I posted this thread on Twitter this morning:
Liz Truss put growth at the epicentre of her policy and political narratives yesterday. It is the dividing line around which she will seek to differentiate the world between those who are for her and those who are opposed, in her view, to what she stands for. A thread…
I suggest Truss has made a mistake. Let me leave aside the fact that in July this year Keir Starmer chose an identical focus on “growth, growth, growth” as his campaigning slogan, which makes Truss's position look like a straightforward case of plagiarism.
Instead, let me suggest that both fail to understand what growth is, and that neither will deliver much of it, whatever they say.
There is some growth that is natural. Children grow. That's good news. So, unfortunately, do cancers. That's not good. Even where growth is a natural phenomenon it is not necessarily good. In that case any discussion on growth has to say what growth is desired.
Truss made no such distinction yesterday. Apart from frequent references to pies which, as many pointed out, do not grow once they are baked, she left us to work out for ourselves what she was referring to when talking about growth.
The assumption is that what she wants is growth in the size of the UK's monetary economy, which is measured using something called Gross Domestic Product, or GDP.
Growth in GDP has been a post-war obsession, largely because no reliable measures of it were prepared before the Second World War. Somehow, like children who grow even if they are not measured, growth happened at that time without a tool to appraise it.
The trouble with GDP is that it is really not a very good measure. First of all it says that all that is paid for with money is good and everything else is not. So, if childcare is paid for its good. And if it is done at home, or by granny, it has no value.
Very obviously that is not true. But what it also demonstrates is that if we want growth the best thing to do is monetise many things that are not paid for now. Simply insisting that all domestic laundry and cleaning must be paid for would massively increase GDP.
But would that add to growth? It would not, of course: the same amount of work would be done (albeit, maybe by someone else)and no one would really be better off. We'd record growth and have added little or nothing to society as a result.
Then there is the problem that GDP assumes that everything paid for with money is of equal worth. So, the surgery that saves a person's life has the same value as a gambling website. Is that true?
GDP also puts no value on misery. As I have often told students, if you really want to increase GDP just require that everyone divorce. That generates vast quantities of legal fees and costs in setting up new households but it does not add to the quality of life.
Robert Kennedy, the brother of President Kennedy, who was assassinated in 1968 when he too was running for president of the USA, summarised this well. He said of GDP:
“Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.
Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
If this is true here at home, so it is true elsewhere in world.”
This hopeless measure of nothing of necessary value is what Truss says she is pursuing. It's scary, to say the least.
But there is more to the folly that she is focussing upon than that. The problem for Truss is that growth is not something you can target directly. Like profit and happiness, growth is an epiphenomenon of other activity. It does not happen by itself, so you cannot target it.
What you can target are those things that make up growth. The most common economic formula for GDP is:
GDP = C + G + I + (X-M)
In this formula C is end consumption, mainly by households. G is government spending excluding transfer payments like pensions that are reflected in C. I is investment in new plant and other assets. X is exports and M imports.
(X-M) is net exports and has been destroyed by Brexit. That's not a political statement. That is a fact. As a result if Truss wants to deliver growth she has to get close to the EU again. There is no sign that she is doing so.
Truss has made it very clear that she wants to cut government spending, by at least £18 billion. This reduces growth as a result.
Consumption spending on everything but essentials like energy, mortgages, rent and food is falling: that's the result of inflation and the collapse in consumer confidence the Tories have delivered. It is at its lowest since 1974 when records began. C is not delivering growth.
And if consumers are not going to be buying more then business has no reason to invest, so I is falling as well.
In other words, the underlying conditions that might create the epiphenomenon of growth do not exist, and so growth will not follow. This is as predictable as it is certain that night will follow day. Much of it is also Truss's Schlick. She is no friend of growth.
Despite this Truss says she has “a plan for growth” and that the world can be divided between those who support her plan and those who do not. But her plan for growth is no such thing. She is instead cutting taxes and regulation, and the link between them and growth is not proven.
In fact, there is strong evidence that higher tax rates are associated with higher growth and that well regulated states grow more. Correlation does not prove causation, but the links look pretty powerful.
There are, then, three conclusions. First, Truss has chosen to prioritise the wrong thing when focussing on growth.
Second, she has indicated her lack of concern for the quality of life when doing so. What she has sent out instead is the message that all that matters to her is money. That is very troubling.
And third, she clearly does not understand that delivering growth requires positive action to support consumers, investors and exporters in an environment of increasing government spending, none of which she is supplying in a meaningful way.
Has Truss set out to fail in that case? It looks like it. I leave that problem to her to sort out.
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Judging by Lisa Nandy’s interview on Today this morning Labour is just as hopeless. It was unbelievably bad.
I’m minded of Oscar Wilde’s quip about those that know the price of everything and the value of voting.
