The Sketch: Mind the gap Gordon or your cycle may never balance
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Your support makes all the difference.People say they're not interested in the Output Gap but I don't believe them. They're just trying to be clever. They're pretending to have their mind on higher things. Well, I'm sorry but the low things of life matter as well. Like it or not, we will all end up in the Chancellor's Black Hole (we get there via the Output Gap, interestingly) so let us prepare ourselves as best we can.
People say they're not interested in the Output Gap but I don't believe them. They're just trying to be clever. They're pretending to have their mind on higher things. Well, I'm sorry but the low things of life matter as well. Like it or not, we will all end up in the Chancellor's Black Hole (we get there via the Output Gap, interestingly) so let us prepare ourselves as best we can.
In Treasury Select Committee, Gordon Brown was questioned by David Heathcoat-Amory. The latter is a spare and rather disapproving presence, new to the committee since I last looked. He also appears to be the newest member of the Output Gap Guild (we hope he will join our summer camp). Junior as he may be, he put his finger on (or in) an important and hitherto unrecognised hole in the gap. Recapping quickly: when the Output Gap closes, the economic cycle is over and the Chancellor's borrowings are called to account. It is the moment when (according to the Chancellor himself) the Government's books have to balance. Mr Brown has already postponed the end of the economic cycle by two years, maybe he'll do so again.
You will admit, it is quite handy saying the books have to balance over the cycle but be the sole judge of when the cycle ends. Mr Brown says the relevant figures are all publicly available and independently audited. But of course two equals two only half of the time (it depends whether you're buying or selling). Mr Brown can say one thing and the Bank of England can say the opposite (as in this case, they do).
In the current cycle, the books aren't going to balance; Mr Brown says the Output Gap continues. Mr Heathcoat-Amory's contribution is to suggest ingenious ways in which the Gap could be considered open, closed or anything in between. If there is spare capacity in the economy, for instance, the cycle continues. The Chancellor can say that immigration is providing more capacity, or more flexible working practices are providing more capacity - or more women going back to work provides more capacity.
And then suddenly we see the political economics underlying the Chancellor's childcare proposals. Then we see why it is that he gets daleks like Angela Eagle to ask questions about how many more women are going back to work (a hell of a lot, is the answer). Single mothers are to be given a £2,000 bonus to deposit their children in daycare nurseries and schools from dawn to dusk in order to dramatise the fact that the Output Gap is gaping.
Maybe Mr Brown's £250 baby bonus - another inducement to breed - is another detail in the larger picture. A good long recession could keep the Output Gap open until these Baby Bonders are old enough to work and this new, untapped labour force would open up the Output Gap even further. Mr Brown's borrowing could continue indefinitely without ever breaking his Golden Rule.
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