economic situation is dire

[blandy]

Very good post, that, Ian.

[CrackpotForeigner]

So, as well as the IMF now changing its mind on UK austerity and telling Georgie boy to think again, an influential study which claimed that high government debt was causally related to low growth turns out to be based on several spreadsheet errors which when corrected fundamentally change the results.  Like changing a growth rate of -0.1% to +2.2%, for example.

 

The BBC now reporting the story. What an absolute sensation!

 

http://www.bbc.co.uk/news/magazine-22223190

(Who says U-Mass isn't educational, eh Pixies fans?!)

 

 

I remember you arguing against austerity on economic grounds ages ago, Peter. I thought what most of us probably thought: That surely the people taking the decisions must be basing things on sound theory. Let's wave goodbye to that and say hello to vindication for Keynes, Krugman and PeterMS

[snowychap]

So, no triple dip but the figures, on the face of it, hardly look good.

From what I've seen initially reported, construction and manufacturing were down (I guess the former may well be put down to the weather) and Oil/Gas revenues were a major plus.

Still looks like we're bumbling along the bottom of a pretty deep trough. It will be interesting to see what the next couple of quarters say - I'd expect construction to recover somewhat in this quarter (a bounce from the last if those weak figures were as a result of the weather) but it will also be interesting to see the effect of continued pay queezes and social security changes on consumer spending.

 

Edit: Found missing 'e'.

Edited April 25, 2013 by snowychap

[Eames]

So, no triple dip but the figures, on the face of it, hardly look good.

From what I've seen initially reported, construction and manufacturing were down (I guess the former may well be put down to the weather) and Oil/Gas revenues were a major plus.

Still looks like we're bumbling along the bottom of a pretty deep trough. It will be interesting to see what the next couple of quarters say - I'd expect construction to recover somewhat in this quarter (a bounce from the last if those weak figures were as a result of the weather) but it will also be intersting to see the effect of continued pay queezes and social security changes on consumer spending.

 

 

Probably lower wages, lower benefit payments, higher inflation so less disposable income in = less/no growth again.

 

Agree with the need to reduce spend but hack it at all costs is starting to look like the wrong way about it.

[chrisp65]

Daily Heil:

 

Britain and Osbourne Saved from Triple Dip by 'Ding Dong Download'

 

....News of the breakdown of the statistics within the economy have come to light today. Whilst manufacturing is down again, and the service sector has improved mildly, the main boost to the economy was due to sales of 'Ding Dong The Witch is Dead'. DLT, a long time left wing activist said, 'we should dig her up and tell her that once again she has saved Britain'. George Osbourne was heard to say 'I have a little tear in my eye', '£3.6 million that do cost and apparently there was an after party, well thank you Mark, thank you Dave, thank you Ed, I was busy anyway'.

[tonyh29]

never mind triple dip , we didn't even double dip

 

The Office for National Statistics (ONS) says updates to its past calculations on the performance of the UK economy mean Britain was never in a double-dip recession after all.

Revised GDP data showed that output was actually flat in the first three months of 2012 - rather than shrinking as had first been measured - meaning there was no second recession.

[snowychap]

Until the next revision...

 

I hope I'm wrong but I guess this will be trumpeted as some sort of success by the coalition?

[tonyh29]

the full article suggests they would find it hard to 

 

but I'm sure that won't stop them  .....

[drat01]

Tory attempts to make turd look like a nice brown log :-)

[peterms]

Wren-lewis explains why the latest dribble of Osbornebollocks is flatulent, hubristic gibberish.

 

 

Austerity and Living Standards

 

In my view one of the purposes of blogs by academics is to provide helpful information to economics journalists. I see this as a mutually beneficial trade: they get better information and those of us who read/hear economics journalists have a better experience. Sometimes that involves taking journalists to task for saying something silly. Personally I do this in exactly the same spirit: they get to make less mistakes and I have to squirm less often. Of course this may seem like we are just saying ‘how could you be so silly’. However being a good journalist is hard: you need to cover an area far greater than the scope of any single academic, and often under great pressure, so mistakes are inevitable

 

So by way of introduction to the main topic of this post, let me sound off about one silly thing which I have heard from good UK journalists recently, following the strong Q2 growth figures. I will not single anyone out, but here is a typical example: “The argument that fiscal austerity would lead to deep recession or permanent stagnation has proved false.” This is a classic rhetorical device: take one side of an existing argument, distort it so that it becomes much more extreme, and then claim that as this extreme version is obviously wrong the argument in general is false. The problem with the sentence above is that it can so easily be read as: recent growth shows critics of austerity were wrong.

