On GDP figures today, credibility, and Popperian falsifiability..
Much of the discussion about today's GDP figures has focused on the "surprise" fall in construction, as if this had somehow come out of nowhere and was nothing to do with government policy. And perhaps the figures will be revised. But more broadly, it is hardly surprising that the construction industry is having a hard time when the government has taken a deliberate decision to slash public sector investment - down 25% last year, as Tuesday's ONS figures showed.
Much of the discussion about today’s GDP figures has focused on the “surprise” fall in construction, as if this had somehow come out of nowhere and was nothing to do with government policy. And perhaps the figures will be revised. But more broadly, it is hardly surprising that the construction industry is having a hard time when the government has taken a deliberate decision to slash public sector investment – down 25% last year, as Tuesday’s ONS figures showed. In fact, virtually all last year’s deficit reduction came from investment cuts; the current (non-investment) deficit hardly changed.
As Keynes may or may not have said, “When the facts change, I change my mind. What do you do?” Well, we know what George Osborne does. I will let the Chancellor and the Treasury speak for themselves:
Osborne said: “What you see today, in an uncertain global economic environment, is Britain growing, growing strongly, the strongest growth we have seen in this part of the year for a decade, and also our country’s credit rating being secured. That is a big vote of confidence in the UK, and a vote of confidence in the coalition government’s economic policies.” Guardian, 26 October 2010.
“Fitch revised the outlook on the UK’s rating to negative from stable….”this is a reminder of why it is essential Britain sticks to its plans to deal with its debts,” a Treasury spokesman said…” Telegraph, 14 March 2012
George Osborne said: “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.” Telegraph, April 25, 2012
Karl Popper said, cruelly but accurately, of Marxism:
[it] is no longer a science; for it broke the methodological rule that we must accept falsification, and it immunized itself against the most blatant refutations of its predictions. Ever since then, it can be described only as nonscience—as a metaphysical dream, if you like, married to a cruel reality.
This seems a reasonable description of the current approach. Is there a credible alternative? Of course there is. You don’t have to be Keynes to think so. And you don’t have to take my word for it. Ask the IMF. Or Martin Wolf at the FT. Or Ian Mulheirn at the Social Market Foundation. Or John Van Reenen at the LSE. As I said over a year ago, the real hit to credibility comes from sticking to unsustainable policies in the face of the facts.
George Osborne says that we are all “at the outer fringes of the international debate.” That’s clearly false as far as serious economists go. But if he’s right in terms of UK government policy, the main losers won’t be us: it will be the unemployed, especially the young.