It’s GDP Day this week, Britain’s three-monthly festival of bad economics. Despite the fact that the estimate will be based on only 45 per cent of the data, some people will make very confident predictions of its political and economic consequences. This time the expectation appears to be that the numbers will be good. The implication is that this will benefit the Conservatives. Good economy = more happy people = more votes for the incumbents.
Four things that make me query this (and they are similar to the reasons why it was right to be sceptical that bad economic numbers earlier in the parliament would hand victory to Labour):
1. We’re now pretty sure that people are “loss averse”: losing a dollar makes someone sadder than gaining a dollar makes them happy. Suppose there’s no growth but a new government comes in and moves some money from project x to project y. It might be the right thing to do, but it will probably piss more people off than it pleases. Without knowing anything else, that government looks like it’s going to lose the next election. Redistributing from very rich to very poor might have a different effect as the first won’t notice it and the second will notice it a lot: but then very rich and very poor seem not to vary their political behaviours very much. If robbing Peter to pay Paul, generally speaking, is a losing plan, GDP growth allows you to pay Paul without robbing Peter. But because Peter gets grumpy faster than Paul gets happy, you need more GDP growth than you think, just to keep everyone roughly as happy as they were at the start.
2. Elections decide the future so some part of the voting decision must be related to predicting which party will make things better in a year or five years’ time. And loss aversion suggests that people will be thinking more about what they stand to lose and less about what they are likely to gain. One of the strange disconnects of political communications is that the speakers always want to talk about the best thing that could happen but the voters talk in terms of the least worst option. Either way, you can’t know how much the Tories might make you worse off without knowing about Labour: it’s the relative number that matters. So a government could be delivering the best economic growth in history; it wouldn’t do them any political good unless people thought the opposition couldn’t manage to do the same. Of course, how a party did before might be a good guide to how it will do in the future. But is a track record of low growth worse than no track record at all? Possibly not, if you’re mostly interested in avoiding a big loss.
3. The scale of the UK’s public sector debt has always suggested that the next parliament will, like this one, be largely about spending cuts and tax rises. The better the GDP numbers, the less this is true, meaning each party will be able to promise a few little fiscal handouts ahead of the election. So far, the Coalition Government has been very bad at maximising the political benefit of its handouts: its increases in the personal tax allowance have gone largely unnoticed while the giveaway over the 50p rate actually managed to hinder the Conservatives’ chances of re-election. If the Conservatives want to say Labour’s tax and spending plans are risky, this is an easier case to make when the cupboard is bare than when the country appears to have a cushion against a shortfall.
4. The Conservative Party, at least sections of it, seem very keen to talk about the degree to which economic growth today proves they were right in the past. Whether this is correct or not, I suspect that talking about yourself and praising yourself tends in politics, just as in life, not to charm your audience.