It must be tough being an economic journalist in Britain these days. Low unemployment, over a decade of robust growth, rising incomes and wealth... hardly the sort of news that might get your story on the front-page. What to do? Well, one can always manufacture a crisis. That's what Guardian economics editor Larry Elliott appears to have done in his forthcoming tome (co-written with Dan Atkinson), Fantasy Island. Here's the blurb:
We live in a country fantasising about its ability to run up debts seemingly without end, to enjoy high-paid employment for which it is not qualified, to project military power that it does not possess and in general to assume, in defiance of the evidence, a superior economic and political position in relation to most of the rest of the world. ...Welcome to Fantasy Island.
..Blair leaves behind him a seedy dreamworld mired in debt and bankruptcy, drifting into a crisis of employment and employability, hallucinating into existence a diplomatic and military role that it cannot possibly afford. It's time to take stock of the future he and Brown have mapped out for us while there's still time to do something about it.
Apparently Britain is going to hell in a hand basket. I doubt even the most curmudgeonly Spectator columnist could have come up with such a gloomy, alarmist prognosis. The dubious reasoning underpinning much of this 'analysis' is exemplfied in an article by Elliott in today's paper, entitled Blair's legacy: a fantasy island trying to live beyond its means at every level:
At the national level, the spend, spend, spend mentality has saddled Britain with a record trade deficit. Hardly noticed in last Thursday's excitement was the release of the latest set of trade figures from the Office for National Statistics. These showed that in March, the UK imported £7bn more goods than it exported - more than 6% of GDP. This figure alone gives the lie to the notion that Britain under Labour has cracked the age-old problem of inflation, since a trade deficit is merely disguised inflation, evidence of excess demand that can only be met through imports.
It's not difficult to see why the UK is running a trade level of this size: consumption has been rising fast while manufacturing output has flat-lined. Unlike Germany, Japan, Sweden - or even the US, which has a huge trade deficit itself - Britain is no longer an industrial nation. Is this worrying? Well, it scares the life out of me, but not it seems the government. The fantasy here is that we can cope with living beyond our means at a national level through the profits generated by the City and by building up Britain's "knowledge economy". A £7bn trade deficit suggests we have some way to go...
What's wrong with these claims? First, it is disingenous to focus solely on the trade in goods, particularly when the UK services balance regularly posts large surpluses (£2.5 billion in March alone). Second, as this ONS report shows, the goods and services trade deficit has been narrowing over the past year, not widening. Third, one should really look at the overall balance of payments - the current account deficit was 3.4% of GDP in 2006, a lot less scary than Elliott's 6%.
The days when the British economy ran largely on goods production are long gone. The services sector - including the City - generates far more employment and value added than manufacturing and primary industries do. Moreover, if financial markets agreed that the trade deficit is "merely disguised inflation" one would expect them to have pushed interest rates higher and the pound weaker.
The only "seedy dreamworld" in evidence here is that of a disenchanted left-of-centre hack trying to beat up a crisis where none exists. Try sticking to the facts in future, Larry.
P.S. I am not of course claiming Britain faces no economic problems - simply that there is little evidence of crisis, and that on most key measures the economy is in reasonably good shape.