Has George Osborne been one of the luckiest Chancellors ever? It seems an odd question, given that he's had the misfortune of the euro crisis and the dearth of investment opportunities. But in one respect, he's had some tremendous luck.
I'm referring to the productivity stagnation.
Imagine that non-oil GDP per worker had grown 2% a year since 2007Q4 - half a percentage point less than it did in the previous ten years. Had this happened, there'd now be 3.1 million fewer jobs than there actually are. Unemployment would probably be over four million - 14% of the workforce. And instead of there being 755,000 more jobs than there were since Osborne became Chancellor, there'd be 755,000 fewer*.
In the face of such massive unemployment, there would surely be little doubt that the coalition's fiscal policy was an abject failure. The only thing preventing the Tories and Lib Dems from being even more unpopular than they are would be the fact that unemployment rose a lot under the Labour government too. Perhaps, as in 1981, civil unrest would be a big problem. And the political class as a whole would be in even deeper disgrace than it is.
So, has Osborne been very lucky to have seen productivity stagnate rather than unemployment soar? There are two possible replies here.
One is that my counterfactual is implausible. If unemployment had risen so much, real wages would have fallen further, pricing more workers into jobs. And the Bank of England would have run a looser monetary policy, perhaps also creating more jobs.
Maybe. But one could equally argue that, offsetting this, the higher unemployment would have depressed consumer spending even more, depressing GDP even more.
I suspect, then, that this scenario is not unreasonable.
A second possible reply is that the government deserves credit for keeping people in work. This is possible in three ways:
- Public sector job cuts have contributed to falling real wages which might have priced people into jobs.
- The low interest rates which accompany austerity have contributed to low productivity "zombie" companies staying in business, thus preserving jobs.
- Maybe some firms believe Osborne's claim that cutting the deficit increases business confidence. If so, some firms might have hoarded labour in the hope of better times to come.
I suspect, though, that these are only part of the reason for the productivity puzzle. Certainly, I've not heard many Tories saying "look what a fantastic job we've done in causing productivity to stagnate."
Insofar as the coalition is not responsible for the productivity stagnation, then Mr Osborne is a lucky Chancellor.