Value of *nothing. Damn autocorrect.
I’d have left it as it was. The 0.2% responsible for Truss being in post certainly knew the price of everything and the value of voting.
I’d have left it as it was. The 0.2% responsible for Truss being in post certainly knew the price of everything and the value of voting.
Actually the misquote was rather good… Given that the Tories are also trying to gerrymander as much as they can…
I fear that things will get worse than you think. The bad people who think prices are disinformation are coming.
Schlick ?
My German dictionary says schlick is trick or dodge. Truss doesn’t realise that if her trick or dodge for economic growth of 2.5% comes to pass (but as pointed out, highly unlikely) it will completely trash the global ecology and climate heating will be onto an even more dangerous trajectory than it is now on. Robert Kennedy was quite right to point out the dangers of this in the 1960s and the Club of Rome report in the 1970s – when will we ever learn?
Another problem for Truss is timing.
Even if cutting taxes, and cutting public spending (and Brexit, and fracking, and increased interest rates due to the government’s inflationary policies) eventually led to growth, as the ideology fed to her from Tufton Street leads her to believe, trusting that the levers she pulls are connected to something that produces the desired result, the question is when?
When the figures are finalised, the UK is likely to be in or near recession at the moment. The winter is going to be difficult – more strikes, and fuel shortages, and likely real destitution for some if benefits are cut in real terms – and the (near) recessionary situation will continue into 2023.
The pendulum swings, but will it turn around by the time of a general election in 2024? Truss and Kwarteng went all in, and have already found that their party is not entirely with them. Will the Conservative party allow them to continue while things get ever more difficult, likely losing seats at the 2023 and 2024 local elections, gambling that the supertanker might change course before the next general election?
Excellent piece.
Ideology versus arithmetic – I think we know which wins.
I’ve been waiting for a journalism to ask a question like ‘what does ‘growth’ look like?’. The word is being used without being meaningfully defined. I’d like to believe we were looking forward to a new period of growth in the sense of maturity – physical, mental, emotional maybe even spiritual. My worry is ‘Tufton Street’ Truss is using growth in terms of evolution – towards a purer neo-liberal state.
In terms of political narrative the new PM’s party conference speech seemed to be opening up a path to turning ‘growth’ into the new ‘Brexit’. The faithful, the true believers, now to identify as those who supporting ‘growth’ and everyone else othered as a new enemy – which was named, ‘the anti-growth coalition’.
Down this path ‘Remaines’ may become the old enemy and Brexit to be consigned to history….which will be remembered with the battle having been as won.The
To expose effectively we must question and call out manipulation in real-time – as is finally happening around secretly funded ‘think tanks’.
Journos typically hopeless at economics
Truss claims to be using ‘new thinking’ ‘new strategies’ but I remain sceptical at best.
I cannot find any room to disagree with your analysis Richard but I am struck by the (probably unintended) similarities of sentiment between Kennedy’s statement and that of Karl Marx;
“This is the time when the very things which till then had been communicated, but never exchanged; given, but never sold; acquired, but never bought — virtue, love, conviction, knowledge, conscience, etc. — when everything, in short, passed into commerce.” Poverty of Philosophy 1847.
I would also suggest that Goodhart’s Law of economics offers Truss some sage advice. “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”
Truss is using the standard neolib toolbox. There is no thinking, new or otherwise, just the naked ambition to impose the mythical neoliberal nirvana. This is accompanied by the fatalistic justification – if you want to make an omelette you gotta break eggs. But these eggs are the old, the young, the poor and the frail.
Bang on the nail as usual, Richard. But particularly excellent is the quote from Robert Kennedy, which I’d never come across but is superb. If I were Starmer and one of my aides brought that to my attention it’d be high on my list of material to draw on for my next speech, and the one after, and so on, putting clear blue water between what Labour sees as growth and the narrow – and barren – variety to be pursued by Truss. Sadly, that won’t happen, of course, as Starmer and co have already signed up to the GDP variety, although with some policies that will smooth some of the ‘rough edges’.
Thanks
I am afraid this is an ‘off-thread’ comment, but following the BofE requirement to intervene to steady pension fund liquidity last week, because of pension fund derivatives exposure (does nobody ever learn anything from past crises?), I saw a press reprt yesterday that the hedge funds are now hovering, in vulture capital mode, over the pension fund sector; which may require to unload high quality illiquid assets at a big discount. This implies a further big transfer of wealth to ‘the few’; all thanks to the Conservative Government.
If well sourced this suggests Middle England is not just going to take a big mortgage hit, but more serious damage to their prospects and long term security. Truss need not fight so hard to make everyone an enemy (the fake ‘anti-growth coalition’; a large number of new enemies are probably coming her way if the Hedge Funds soon gobble up lots of cheap assets.
