We got the message. Liz Truss, the new British prime minister, is all about growing gross domestic product. “I have three priorities for our economy: growth, growth and growth,” she said in her conference speech last week. She hinted that the market’s negative reaction to her chancellor’s ‘mini’ budget – which caused the pound to fall and mortgage rates to rise – was worth it. “As the past few weeks have shown, it will be difficult,” she said. “Whenever there is change, there is disruption. And not everyone will be in favor of the change. But everyone will benefit from the outcome.
There are two problems with this strategy. The first is that most people don’t know what GDP growth is, let alone care about it. No one stands outside Downing Street with a megaphone chanting ‘What do we want? 2.5% annual GDP growth. When do we want it? Medium term. »
In a 2020 study on the public’s understanding of the economy funded by the Office for National Statistics, GDP was one of the economic concepts people least understood. Less than half of the UK public could correctly identify the definition of GDP from a list of options. It was common for people to confuse it with the export value or the pound.
In the focus groups, people were unsure what kind of economic growth rate would be considered normal, good, or bad. When told that growth had been 1.3%, the most common reaction was silence or indifference. “It means absolutely nothing to me,” said one participant. “It’s not tangible to us, we can’t touch it or smell it,” said another. “You’re kind of in your own bubble, aren’t you? Just worry about what you have. . . your own economy.
Truss is not the first avowed “economics geek” in politics. Gordon Brown was once derided as shadow chancellor for mentioning the ‘post-neoclassical endogenous growth theory’ in a speech. And to be fair to Truss, she at least realizes that people need help understanding why growth matters. In her speech, she explained that growth would mean higher wages, more jobs, more money to fund public services, etc. But if you have to spend seven sentences explaining what your tagline means, that might not have been the best choice in the first place.
This does not mean that the public is ignorant or indifferent to economics. The study found “pockets of public economic expertise” in which people were highly knowledgeable, often in areas they felt were most relevant to their daily lives. Interest rates were a metric people understood and watched closely, unsurprisingly given the impact on mortgage rates and consumer credit. “We live by the interest rate. If the interest rate goes up, your quality of life goes down,” said one focus group participant. People understood inflation quite well too, and often spontaneously made the connection as to whether or not it had outpaced wage growth. When asked how they judged the economy to be doing well, people tended to mention interest rates, availability of decent jobs, main street, cost of living and quality of services public.
This brings us to Truss’ second problem. While she and her chancellor Kwasi Kwarteng have acted to protect households from rising energy bills, the market reaction to their unfunded tax cuts has affected things like the mortgage rates that really matter to people. The “mini” budget has worsened the aspects of the economy that people understand and care about, in pursuit of a target that people don’t understand and don’t care about.
It’s not just bad politics. It is also a bad economy. I am not part of the “anti-growth coalition”. Of course, faster economic growth would be a good thing. But there is no point in launching an attempt to revive the economy with a shock that makes people poorer and more anxious. Many already see the economy as something external, unpredictable and dangerous. In the study, members of the public referred to it as a threat “that constantly hangs over us”; others said they had been “punched” or “punched in the face”.
The language of “disruption” works well in the world of start-ups. It doesn’t work in the world of economics, which is really just the world of people’s real lives. There were no easy options for Truss and Kwarteng, but the fallout from their “mini” budget only made it more difficult.
If the UK economy is to grow faster, people will need to be more willing to invest, to start businesses, to train for something new, to move in search of opportunity. People don’t want to be bothered. They take risks when they are not afraid.
sarah.oconnor@ft.com