George Osborne is bound to crow at the Conservative party conference about the superior performance of the British economy under his stewardship. After three years of “hard slog”, there is at last some good news to report. In the second quarter of this year, the economy grew by 0.7 per cent after “flatlining” for the previous three years. The National Institute of Economic and Social Research has revised its annual growth forecast upwards twice in its latest forecasts. The British economy is now expected to grow by 1.2 per cent in 2013, 0.5 percentage points more than was forecast as late as in February, and in 2014 this will surge to 1.8 per cent. The tables, the media will gush, have been turned on Labour. George has pulled it off. And Osborne will claim a number of things that are either false or implausible.
Co-authored with Marcus Miller
Across Europe, austerity policies have caused stagnation and despair. There is a more humane way to restore our fortunes.
Lionel Robbins defined economics as the study of the allocation of scarce resources among competing uses. For an economy at full employment, where the opportunity cost of government spending is the private spending it displaces, this remains a good characterisation. But what if there is a deficiency of aggregate demand, so the nation’s resources are being underused – as evidenced by significant involuntary unemployment? In this case, in so far as it employs unused capacity, expenditure by the government will add to the resources available for investment and consumption. This is conventionally measured by the “multiplier” – the ratio of extra output available per unit of government expenditure. If the multiplier is equal to one, for example, there is no opportunity cost to public spending, in effect: the resources would otherwise be unused.
Refreshed by his summer holiday, David Cameron vowed to “get Britain moving again”. A slew of kick-starting initiatives has followed, most of them the brainchild of his government’s one-man think tank, Vince Cable.
Alistair Darling’s story of his time as Gordon Brown’s Chancellor of the Exchequer is intriguingly titled Back from the Brink. There are many brinks in this book – the near-collapse of the British banking system and the world economy, for one. The relationship between Mervyn King, governor of the Bank of England, and Callum McCarthy, then chairman of the Financial Services Authority, is also said to have been “on the brink of collapse”. But the brink that Darling is chiefly concerned with is his relationship with Gordon Brown. Frequently they contemplated divorce on the grounds of incompatibility, but soldiered on like an estranged couple, tied together by old loyalties.
In Defence of Globalisation
Jagdish Bhagwati Oxford University Press, 324pp, £17.99
Why Globalisation Works
Martin Wolf Yale University Press, 398pp, £19.99
These two books offer a defence of globalisation against its critics. Both cover much the same ground, though with differing emphases. Martin Wolf, a noted economics columnist at the Financial Times, has written the more comprehensive, better organised and (despite its greater length) more concise book. It is a necessary and compelling read for all who want to understand the logic of unfolding events. Jagdish Bhagwati is one of the world’s leading trade theorists. His book has its moments, but he is not at his best. It is intellectually self-indulgent, and his style – with its mixed metaphors (“white elephants making gargantuan losses”), ponderous jokes, linguistic tics and exclamation marks – often seems like a parody of good writing. For this kind of book it is surely better to keep one’s language as unadorned as possible.