Brown's Recession

The ONS has said today that Britain has experienced its first quarter of negative economic growth since 1992. The economy has contracted by 0.5%. This contraction follows 63 quarters of consecutive economic growth and one quarter of zero growth. The size of the contraction was worse than most economists expected and they now believe will be entering a period of prolonged recession rather than just a technical recession - i.e. two quarters of economic growth. Another piece of bad news is that the value of the Pound has been plunging. It is now trading at 1.55 to the US Dollar. Back in May it was 2 Dollars to the Pound. It is further evidence of our weakening economy which comes off the back of last week's news that unemployment has seen its steepest rise for 17 years.

So, who is to blame?

If you listen to our Dear Leader, Gordon Brown, it is all the result of global economic forces, particularly America. (Can one imagine Tony Blair, John Major or Margaret Thatcher pinning all of Britain's problems on its closest ally?)

Of course it is true the world’s economies have battled a set of roughly simultaneous shocks, but it is also true that these differ in their scope and reach. There has been a commodities shock (now rescinding) that hit all economies more or less equally through sharp rises in food and energy prices; a credit shock global in reach but uneven in its impact, with the effects greatest in the US and UK and least marked in Japan and the emerging world (the Eurozone lying somewhere in between); and a housing shock, with residential prices crashing in a number of economies including the US, UK, Spain and Ireland.

However, Brown is vulnerable, particularly on the issue of the housing shock because the government did nothing to dampen down the housing boom and if anything enjoyed reaping the benefits of the feel good factor as people saw the value of their homes grow ever greater. This is despite claiming in his first Budget as Chancellor in 1997 that: "I will not allow house prices to get out of control and put at risk the sustainability of the recovery.” Furthermore, Brown has justifiably come in for criticism for encouraging a ‘boom’ on the back of the highest household debt in the G7 (UK family debt is an astonishing 178 percent of household income). Brown also failed to warn against excessive borrowing like Vince Cable did; failed to do enough to encourage savings which can help families and individuals during an economic downturn; and created the tripartite system of financial regulation which failed to prevent the disaster of Northern Rock and subsequent banking collapse.

Brown looks ridiculous when he continues to contend that Britain is best placed to come through the economic downturn. You will not find a single economist who agrees with this widely over-optimistic appraisal of Britain's situation. The OECD has noted that Britain is particularly vulnerable because of its dependency on the housing and construction markets. The credit squeeze appears to be most potent when it is combined with falling house prices and strained household balance sheets – as in the US and (with some differences) the UK. However, whereas the UK shares America’s sectoral weaknesses – a housing and financial sector bust – it does not have the strengths of a larger economy or US-style productivity growth to rescue its economic performance. The fear for the UK is that, looking forward, tight credit conditions combined with Britain’s high levels of debt and rapidly falling house prices are likely to prove more troubling than in many other countries.

Brown's reputation for sound economic management is vulnerable on multiple fronts, and rightly so. His management of the public finances has steadily got worse since 2001; he has failed to put money aside during the good years to spend in the bad; he has over-inflated his achievements while taking credit for the achievements of others; he has been guilty of enormous hubris claiming to have abolished "boom and bust;" and he has sought to take credit for the good times while trying to distance himself from the bad.

This last point is important. We heard Brown say for a decade that Britain's strong economic growth was down to him. It had nothing to do with global economic factors. It had nothing to do, for example, with the industrial growth of China and India which led to a dramatic fall in the cost of imports and thus benefited national economies throughout the world in terms of low inflation and providing favourable conditions for low interest rates. In turn, this has led to inexpensive borrowing which helped fuel economic growth in Britain and around the world.

But now, the British economy has gone from boom to bust. Does Brown hold his hands up and say: "As i boasted that the good years were entirely down to me; i must also hold my hands up and take the blame." Of course not! Instead, he's completely flipped his argument. Now, Britain's poor economic performance has nothing to do with Brown's handling of the economy but is entirely down to global economic factors, particularly the poor economic management of the United States' government. Get real Gordon! You can't have it both ways!!!

In one respect the boom years were down to the actions, or should i say, voluntary inaction of Gordon Brown, though this is credit he will not want, but does deserve. The failure to control the housing boom, to keep a check on unsustainable government and household borrowing, and to regulate the banks correctly should all be on the political gravestone of one James Gordon Brown! They all contributed to what we now know as the 'Age of Irresponsibility' and an unsustainable boom that was destined for bust.