Update: This post is wrong – it’s been pointed out that the figures already include inflation!
This post is very important, so please read it carefully.
The other day, The Standard posted this chart, it’s one they’ve used before.
Now, I’d heard tales of how dissenters are quickly banned on the standard, so I thought I’d see if they hated my style as much as Adolf’s. Here’s what I said on the thread. In hindsight, perhaps a bit abrasive but completely honest.
And I still can’t understand why they persist with such an average chart. But clearly I don’t think like a Labour supporter. Perhaps their real slogan behind the scenes is “Labour: We’re just as good as National”. But the inflation thing is important and we come back to that.\
Now, I suspected that I’d be banned, but that was not to be. However, neither was my other expectation of an explanation for promoting averageness forthcoming.
Rodger Nome was the one who replied, but not to my points.
Now, I knew that inflation had eroded Labour’s gains, but I’d never quantified it. So I though, why not.
Here’s what I found and commented back.
As they say in school, show your working. Here it is. You can decide for yourself if I’m making this up.
GDP figures from here. Inflation from here. They are both quarterly figures.
(Click the pic to see in full size.)
Data is organised into columns A, B and G. I converted the inflation figure to % in column D.
I calculated the “Growth” column by simply taking the old figure from the new. I calculated the “Inflation” (Column E) column by multiplying B x D and divided by 4 since it’s a quarterly percent figure.
Finally, I calculated teh “Inflation Adj” column by taking the previous figure from the column adding the growth (E) and taking off the inflation (F) – simple eh!
This resulted in this chart.
Now you can see what I’m talking about. While the economic growth is fantastic and upward moving, the cumulative effects of inflation have potential to cut everything out of that.
And Labour has not controlled inflation like National did.
National’s inflation was 1.85% Labour’s was 2.63%
But more telling is a glance down the column. National ran a consistent 2%, finishing off with a nice low 1% for 1999, but Labour’s figures are solid 3%’s with a few 4% numbers scattered through. The first of these occurred in 2000.
It was the decisions taken then – to tollerate some inflation – which have brought us to where we are today – little better than when Labour took over. Both National and Labour achieved simmiliar rates of growth, but Labour build theirs at a much higher cost. That shows badly on the chart.
(If you think it’s unfair that I’ve put the end of National’s line at the end of a steep climb, remember that almost all variations on that chart were inflation – and National was running at 1%, that’s why it was going up. )
Yes, times are bad all around the world. The Standard makes great hay from that.
But the key point is this. We may have grown over the Labour years, but we failed to grow in real terms. (DPF has done a post on wages, and found the same thing that I’ve done here).
When hard times arrived, and they are here now, the gains that were made have dissapeared and we are now worse off than before. People hurt now, not because their wages have failed to grow, but because those wages do not buy what they used to a few years ago. The fact is that right now, factors such as international oil and food prices* are what is driving our inflation, but because Labour didn’t consider inflation a priority earlier, when we could control it, there’s no leeway to let the reigns loose now.
Worse, the failure to keep inflation under control has meant that it is now much harder to control, leading to higher interest rates for much longer. I outlined that in this post some time ago.
Governments learned the hard way the cost of inflation. But just because a lesson is learned, doesn’t mean that you can ignore the lesson and not expect to be taught again. We’re now having a refresher right now, so please, enjoy.
*In fact, National also faced a crisis not of our making – the Asian crisis. You can see clearly on the chart where steady growth was interrupted. However the underlying strength of the real economic growth meant that the effect was relatively minor.