Osborne’s statement to parliament on recent economic volatility was pervaded by inaccuracy, complacency and vainglory.
By David Hilferty
For those inclined to wonder what a Chancellor gets up to on holiday, Monday’s Daily Telegraph article offered a fascinating insight and an interesting overture to his speech today.
Where most tourists in Los Angeles write home with postcards, Osborne, it seems, writes home with Telegraph articles.
Then, Osborne’s article was pervaded by inaccuracy, complacency and vainglory. Today, his statement to the Commons continued along much the same lines.
Opening his statement, the Chancellor proclaimed the UK as the country best-equipped to ‘lead a more effective international response to the fundamental causes of this instability.’
The reality? Osborne and team have been largely reticent throughout the American and eurozone crises of recent weeks.
It was the action taken by the European Central Bank that temporarily placated market concerns. The Chancellor would have you believe otherwise, however:
“For months now we have been impressing on our European counterparts, in private and in public, the urgency of what needs to be done.”
Such crowing would normally infer that recovery in the UK was firmly back on track.
That despite growth stagnating at 0.2% during the previous quarter. That despite manufacturing output falling 0.4% between May–June.
And yesterday, the Bank of England downgraded the UK growth forecast for the fifth time since Osborne took office.
Paul Krugman, the American economist, recently compared the ratio of employment to population at three stages – June 2007, June 2009 and June 2011 – to indicate that job growth is non-existent in the US.
If a similar analysis is applied to the UK economy, the conclusions to be drawn are equally grim.
In June 2007, 74.4% of adults of working age were in employment. But as of June 2011, under Osborne’s watch, the same figure stood at 70.7%.
The Chancellor’s delusions of recovery are matched only by his delusions of UK imperviousness to problems in the eurozone:
While other countries struggle to command confidence in their fiscal forecasts, we have created an internationally admired and independent Office for Budget Responsibility.
These bold steps have made Britain that safe haven in the sovereign debt storm.
Given that the global economy is so inextricably entwined, collapse, whether in America or the eurozone, would have inevitable repercussions on the UK.
China’s unprecedented intervention during the American debt crisis, for instance, was not a mark of its seemingly inevitable ascendancy into the world’s new economic superpower; not the act of one nation offering prudent advice to its less economically-sound counterpart.
Rather, it was a statement of its own anxiety; the recognition that, with some $3tn-plus of US dollar reserves, its own economy would be impacted by a US meltdown.
Osborne’s assertion that the UK is a safe-haven represents a deep misunderstanding of the impending risk of contagion.
Perhaps most perplexing of the Chancellor’s statement, however, was his unique take on the action taken by Standard & Poor’s to downgrade the US credit rating:
The very same rating agency that downgraded the United States has taken Britain off the negative watch that we inherited and reaffirmed our AAA status.
For Osborne to find vindication in the S&P decision was a staggering misjudgement.
As a recent US Treasury factsheet underlined, S&P are far from infallible. The shrewd response of John Bellows, Acting Assistant Secretary for Economic Policy, highlighted a $2tn miscalculation in its forecast for American debt to GDP.
The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.
Despite acknowledging this error, S&P upheld its original decision. Bellows described the S&P rationale as driven by political motivation, rather than economic astuteness.
Following today’s statement, as the Chancellor continues to peddle his tiresome recovery delusion, the same allegation must be levied at the Government’s flailing fiscal policy.
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