 

As far as I know, no reputable economist has argued that austerity would mean the economy would never start growing again. In terms of basic theory, that would be a crazy thing to do. In a demand led recession, austerity reduces the level of output from what it otherwise might have been. In the simplest case, once we come out of recession output goes back to the level it would have been without austerity. (There is no long term impact on supply.) So austerity leads to some years where growth is less than it would have been otherwise, followed by later years where growth is more than it would have been otherwise.

 

As I have pointed out before in the context of discussing the Latvian experience, we could close down half the economy for a year. The next year economic growth would be fantastic. Only a fool would argue that this showed that closing down half the economy for a year was a great idea.

 

There is a quite powerful argument that austerity has additional longer term costs, besides the lost output during the recession, because of hysteresis effects. That argument would be disproved if the recession left no permanent scar, which we would only know if output returned to its pre-recession trend. Again rapid growth as we begin to come out of the recession gives us no information on this.

 

Unfortunately journalists live in the world of now, and so confusing levels and growth in this way is easy to do. Which brings me to a recent debate in the UK about whether the opposition is right to switch its criticism of the government to focus on the decline in living standards since the last election. It is generally accepted that complaining about fiscal consolidation being ‘too far, too fast’ has limited traction when the government has successfully implanted the false idea that austerity is required because the previous government was profligate. It could and should focus on the level of unemployment, but one of the features of the UK recession is that its impact has fallen on real wages as well as unemployment. So it seems to me both fair and logical that Labour should focus on living standards as a way of re-expressing the ‘too far, too fast’ idea.

 

Like Duncan Weldon here, I cannot really see why people like Hopi Sen or Chris Dillow have a problem with this. [1] It is just another way of saying that austerity in a recession is a bad idea, but with the advantage that it is one step removed from the Labour profligacy myth, and it provides an effective counter to the ‘look the economy is growing - didn’t we do well’ line.

 

One good way of knowing that you are on to a good thing is when the other side starts looking worried. So we are beginning to see the idea being discussed that slow growth in UK wages is all about the decline of the West in the face of the emergent East, or some inevitable decline in technical progress. Both are interesting ideas, but I do not think anyone would seriously argue that they explain more than a fragment of the recent stagnation in UK real wages. I’m not sure anybody has a complete explanation for this stagnation, but austerity has clearly played its part, so it is absolutely appropriate for the opposition to focus on low real wages. Indeed, they would be crazy not to.

 

 

[1] Hopi Sen also worries that Labour’s response to ‘what would you do about it’ is just a series of pretty small scale measures. At the rhetorical level I see the problem. However at the intellectual level I am a bit less concerned. The Conservative Party campaigned in the last election on a macro programme that promised to do great harm, and kept to that promise. So promising to do not very much would be an improvement! In addition, I suspect good policy is often made up of a large number of small measures. It would be nice, however, if there were some consistent themes that motivated those small measures, and I might have some more to say on this later.

 

[tonyh29]

Here’s something to dwell on: back in 2010, at the time of George Osborne’s first budget, the Government was predicting that by this stage, midway through 2013, the economy would be almost 3% bigger than it was at the start of the economic crisis.

Instead, today Britain’s economy is still over 3 percentage points smaller than it was before the crisis.

If you compare the shortfall to trend growth (in other words what Britons should have been earning were it not for the crisis at all) the gulf is almost 20%.

The statistics help explain why now even the chancellor is referring to what’s happened over the past few years as "The Great Recession".

All that lost output means that Britain is considerably poorer than it was even a few years ago - after all, remember that GDP is merely a measure of the total amount everyone in the country is earning.

This is important: it means that although Britain may well be "turning the corner", as Mr Osborne said today, it may take some time before the feel-good factor returns.

It’s worth remembering this when considering the chancellor’s economic strategy.

For the first time in years, the economy seems to be showing some genuine signs of growth.

The purchasing managers’ indices suggest economic output is running at the strongest rate since the late 1990s.

All being well, that should equate to very punchy growth in the GDP figures when the Office for National Statistics publishes them.

Moreover, unemployment looks like it may be on the way down.

This is all good news: however, none of the above is likely to put much of a smile on peoples’ faces.

It will not make Britons feel richer - particularly when you consider that real incomes are currently at around the same level they were back in 2003.

