which was released on Thursday, the deficit will be 6.8 per cent of G.D.P. in 2013-14, which is 1.6 percentage points higher than the 2010 forecast, and 5.6 per cent in 2014-15, which is 1.7 percentage points higher than the 2010 forecast. As for Osborne’s pledge to eliminate the structural deficit by 2015-16, that, like much else, has been revised. He now says that the structural budget will be balanced in 2017-18, and that the over-all deficit will disappear in the following year. “He used to say he would balance the books in 2015,” Ed Balls, Labour’s senior economic official, said in the Commons. “Now he expects us to congratulate him for saying he’ll do it by 2019.”

And that’s not all. Back in 2009 and 2010, when Osborne was busy comparing Britain to Greece, he made great show of the fact that its debt burden was growing rapidly—a development he promised to reverse. In his first budget, he said public-sector debt as a proportion of G.D.P. would peak in 2013-14, at 70.3 per cent, and then start falling. That promise is another one that has gone by the wayside. The Office for Budget Responsibility is now predicting that the debt burden will keep climbing until 2015-16, when it will peak at eighty per cent of G.D.P.—almost ten percentage points above Osborne’s original figure.

After all this, you may be wondering: why did the U.K start growing again at a decent clip? This time last year, such a rebound seemed unlikely. Well, it didn’t come about because of any philosophical reversal on Osborne’s part. In this year’s budget, he promised to introduce even more spending cuts over the coming years, and, in his Autumn Statement, he talked of introducing a new austerity-based fiscal compact that would tie the hands of his successors.

The upturn in growth appears to have been primarily a result of ultra-low interest rates, engineered by the Bank of England, and of a desperate effort on the part of the government to gee up the moribund housing market. In 2012, the Treasury leaned on the Bank of England to provide low-cost financing for banks that extended mortgages. Then, in this year’s budget, the Treasury itself went into the business of providing loans to help first-time buyers of properties worth up to a million dollars. The tactics worked: home prices are rising rapidly, construction has spiked, and the rise in housing wealth has fed through to a growth in consumption. Business investment and exports remain depressed.

Osborne is busy claiming credit for the upturn, and, to the extent that he was responsible for an old-fashioned effort to ramp up the real-estate market, he did play a role. But that doesn’t mean his austerity policies have worked: they haven’t. As Alan Taylor pointed out, the entire sorry episode only confirms what Keynes wrote seventy-five years ago: “The boom, not the slump, is the right time for austerity at the Treasury.”

Above, at left: George Osborne leaves the Treasury. Photograph by Simon Dawson/Bloomberg/Getty.

Osborne must find reverse gear to drive the UK economy towards recovery

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The Faustian pact the coalition made with the Bank of England and the markets has not worked. It’s time to end austerity and use fiscal policy to revive Britain

Faustian pacts are not a good idea. On assuming office in 2010 the coalition entered into a pact with the Bank of England and the financial markets which ranks as one of the most ill-conceived ventures in economic policy by any British government since the second world war.

It was to be deficit reduction – indeed the elimination of the so-called “structural” deficit – by 2015, in return for supportive monetary (including exchange rate) policy from the Bank of England and the enthusiastic backing of the financial markets. The sine qua non as the criterion for success of this policy and pact was to be a marked improvement in the pace of economic recovery.

The chancellor, George Osborne, made a bad start by raising VAT – a £12bn blow to consumer spending, with additional multiplier effects. The economy the incoming government inherited was recovering, albeit slowly. But the combination of the perverse increase in taxation (knocking almost 1% off gross domestic product per annum), and the impact of the austerity programme was sufficient to stop the recovery in its tracks.

This added to the deflationary impact of higher import prices arising from the massive – but necessary – devaluation of the pound in which the Treasury and the Bank of England had acquiesced. Then there have been all the other depressing influences on real incomes of which the governor, Sir Mervyn King, recently complained.

