WHO IS ACTUALLY IN CONTROL OF THE ECONOMY?

THE INVISBLE HAND

This article by Dr Edward Thomas Jones appeared in the Daily Post Business section on Wednesday 21 February 2024.

WHO IS ACTUALLY IN CONTROL OF THE ECONOMY?

This article by Dr Edward Thomas Jones appeared in the Daily Post Business section on Wednesday 21 February 2024.

A key concern for most voters, here in North Wales and elsewhere, is the performance of the economy.  The phrase “It’s the economy, stupid” was coined by James Carville, strategist of U.S. President Bill Clinton’s successful 1992 campaign against George Bush Snr.  The quip was meant to bring voters back to the fact that the campaign was being held in the middle of a recession, which the Clinton team used successfully to unseat Bush.  Over thirty years on, it remains good advice to political aides.  Voters in the U.K. consider the economic performance of each party as a key factor in their political decision-making, with the Conservatives enjoy a clear advantage in the British perception of which party is best at managing the economy. 

Assessing a political party’s influence on the economy is not a simple task.  For instance, a recently elected government requires time to draft and implement its new policies, with time also needed to show their effects.  On the other hand, it could be argued that individuals and businesses adjust their behaviour before a government implements its policies.

Quarterly real GDP data from the Office for National Statistics can help us see the economic impact of the two parties.  Between 1955 and 2023, the Conservatives have presided over 181 quarters while Labour has been in power for 95 (for a total of 276 quarters).  The average quarterly real GDP growth over this period was 0.58%; that is, the U.K. economy grew on average 0.58% in each quarter between 1955 and 2023. 

Since 1955, the Conservatives achieved a slightly higher average GDP growth per quarter (0.60%) than Labour (0.55%).  However, this difference is statistically insignificant.  In other words, a statistical test shows that there is no real difference in how the economy performs under the different political parties.  Even when considering lags of various lengths (to take account of the time a newly elected government needs to implement its policies), there is no significant result. In short, the economy grows at a very similar pace under both the Conservatives and Labour governments.

What about the North Wales economy?

Regardless of the party in power at Westminster, the North Wales economy has grown at a similar pace.  Data from the Welsh Government shows that the economy in North Wales has grown by an average of 3.27% per year between 1999 and 2021.  When Labour is in power at Westminster, North Wales economy grew by an average of 3.35% per year while it grew by an average of 3.20% when the Conservatives were in power.  A statistical test shows that there is no real difference in how North Wales economy performs regardless of which party is in power at Westminster.

While further analysis is needed to better understand the impact of the two political parties on the economy, the initial results raise an interesting question: who is actually in control of the economy?