Darling: the worst for 60 years?

What on earth is Alistair Darling on about? He tells the Guardian that:

The economic times faced by Britain and the rest of the world "are arguably the worst they've been in 60 years".

I just don’t get this - and not just because, as John points out, we’re four times richer than we were 60 years ago. Let’s run through some possibilities.
1. GDP. This fell 1.3 per cent in the worst four quarters of the 1991 recession. The Bank of England reckons the chances of a repeat in the next four quarters are a roughly two standard deviation event - less than a one-in-20 chance.
2. Unemployment. The consensus among independent forecasters (pdf) is that the claimant count will rise by around a quarter million - to 1.1 million - by Q4 2009. In the 1981 and 1991 recessions, it rose three times as fast. It rose twice as fast in 1975.
3. Household incomes. Yes, these have been squeezed recently. But independent forecasters expect the squeeze to abate next year, and for real disposable incomes to rise 1.1%. In the worst point of the 1981 downturn, they fell 2%, and in 1977 - when incomes policy bit - they fell 4%.
4. House prices. OK, so these’ll fall. But this means diddly squat. House prices are not net wealth. Many people gain from falling prices.
5.Financial conditions. The stock market has risen in the last few weeks. The All-share’s dividend yield is 4% - slap in the middle of the range (3-5%) generally considered to be a long-run normal rate. People who are staking money on the UK economy, then, don’t think we face a crisis. Contrast this with 1974, when some people genuinely thought capitalism would collapse.
Yes, sterling has been weak. But this is as much a help to the economy as a problem.
So, what’s going on here? One possibility is that Mr Darling is much more pessimistic than reputable forecasters - which is an odd turnaround, given that he was more optimistic than them just four months ago. Or maybe he knows nothing about economic history.
There’s a third. The monetary policy committee meets next week. Darling is, in effect, pleading for them to cut rates. But why should they believe such hysteria?

Comments

[Bob B]

Believe me as I'm sufficiently ancient in these matters, there's a traditional political tactic of predicting the likelihood of an imminent disaster and then claiming credit for brilliant government management when the disaster as predicted doesn't materialise. In the run up to declaring their annual budgets, profligate local authorities almost routinely leak forecasts of pending council tax hikes of c. 10% and more.

[Bob B]

The Sunday press is evidently awash with portentous analysis of Alistair Darling's interview in the Guardian. IMO among the sanest and most balanced commentary comes in the BBCR4 interview with Vince Cable - scroll on down past the George Osborne link and click on the following video link to hear the Cable interview:
http://news.bbc.co.uk/1/hi/business/7589739.stm

Whatever else, Vince Cable was at one time chief economist of the Shell oil company and obviously remembers more than just a thing or two about reading and making a running assessment of economic entrails in the real world.

[john b]

Bob B, whilst you sometimes go off on irrelevant ones, you're right on the fucking money here. Good man.

[technomist]

The simplest explanations are always the best. Darling is a twat.

[Bob B]

For Alistair Darling's timeline to projecting doom, try this:
http://news.bbc.co.uk/1/hi/business/7589611.stm

[gracchi]

I wonder whether its not a signal to Brown as well that the situation is actually bad- and a bid to actually control economic policy himself. You are right about it being a pressure on teh MPC- but I'm not sure that given what else he said in the interview, that Labour lacked vision, that there could not be a cabinet reshuffle, that its Darling sending a message to Number 10.

[knackeredhack]

I think he's saying it's a black swan. But I suppose it's not if you saw it coming, init?

[Bob B]

"I think he's saying it's a black swan. But I suppose it's not if you saw it coming, init?"

I doubt it's anything as quite as sophisticated as that.

My guess is that, among other factors, Alistair Darling thinks he was being set up after being prompted to spin all those good news stories about how strong the British economy is and how well it is doing compared with the leading Eurozone economies - Germany, France and Italy.

Gradually the news sank in - not least news from American sources - that we are nowhere nearly out of the consequences of the credit crunch yet. Just a week or so back Prof Rogoff, previously chief economist at the IMF, was saying another big bank may fail bringing global repercussions in its wake:
http://news.bbc.co.uk/2/hi/business/7569903.stm

Also, by several accounts in the news, Ed Balls, the present schools minister and at one time chief economic adviser in the Treasury, has been briefing No 10 on what to announce next week to revive the housing market or in Brown's relaunch due at the end of September.