I should emphasise that paradoxically, an increase in energy prices can be inflationary in that it affects the general price level and deflationary in that, via the impact on real incomes, it has a depressing effect on spending power and therefore economic activity. Thus the monetary policy committee can be criticised by purists for not hitting the official inflation target of 2%, yet praised for not taking its brief too literally, and aggravating the depression.

For depression it is: in common with the redoubtable Jonathan Portes of the National Institute of Economic and Social Affairs I have regarded the term depression appropriate to a situation where output continues to remain well below its previous peak, let alone the 15% or so by which it is below what the historical trend would indicate.

In a paper which I recommend to all (“How to Restore Growth and Cut the Deficit, The Policy Consequences of Revived Keynesianism, Lombard Street Research“) the economist Christopher Smallwood reminds us of Keynes’s definition of depression: “a chronic condition of subnormal activity without any marked tendency either towards recovery or towards complete collapse”.

Although things are pretty bad, we have certainly avoided complete collapse – so far! The role of Gordon Brown and others in “saving the world” in 2008-09 was vital in preventing disaster then. Central bankers since had either read or heard about Liaquat Ahamed’s book Lords of Finance about how their predecessors got it so wrong in the 1920s and 1930s. Through quantitative easing – open market operations to offset a private sector credit crunch by easing monetary conditions – the central banks have stopped the rot.

Quantitative easing was urged way back by Keynes in order to lower interest rates. But it was when monetary policy was ineffective – like “pushing on a string” – that Keynes advocated what have come to be known as “Keynesian” policies – the use of fiscal policy (government spending) – to revive activity.

Unfortunately, under the Faustian pact we have witnessed a double whammy: fiscal policy being used to reduce government spending when the economy is already depressed. And a monetary policy that has been pushing on a string.

As Smallwood points out, the Treasury and Bank drew the wrong conclusion from the apparent success of the combination of fiscal contraction and monetary expansion in the 1980s and 1990s. “In both cases, the contractionary impact of tax rises and spending cuts was counterbalanced by substantial falls in interest rates, and of the sterling exchange rate at a time when our export markets were growing,” he writes. Exports and investment took up the slack left by budgetary cuts.

This time there was not much further for interest rates to fall. Indeed, banks were widening their margins and many borrowers did not feel the intended effects. For some, interest rates actually rose. Moreover, despite the more competitive pound, the sluggishness of our main markets prevented an export boom.

George Osborne cannot bear to admit he has been wrong, blames the Bank, and produces a Canadian ex machina in the shape of Mark Carney. And so far from pleasing the financial markets with this austerity programme, he finds they are more concerned about lack of growth, or continuing depression. Indeed the markets showed signs of incipient panic when they learned last week that King himself wanted more quantitative easing at the last meeting of the MPC.

Now, following recent work on the operation of “fiscal multipliers” in the US, Smallwood argues that a switch to a policy of fiscal expansion is the only way out. The multiplier was a discovery of the economist Richard Kahn’s, which Keynes adopted. Normally economists think of additional public spending or tax cuts having “multiplier” effects, as the person or institution in receipt of extra funds spends them in a way that boosts the incomes and spending of others. Similarly, higher investment produces what economists call “accelerator effects”.

But at present we have very damaging negative multiplier effects, in which budget cuts lead to obvious hardship, to further reductions in people’s ready cash and consequent social problems.

Smallwood argues convincingly that fiscal policy needs, selectively, to be put into reverse. “A properly designed fiscal stimulus could restore growth, at the same time generating powerful tax flow-backs from (a) national income (multiplier effects); (b) higher private investment (accelerator effects); and (c) improved long-term growth potential as a result of increased investment.”

There is a huge range of potential infrastructure projects out there. They can pay for themselves. The only way out of this mess is a complete reversal of fiscal policy. It would be seriously ironic if the financial markets ended up punishing this country for the unintended consequences of a Faustian pact that was meant to please them. The ratings agencies have already started.