Spot on.
Truss has that typical Neo-liberal reductionist mindset (growth is growth and sod the distribution of it) plus a bias towards wealth (because unfortunately, as in most of the West these days, we associate wealth with mythological powers of intellect and capability when in fact a lot of wealth seems to me at least to gained through processes that are morally dubious by any normal standard and or are opportunistic).
‘Most’ ‘economic thinking’ is ‘short run’ and redundant’?
‘It’ ignores the ‘supply side’?
‘Growth’ {and ‘civilisation’} depends upon ‘cheap’ F.F. – those ‘halcyon days’ are ‘gone’. ?
https://consciousnessofsheep.co.uk/2022/07/01/bigger-than-you-can-imagine/
As you say Richard in the last two paras she seems not to have a clue what shes doing – so its difficult not to just ignore her while she flounders.
Her other stuff about ‘anti growth coalitions’, just more of the pathetic semi fascist rhetoric play book.
Her plans to slash and burn public safeguards – such as health and saftey, planning regs- , money laundering, tax fraud in investment ones and further demolition of the NHS, Schools, courts, police etc. all grotesque – but probably not implementable
The people who very definitely do not support Truss’s plan for growth are those piling up savings offshore and not investing or spending in the domestic economy.
Basically that’s all of her friends and supporters then…
Kate Raworth puts it well
she makes the point that our belief in economic growth is almost religious- personal in nature political in consequence privately held & little discussed
be agnostic about growth she argues
what we need is to create an economy that ” enables us to thrive whether or not it grows ”
Tim Jackson is more blunt in the subtitle to his book ” Post Growth ”
” Life After Capitalism”
and finally in support of what you say Richard
” We are in the beginning of a mass extinction. And all you can talk about is money & fairytales of an eternal economic growth ”
Greta Thunberg
“Truss has made it very clear that she wants to cut government spending, by at least £18 billion”
Straight from the Tory austerity handbook.
The Canary mentioned a report covering the impact of austerity on deaths (Journal of Epidemiology and Community Health)
https://www.thecanary.co/opinion/2022/10/05/austerity-didnt-kill-334000-people-the-tories-did/
There were 334,000 excess deaths in the period 2021 – 2019. The Canary noted that newspapers such as the Guardian reported on this & attributed it to “auterity”. As it noted by the Canary : knives and guns can be used to kill people but it is people using these that kill people. It was the Tories use of austerity that killed all these people. And Truss is doing it again. It will be interesting to see how many people Truss indirectly kills. At the moment the combo of Tory austerity and the Tory response to Covid have killed around 0.55 million people. Very roughly 10x UK civilian deaths in World War 2.
Mike Parr
You are in my view at least absolutely correct to highlight ‘amortization’ of our society by the Tories.
Before Covid, average life expectancy in the country was going backwards (declining) anyway.
A world denuded of money – and money is just a utility in my view – is a hard world when you’ve also marketized it as much as we have done over that last 40 odd years and opened it up to rentiers (or what should be called ‘wrong-tiers’ – people already rich higher up the income scale).
It all started in 2010 with Tory vindictiveness for our daring to vote Labour in and has ended in Khmer Rouge-like year zero policy which needed a muppet like Truss to finish Thatcher’s ‘winding back of the state’.
Yes, you are right Mike – the Tories are killing us. The killing fields of the UK have been the NHS and people’s homes.
So – let’s move onto the question of self-defence and the defence of the country – like real patriots should?
Where do we start?
Hello Richard
Regarding this statement:
(X-M) is net exports and has been destroyed by Brexit. That’s not a political statement. That is a fact.
Could you point me to any analysis that shows to what effect net exports have diminished since Brexit? The pandemic provided a fog to any accurate before/after comparision so I havent seen anything conclusive.
Thanks
Sanjay
With respect, this has said so often by major agencies I think you can google the answer for yourself
This looks like time wasting trolling
Please don’t do it again
Omitted from Robert Kennedy’s excellent explanation of the limitations of GDP as a measure of ‘growth’ are the earlier couple of lines which seem to me to be very revealing. Here they are:
‘Even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all.
Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things.’
In my view, we started to go wrong in the 1980’s under Thatcher where the pursuit of material things became part of a cultural shift away from community and towards individualism. This individualism with its ‘devil take the the hindmost’ approach to life, is exemplified in everything that comes out of Tufton Street and is parroted by their gullible disciples in government. Keeping people poor immiserises us all. Truss et al will never understand that. Time for a system change.
Agreed
I decided I could only use so much in a thread on twitter – which is where this began
This is such a beautiful quote, all credit to Robert Kennedy for hitting a nail on the head so eloquently. We need a new factor in the measurement of GDP. We need to introduce L. L=Love.
How much is L worth?