Economics in the bubble

414585868_2c8513d269_nMy plan was to write something following up last week’s Autumn Statement. But what with having to do other things – work and that – I’ve not had the chance.

In the interim there has been bucketloads of analysis. So I’m not sure there is more to say on the substance. All right thinking people are agreed that George Osborne, along with frontline politicians in the other parties, is suffering from what Gavin Kelly has christened a “candour deficit”. No one is being honest with the electorate over the scale of the cuts being planned. And, equally importantly, no politician is being honest about what cuts on that scale imply for unprotected services. Rick illustrates the point beautifully drawing on data from the OBR, the IFS and elsewhere (here and here).

Even Fraser Nelson is calling Osborne out for the sleight of hand he used to claim that the Government had cut the deficit in half. Fraser Nelson. Crikey! [Read more…]

Fiscal foolishness

Budget Cuts sign with clouds and sky backgroundI’ve had an unusual and vaguely discomfiting experience. I found myself largely in agreement with a leader in the Economist. I may need a lie down.

I can console myself with the thought that what the Economist is saying – that the Conservatives’ fiscal plans for the next Parliament are damaging nonsense – would seem to be pretty much the majority, if not the consensus, view. Seeking to legislate to remove the deficit through slashing spending while at the same time delivering a tax cut is not the most impressively coherent agenda ever advanced. It will undermine public sector functions that are vital to the overall success of the economy. And it will almost certainly slam the brakes on the economy at the same time as inflicting further pain on some of the poorest in society.

The main difference of opinion seems to be around Osborne’s intentions. Are his proposals serious? In which case, he’s a bit of an idiot. Or do they signal an implicit acceptance that the Conservatives are not going to win next May? Osborne is simply trying to stake out a position he will never have to implement but which will provide a platform from which to mount an attack on the incoming government’s actions when they are, inevitably, less fiscally stringent. In which case, he’s a bit of an idiot.

Most commentators might think Osborne is talking rot, and that, at the very least, Labour’s proposal to exempt infrastructure spending from the self-imposed fiscal straightjacket is a step towards a more plausible policy. But fewer have offered alternative approaches towards bridging the gap in the public finances.

Here the Economist comes off the fence and sets out a distinctive proposal. [Read more…]

On agreeing with George Osborne

3542341781_2e07e18657_nI have to admit I found the whole situation rather discomfiting. Yesterday I found myself agreeing with George Osborne.

Of course, as David Gillon (@WTBDavidG) pointed out on Twitter, we can all join George Osborne in agreeing that Iain Duncan-Smith is not perhaps the sharpest knife in the drawer. But, beyond that, most right-thinking people tend to find themselves parting company from the biggest cheese on Horse Guards Road.

So when I read reports of Osborne’s comments on raising the minimum wage I was rather surprised that my initial response was to agree with him. Especially as he seemed to be setting out a position in opposition to that adopted by St Vince of Cable, who, as we know, is generally right about such things. [Read more…]

Bittersweet sympathy

two workers Much of the media reporting of today’s IPPR briefing note on the economic recovery focused on the alarm it sounds about the rapid increase in household debt – in particular the risk that Help to Buy II will further increase house prices. The economy may give the appearance of rapid recovery, but it is not occurring on a basis that is sustainable for any economy, and particularly not for one in which households are already heavily indebted.

But to focus upon the issue of debt is to rather miss the bigger point the report is trying to make. The point is that when judged against the objectives the Chancellor set for himself back in 2011 he has fallen a long way short. The talk back then was of a ‘march of the makers’ – a renaissance of British manufacturing and exports – and a rebalancing of the economy away from its reliance on financial services and house price inflation.

What we have seen subsequently, despite initiatives such as the Funding for Lending Scheme, is poor public and private investment performance and an expansion in exports that has just about balanced off the increase in imports. And we’ve seen the Chancellor switch strategy to create a short-term debt-fuelled consumer boom. This is precisely the situation we faced going into the Global Financial Crisis of 2007-8.

Except this time the Government has chosen this road in the full knowledge that it has few supporters and many critics – the Help to Buy initiative, in particular, has few friends beyond the Quad at the heart of Government. [Read more…]


414585868_2c8513d269_nYesterday felt like a day of unanticipated juxtapositions.

The major domestic political event was the Chancellor’s Autumn Statement. This has now morphed into a mini-budget so it will take a while to fully unpack precisely what Osbo’s proposed changes add up to. But he no doubt anticipated that he’d grab the headlines with the combination of the reaffirmation of his faith in the voodoo of austerity and the return of the debt-fuelled growth that got us into this mess in the first place. The OBR lent Obso a hand in the bid to dominate the front pages when it calculated that his sums imply that by 2018 spending on public services will be reduced to levels not seen since 1948.

Commentators were quick to point out that a year or two ago Cameron was assuring us that deficit reduction was as a necessary evil – as painful for him as it was for those directly affected and only being undertaken to get the public finances back on an even keel. Over the last few weeks, with contributions from Cameron, Johnson and now Osborne, we are witnessing the gradual exposure of the ideological nature of the Tories’ austerity project. The pretence has been abandoned. It’s some sort of revolting market fundamentalist dance of the seven veils. [Read more…]

Fear and smear

Bird politiciansThe Commentariat might, for once, be pretty much unanimous. The run up to General Election 2015 is going to be vicious. The focus isn’t going to be measured debate on the pressing issues of the day – when was the last time that happened? – but mud slinging and character assassination. There are plenty of people willing to assert that the Tories, under the baleful influence of Lynton Crosby, are going to run the dirtiest campaign since the 1992 campaign to see off Neil Kinnock. The Tories, rather predictably, deny this is their strategy.