Cameron didn’t learn from Lamont on recession – early sharp cuts hurt

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The real mistake was not getting the forecast wrong, but getting the economics wrong. Look back to the last recession.

guardian.co.uk, Friday 4 May 2012 10.00 BSTNorman Lamont

‘Norman Lamont said that he would not raise taxes or cut spending right away, thus allowing the recovery to take hold.’ Photograph: Martin Argles for the Guardian

The UK economy fell back into recession in the first quarter. But talk of a double-dip recession misses the bigger picture – we’ve now had 18 months of essentially no growth, and more than four years after the start of the recession, the economy is well over 4% below its pre-crisis peak. The latest forecast from the National Institute of Economic and Social Research isn’t for another deep recession, but for no growth this year, and that we won’t get back to pre-recession levels until some time in 2014 – six full years on. Already, this is this is the slowest recovery on record, comparing poorly with what happened after the Great Depression.

The official forecast at the time of the June 2010 “emergency budget” was that we would now be growing at over 2.5%, with unemployment falling sharply. This was hopelessly optimistic. But getting the forecast wrong was not the government’s main mistake. Everyone gets forecasts wrong – we were too optimistic as well, albeit not by nearly as much. The point is that the government got the economics wrong. What the last 18 months has given us is as clear a test as you could ask for (in the messy real world of economics) of two competing worldviews.

The first was that, as the chancellor said then, “reducing the deficit is a necessary precondition to growth”: cutting the deficit quickly would restore consumer and business confidence, and allow lower interest rates, which would lead to growth. In other words, you can’t spend and borrow your way out of a recession.

The second, advocated by the likes of Martin Wolf and Paul Krugman, was the view that this was precisely wrong: the government deficit was the counterpart of excess private sector saving, as households tried to reduce their debts and businesses – knowing that the demand wasn’t there – held back from investment. Cutting the deficit too sharply would just make things worse. In other words, you can’t cut, tax and save your way out of a recession. As for low interest rates, they too were the result of a depressed private sector, trying to save too much and invest too little.

What have we seen since then? Not just low growth, but also, as a direct result, continued very high deficits. Indeed, in the past year, the deficit on current spending hardly changed, with almost all the reduction in the total deficit coming from cuts in investment spending. Hardly surprising therefore that it was the construction industry that was the biggest drag on growth in the latest figures.

But despite this continued high borrowing, long-term interest rates have remained very low, the result, as even a quick look at the data reveals, of a lack of investment opportunities far more than “confidence”. The markets have indeed spoken. As Wolf says, “they are saying: borrow and spend”.

What should the government do? There are plenty of alternatives, none of which involve abandoning the necessary medium-term goal of fiscal sustainability. Boosting investment spending now would boost growth, create jobs and would have no direct effect on the government’s primary fiscal target. Alternatively, or additionally, a “balanced budget expansion”, as advocated by the Social Market Foundation and the IMF, could achieve the same objectives. Either way, with long-term government borrowing as cheap as in living memory, with unemployed workers and plenty of spare capacity and with the UK suffering from both creaking infrastructure and a chronic lack of housing supply, not investing now is simply to ignore the most basic principles of economics.

The prime minister, of course, is not listening: his response to the GDP figures was to reiterate that “the solution can’t be more debt”. But perhaps he should look back to the last recession. In the then-chancellor Norman Lamont’s recovery budget of 1993, he famously, and controversially, raised taxes. But not immediately. He explicitly said that he would not raise taxes or cut spending right away, thus “allowing the recovery to take hold”. In fact, the government didn’t start cutting the structural deficit at all until 1994-95; by which time the economy had been growing for 18 months, by then at a very healthy pace of over 3%.

So Lamont grasped the basic economics, and got the timing right. I should know: I was his (civil servant) speechwriter. So should David Cameron: he was his (political) special adviser. Sadly, he appears to have learned the wrong lessons.