IMO Darling suddenly realised that if the British economy took an obvious turn for the worst, he was going to look pretty daft after those optimistic speeches and comments and could easily be made a scapegoat to pave the way for Ed Balls to return to the Treasury but as Chancellor. Better then to anticipate and go public to foretell of doom and disaster so Darling won't look silly.

I don't think we fully appreciate the role of Yvette Cooper in all this. She is now Chief Secretary to the Treasury, which carries the status of the Chancellor's deputy. She also happens to be the wife of Ed Balls and was the minister responsible for housing from 2005 to this year when she was replaced by Caroline Flint. Relatively speaking, the house price bubble here grew to larger dimensions than in America and it is now deflating, month by month. One consequence is that house building industry has slumped to the lowest level of construction since WW2.

What was Yvette Cooper's contribution as the relevant minister to anticipating and resolving the issues in the housing market, including all those 100% and 125% mortgages? Please tell me.

[a very public sociologist]

Or, if we want to be cynical, he's positioned himself politically quite well. If things pan out as bad as he forecasts, then he can claim farsight and to have been straight with the British public. If not, then he can take the credit for steering the good ship Britannia through the choppy waters of economic crisis. Win-win for Darling?

[Bob B]

The question is whether Darling over did it for the good health of the economy.

How much business investment will now be put on hold or cut out for fear that Darling's vision of gloom on the horizon comes to pass? After all, he is the Chancellor with better access to inside information than most.

[Bob B]

An assessment of the likely course of the economy from a heavyweight economist who was previously a member of the Bank of England's monetary policy committee - Charles Goodhart:

"How will the forthcoming recession compare with that of the early 1990s? The collapse in the housing market is likely to be just as bad, but for the rest there are pluses and minuses. On the plus side, we are getting some relief from a decline in the exchange rate at an earlier stage in the cycle than in the 1990s when we were hooked into the ERM, and both interest rates and inflation will (soon) be considerably less.

"On the minus side, the credit crunch, and probably the world economy more widely, will be worse this time. The worst depressions result from financial collapses, so there remains a serious downside risk, but the most likely outcome is perhaps slightly less bad now than then."
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/01/ccom101.xml

[kinglear]

Apart from trying to make life difficult for Brown, this is the classic finance directors ploy - when things are looking iffy, write off everything and then some - you have a bad quarter/year, but hey, the next one makes you look like a genius. For once, a Labourite economic illiterate actually seems to have picked up something from the market.

[Bob B]

Not to mention:

"Ms Moore had faced widespread calls for her to quit since sending an e-mail as New York's twin towers burned, suggesting that 11 September was a good day to 'bury' bad news."
http://news.bbc.co.uk/1/hi/uk_politics/1823120.stm

[Dipper]

The main crisis facing labour is not an economic one but one of political philosophy.

The collapse of communism appeared to leave free-market economics as the only game in town. Rather than challenge this, New Labour embraced it whole-heartedly, ditching any pretence to be concerned with giving workers more control over their economic affairs, and rebranding itself as solely concerned with managing the state in favour of the ignorant helpless masses by adopting the best practices of modern capitalism (hoardes of consultants, PFI, no state interference with big business.

By any rational analysis, this crisis is the end of that political model. Banking, the beating heart of modern economics, has had to go cap in hand to the state to avoid widespread collapse. Despite enormous spending, progress in the public sector has ground to a halt, largely due to the consultant selling snake-oil solutions and pocketing vast amounts of cash in the process.

The problem for Labour is that to accept this would mean confessing that they have sold their soul for a pack of lies. This means there is considerable internal pressure to pretend that this is just a small blip, and to pour vast sums of tax payers money down the plug hole in a vain attempt to keep their discredited and bankrupt political philosophy afloat.

So I think Darling was signalling a break with this philosophy. He is not willing to be held personally responsible for vain attempts to keep the economy afloat, and he himself would prefer to take the hit now and bury the New Labour philosophy with it.