The latest unemployment figures came out yesterday. As expected, they showed another rise, particularly among young people. There are now over a million unemployed young people in the UK. In explaining the rise in unemployment, politicians were quick to point the finger – the Eurozone.
“These figures are bad news. They are I’m afraid the consequence of what we’re seeing in the Eurozone,” said the employment minister Chris Grayling. His words echo those of David Cameron, who has been talking of the ‘chilling effect’ that Europe is having on the British economy.
There’s absolutely no doubt that the crisis in the Eurozone is bad for the British economy, but our politicians are being somewhat disingenuous here. The simple fact is that we’d have high unemployment and a stalling economy with or without the crisis in the Eurozone. By way of evidence, Grayling claims that unemployment was falling, until the Greek situation began to deteriorate in July and turned it around again. That’s visible in the graph below, but you’d have to be misunderstanding government statistics, willingly or otherwise, to call that evidence that the Eurozone is responsible for our unemployment problem.
First of all, employment always lags behind the economy. This is because we have due process in this country and it takes a matter of months to lay people off, and months to hire people too for that matter. So unemployment follows recession by a matter of months, the levels of unemployment only rising after the recession is well underway or even officially over, and it doesn’t fall again until the economy is definitively on the rebound. Since our economy has been pretty much flat for the past year, it’s no surprise that unemployment isn’t falling yet. The statistics are showing exactly what we’d expect.
Since the employment figures follow behind growth, if the Eurozone was impacting the UK economy you’d expect growth to have dipped first. But it hasn’t – the economy grew by 0.5% in the last quarter, an improvement on the 0.1% of the quarter before, as the government was at pains to point out. GDP was up in the Eurozone too – Germany posted a 0.5% rise, France 0.4%, both of which were faster growth rates than the previous quarters. So the ‘chilling effect’ of the crisis hasn’t even reached the Eurozone countries themselves yet, let alone the UK.
Chris Grayling is not a fool, and he knows full well that unemployment is not rising because of the Eurozone crisis. No – he’s grasping at a convenient political excuse. Repeat it enough times, and people will come to believe it. That’s dishonest of course, but it’s also dangerous, if it stops us confronting the real issues. We’ve seen that once before from this government already. When the coalition came to power, they set about rewriting the story of the British economy according to their political priorities. The country’s record deficit was attributed to Labour overspending, justifying the new regime of austerity. The financial crisis and the recession, the much bigger factor in the spike in deficit spending, was practically relegated to a footnote.
Consequently, because the root causes of our debt problem have been papered over with political fiction, they remain unsolved. The banks haven’t been regulated, and so they are doomed to fail again. Money still moves far too freely across international boundaries, and predatory short-selling is still legal. There is still no facility for countries to go bankrupt. The banks are still undercapitalised, and still subject to perverse incentives. If our politicians had resisted the easy excuse and confronted the truth of the matter, we’d have acted very differently as a country. Instead, that complacency and political point-scoring leaves us open to another crisis.
The important thing here is truth. If you base your policies on something that is fundamentally untrue, it’s going to come undone sooner or later. So let’s demand a little more truth from our politicians.
The Earthbound Report 