The Labour high command have been out in force over the weekend making the case that the Tories are going to be run a “fear and smear” campaign. Ed Miliband has claimed that David Cameron is demeaning the office of Prime Minister by stooping to unacceptably low tactics such as seeking to use the manifold failings of the egregious Rev Flowers as a stick with which to beat Labour. Insinuation of incompetence and unsuitability by association is a key part of the game plan, it is claimed. Labour’s Election Campaign organiser, Douglas Alexander, in an interview in the Guardian yesterday highlighted, among other matters, the importance of an effective social media operation in countering the smears. He argued that: “You have to counter lies with truth. When your opponents smear and vilify, you have to respond quickly and effectively with the facts”.

There are some obvious responses to Labour’s pre-emptive attempt to grab the moral high ground. We can be reasonably confident that it is about more than simply defending their good name.

What are they up to? [Read more…]

Interpreting Osborne

8501244926_80f2423585_nThe more I think about economic policy the more I think that there isn’t a big enough dose of interpretivism applied to it. This thought recurred yesterday reading George Osborne’s set piece speech in which he, as Isabel Hardman of the Spectator put it, “trashed” Plan B. I think trash-talk would perhaps be a better description of his approach.

One thing that – some – economists have learnt from the Great Recession of 2007-08 is that our understanding of the economy is rather more partial than had hitherto been assumed. That doesn’t mean that economists don’t have interesting and useful things to say. But the economy can behave in ways that economists found difficult to read. Some would say this means models need to be refined, respecified, recalibrated. Other would take a more radical stance and say that the economy and economics needs to be rethought. Conventional models and methods don’t have room for some of the characteristics that are fundamental to the way the economy functions. Chris Dillow highlighted some key points last week in the context of a post about the difficulties of forecasting.

If you were thinking about it in terms of narratives you might suggest that what is needed is a change of root metaphor. [Read more…]

Curbing the welfare hate

414585868_2c8513d269_nWe’ve now had three years of the blue-tinged contingent of the Coalition perpetrating a sustained attack on social security recipients – those slugabed skivers – in the name of curbing the deficit. Yesterday’s post at the Guardian again maps the profoundly negative tone of the language that has accompanied the agenda. This has had serious consequences. It has further poisoned the debate and eroded empathy. In moving the agenda forward the Conservatives have been aided and abetted by their junior Coalition partners, at the cost to the party of many members and supporters.

Resistance to this agenda has gained limited traction. In part this is because the Government believes that when it seeks to curb the generosity of social security it has the majority of popular opinion on its side. In part it is because the mainstream media has done a feeble job in engaging critically with the Government’s agenda, or even holding the Government to basic standards of honesty. There has been very limited scrutiny of the way the high-flown rhetoric of “making work pay” and ensuring “fairness” has been matched by the squalid detail of policy implementation. And in part it is because Her Majesty’s Loyal Opposition has been unutterably useless at actually opposing anything.

But are there signs that the complexion of the debate is changing? [Read more…]

Help to Buy?

House front in scaffoldsThe objections to George Osborne’s latest wheeze to assist the housing market are hardly worth discussing. They are almost too obvious. And they have been rehearsed at length in relation to similar, smaller scale initiatives that have already been tried.

The new “Help to Buy” scheme, announced in today’s Budget, aims to provide equity loans of up to 20% of the value of new properties worth less than £600,000. Households have to come up with a 5% deposit to participate. The Chancellor is proposing that the scheme be backed up with government guarantees sufficient to support £130 billion of mortgages. The guarantee scheme will start in 2014 for a period of three years.

Just about the only perspective from which this initiative makes sense is carrying through on an absolute determination not to add directly to the public sector deficit, but not minding too much if the guarantees get lost amongst everything else in the public debt.

So it probably makes perfect sense to the Treasury.

Otherwise, the scheme has almost nothing to commend it. The economic illiteracy it displays is remarkable. The fact that, coming from the current occupant of No 11, this is no great surprise is perhaps equally remarkable. [Read more…]

Economical with the truth?

The agenda for this year’s Liberal Democrat Spring Conference carries the strapline Stronger economy, Fairer society. Given the parlous state of UK plc, and the deeply inequitable impacts of the Coalition austerity policy, the strapline touches on two of the biggest issues of the day. So the unwary among us might think that the discussion would have the economy somewhere near the top of the agenda.

Nothing could be further from the truth. In fact, the cynic might suggest there was strong circumstantial evidence to the contrary. The party leadership is doing as much as it can to avoid giving an airing to the issue of the direction of economic policy.

6162309761_6e59bfde6d_nFirst, Vince Cable has not been given the opportunity to speak to Conference as a whole. Instead, he found himself on a less high profile platform: speaking to a Friday evening fringe meeting organised by the Social Liberal Forum. The meeting nonetheless attracted an audience of a couple of hundred delegates. [Read more…]