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Cooking the Books: Clueless

One of the first things George Osborne did on becoming Chancellor in May 2010 was to headhunt a whizz-kid economic forecaster to head a new Office for Budget Responsibility (OBR). For Osborne’s 2010 budget the OBR forecast that GDP would grow by 2.3 percent in 2011. It also made forecasts for the years up to 2015. We commented in this column in August 2010:

“Long-term predictions are even less reliable. Even so, the OBR has indulged in this, predicting (and we record the figures for future reference) that in 2012 growth will be 2.8 percent, in 2013 2.9 percent, and 2.7 percent in 2014 and 2015. This is not worth the paper it’s written on. It’s like the Met Office predicting a barbecue summer in two years time.”

In his Autumn Statement on 29 November Osborne revealed that the OBR had gone back to the drawing board and come up with some new figures:

“They expect GDP in Britain to grow this year by 0.9% - and by 0.7% next year. They then forecast 2.1% growth in 2013, 2.7% in 2014, followed by 3% in 2015 and 3% again in 2016.”

Given the unpredictable nature of capitalism, the chances are that the figures for the years after 2012 will turn out to be just as wrong.

The day after the Autumn Statement, there was a one-day public sector general strike. For the occasion, the Morning Star, which is close to the “Communist Party of Britain” (the nearest thing to the old “Communist” Party), brought out a special, free edition. It contained an article by Jerry Jones, the economic expert of the Morning Star and CPB, which revealed that those at the opposite end of the political spectrum to Osborne are just as clueless.

The CPB claims to be Marxist but Jones’s analysis was not based on Marx’s view that what drives the capitalist economy is investment by capitalist enterprises in search of profit. He argues that, on the contrary, capitalism is motivated by “economic demand” as if it were a system geared to what people want to buy; and that the current economic crisis is not a lack of profits but a lack of paying demand.

From this faulty analysis his faulty conclusion follows: that the state should invest in new productive activities, so putting money into workers’ pockets and increasing economic demand that way. This is Keynes rather than Marx, but where’s the state to get the money to invest? Easy:

“The fact is that governments could simply tell their central bank - the Bank of England in Britain’s case - to print the money or its electronic equivalent and hand it over to the government to invest.”

Jones himself then poses the question: “But doesn’t ‘printing money’ cause inflation?” He answers “No” on the grounds that the “true cause” of inflation is not “too much money floating around” but is “always insufficient supply, or investment, to meet growing economic demand.”

But, in the end, this is the same thing. The price of any good will go up if the paying demand for it exceeds its supply but, since paying demand is generated in production, the only way that total demand can come to exceed total supply (Jones’s assumption) is by it being inflated by the government “printing more money” (more accurately, printing more money than the economy needs).

The inflationary policy advocated by Jones might temporarily induce some increased production but would eventually lead to “stagflation”, as it did when tried in the slump of the mid-1970s. The Morning Star’s Keynesian reformism is not a viable alternative. Only socialism is.