"The so-called recession"

David Cameron is “unimpressed” with Lord Young’s talk of the “so-called recession.” However, there is much truth in what he says. For example:
Claim: 100,000 job losses are within “the margin of error” in the context of the 30 million-strong job market.
Fact: The ONS estimates that the sampling variability of its estimate of employment is 152,000 (p12 of this pdf). One-nil to Young.
Claim: “Most people with a mortgage who were paying a lot of money each month, suddenly started paying very little each month. That could make three, four, five, six hundred pounds a month difference.”
Fact: Since December 2007, the average standard variable mortgage rate has dropped from 7.68% to 3.93%. With the average mortgage just over £100,000 (11.1 million mortgages with total debt of £1.2 trillion) this implies a monthly saving of around £350. Some (those on fixed rates) will have benefited less, others (some tracker mortgages) more. Two-nil to Young.
Claim: “For the vast majority of people in the country today they have never had it so good.”
Fact: Only a minority of people have mortgages. Their gains, then, are offset by three groups of losers. First and most obviously, there are those who have lost their jobs; a net 876,000 full-time jobs have gone since the cyclical peak. Secondly, there are workers generally. Since December 2007, the average worker has suffered a cut in real wages: average earnings have risen 3.7% since then but the constant tax CPI has risen 7.6%. Within, this, though, millions would have done better. Thirdly, there are savers who have suffered lower interest income and higher prices.
Net, then, I suspect Young is wrong here.
So, I score it 2-1. By the low bar that is politicians’ standards in such things, this isn’t too bad. So why is he getting stick? Because he’s drawn attention to some inconvenient facts.
1. We are not all in this together. The key fact about the recession is the variability of experience, from the big mortgagee who’s saved thousands at one extreme to the man who’s lost his job at the other.
2. This variability is largely due to luck. The big borrower who’s saved thousands doesn’t deserve this good fortune. Nor do the savers who have lost out deserve their bad luck, nor the workers who have been sacked. This might seem trivially true, but it undermines rightists ideas that individuals are in control of their economic fate, that wealth is due to hard work and unemployment to workshyness. It also draws attention to the possibility that the pain of recessions might be mitigated by better institutions for pooling risk.
So, if I were Cameron, I too would be unimpressed by Young’s remarks. There’s no place in politics for the truth.  

Comments

[Tom Addison]

But what if someone you care about has lost a job? Whilst a friend of mine or my uncle losing their job due to the recession doesn't affect me directly, the news certainly doesn't cheer me up either. And I'm assuming that, the further you go down the income scale, the more you will find people who know someone who has lost a job. Something tells me Lord Young doesn't have many friends or relatives who have been made redundant during the recession.

[chris]

Thanks, Tom. I was thinking in narrowly economistic terms about mere material effects.
You're right.
There is an asymmetry here, though. We are more depressed by a friend losing a job than we are by them saving hundreds on their mortgage payments.

[pablopatito]

Tom, I think people are generally more self-centred than that. The majority of people don't expect to suffer unemployment or sickness, so expect they will be better off under a government that targets the unemployed and the sick.

This surely explains why the Tories are ahead in the polls, and why Thatcher won elections during periods of rapidly increasing unemployment. The belief that shit only happens to other people is behind the Tories popularity.

[Tom Addison]

Touché, good point. Could even go as far as twisting it on its head and saying people might take satisfaction from seeing their friends/peers lose their jobs, I have a rather arrogant friend who I'd very much like to see humbled. And alternatively, people can be very jealous of and hold much resentment towards friends who are doing better than they are.

[Tom Freeman]

There's a saying (don't know who from) that a recession is when your friend loses his job but a depression is when you lose your job.

[Tom Addison]

"There's a saying (don't know who from) that a recession is when your friend loses his job but a depression is when you lose your job."

Think it was John Terry.

[Matthew]

Also there's the damage done by thinking you might lose your job, don't know how you measure it but apparently the cost of mortgage protection insurance has increased sharply.

[Matthew]

"Thirdly, there are savers who have suffered lower interest income and higher prices."

And do the losses by savers in interest foregone match those of borrowers? I guess perhaps they're more concentrated?

[RV]

What about the pleasure when someone you don't like loses their job. City job losses is a good news story for most people.

I know this sounds like a silly point but it shows how it is almost impossible to factor in feelings into this kind of calculation.

The other point here is the difference between having more money in your pocket and your wealth. Many people may well have more money to spend but very few will have seen their assets recover to pre-crunch levels.

[Luis Enrique]

2 small truths and 1 big error

[ortega]

Spot on.
I felt really embarrased this morning watching the BBC and seeing a man saying sorry for telling the truth.

[Hal]

His third claim was correct too but you have to understand what he meant. When he said "the vast majority of people in the country" he doesn't mean what you or I mean. Oh no. He means the vast majority of well-off Tory people with a large house.

In fact if you keep this in mind when interpreting what Tories say, then suddenly a lot of things make sense. The key word here is "country", as in "up and down the country", a great Tory phrase that means the well-off suburban and shire range-rover brigade.

[Sean]

At best politics is comic book philosophy at worse a journey to the post modern world and the desert of the real.

[Keith]

Telling the truth is always a bad idea in politics as the voters prefer comforting lies.

My Lord Young also said basically the cuts only affect poor people so why worry about it? not a problem for our class eh? The real Tory party lets the mask slip.

His observations however raise the interesting point economically how Interest rates as a policy tool have large unmerited distributional affects on different Income recipients. Two equally well off people will be affected by the same policy in a radically different way depending on their debt levels and composition.
Surely a severe draw back as a policy.

[Nonymouse]

I think you should score at least half a point against Young for the "so-called recession" phrase; it genuinely was a recession.

[John]

As savers like me pay tax on their savings income while the far more numerous borrowers do not get tax relief on the interest they receive, there is a net gain to the majority of people from lower interest rates.
The cut in interest rates benefits those indebted (mostly the poor and the younger members of the middle-class and their families) more than it harms the savers (mostly the rich and elderly members of the middle class), so "Hal" has got it utterly wrong - the cut in interest rates makes the average Tory voter worse off, the average Labour voter better off.
Keith hasn't bothered to read what Lord Young said.
I agree with Nonymouse.
"Only a minority of people have mortgages" - well, up to a point Lord Copper. If I had not paid off my mortgage the money available to spend by FOUR people would be affected by the fall in the interest rate. Four times 11.1 million is nearly three-quarters of the population. CML do not supply data on how many live in each mortgaged flat but it is clear that an overall majority of UK residents form households with mortgages or other borrowings - so 3-0 to Lord Young on your analysis. On my analysis it would still be 2-1 because the differential between rich and poor expanded significantly under New Labour (according to HMRC) and, if you strip out distortions to the GDP numbers, national income rose slower than the population in 1997-2010, so most people are slightly worse off in real terms than in 1997.

[Tapestry]

Young called it right from the viewpoint of stock markets. Optimism is at record levels and prices recovered from FTSE 3400 to 5800.

[Steve Hemingway]

The mortgagee is the lender, the bank. It's the individual who mortgages his house, and therefore is the mortgagor. Otherwise I agree with everything you've written.

[Tom Addison]

http://www.thedailymash.co.uk/politics/politics-headlines/heartless%2c-insensitive-old-tory-absolutely-spot-on-201011193271/