That, I suspect is one of the reasons why the chancellor remains very wary of declaring the end of the misery.

"Turning the corner", as Mr Osborne called it today, is very different to the full, lusty "green shoots" of recovery Norman Lamont talked about in the early 90s.

However, there is one way a chancellor can give people the impression of being wealthy - even when they remain poorer than they were some years ago.

You boost house prices. It is hard to escape the conclusion that that is the objective of the chancellor’s Help to Buy scheme.

It is an economic illusion, of course: you can’t realise the extra value of your home unless you downsize or move to another country.

But higher home prices might at least detract from the fact that actual real incomes are still so much lower than they were before the crisis.

There may not have been any new economic policy in today’s speech, but it is nonetheless an important one. From hereon his language will be the language of recovery.

The question that still remains is whether he can generate a recovery that has a feel-good factor about it

 

 

from the Evil since 2010 Empire

[peterms]

 

Here’s something to dwell on: back in 2010, at the time of George Osborne’s first budget, the Government was predicting that by this stage, midway through 2013, the economy would be almost 3% bigger than it was at the start of the economic crisis.

Instead, today Britain’s economy is still over 3 percentage points smaller than it was before the crisis.

If you compare the shortfall to trend growth (in other words what Britons should have been earning were it not for the crisis at all) the gulf is almost 20%.

The statistics help explain why now even the chancellor is referring to what’s happened over the past few years as "The Great Recession".

All that lost output means that Britain is considerably poorer than it was even a few years ago - after all, remember that GDP is merely a measure of the total amount everyone in the country is earning.

This is important: it means that although Britain may well be "turning the corner", as Mr Osborne said today, it may take some time before the feel-good factor returns.

It’s worth remembering this when considering the chancellor’s economic strategy.

For the first time in years, the economy seems to be showing some genuine signs of growth.

The purchasing managers’ indices suggest economic output is running at the strongest rate since the late 1990s.

All being well, that should equate to very punchy growth in the GDP figures when the Office for National Statistics publishes them.

Moreover, unemployment looks like it may be on the way down.

This is all good news: however, none of the above is likely to put much of a smile on peoples’ faces.

It will not make Britons feel richer - particularly when you consider that real incomes are currently at around the same level they were back in 2003.

That, I suspect is one of the reasons why the chancellor remains very wary of declaring the end of the misery.

"Turning the corner", as Mr Osborne called it today, is very different to the full, lusty "green shoots" of recovery Norman Lamont talked about in the early 90s.

However, there is one way a chancellor can give people the impression of being wealthy - even when they remain poorer than they were some years ago.

You boost house prices. It is hard to escape the conclusion that that is the objective of the chancellor’s Help to Buy scheme.

It is an economic illusion, of course: you can’t realise the extra value of your home unless you downsize or move to another country.

But higher home prices might at least detract from the fact that actual real incomes are still so much lower than they were before the crisis.

There may not have been any new economic policy in today’s speech, but it is nonetheless an important one. From hereon his language will be the language of recovery.

The question that still remains is whether he can generate a recovery that has a feel-good factor about it

 

 

from the Evil since 2010 Empire

 

 

Well, Tony.

 

I managed to find the right link, though the one you gave leads to a different one altogether (though still a Murdoch story, so well done there).

 

The article you copied shows the utter failure of Osborne.  Did you not read it, or have you come across to the Dark Side?  Please be aware there is a waiting list and admission criteria for the Dark Side, and references will be required.  You can't just post something sensible and get in like that.  But credit for trying.

[tonyh29]

I'm aware of the contents , I thought it was a well written / interesting piece , hence why I linked to it I'm not quite ready to join the Unite party just yet though so the dark side will have to make do without my Jedi skills for now Ps... The link should have taken you to the same page but as its a side bar article it didn't appear to have its own page ??

Edited September 10, 2013 by tonyh29

[peterms]

I'm aware of the contents , I thought it was a well written / interesting piece , hence why I linked to it I'm not quite ready to join the Unite party just yet though so the dark side will have to make do without my Jedi skills for now Ps... The link should have taken you to the same page but as its a side bar article it didn't appear to have its own page ??

 

Oh, right.

 

So you recognise, as that article says, that we are 20% poorer than we should be.  That the whole country is a fifth worse off than it should be.

 

If even a quarter of your brain is working (listen for the grinding noises) you will know that this is because of austerity policies (see the last article I linked, just hours earlier).

 

You might also recognise, as the article you posted hints at, that reinflating the house price bubble is the very worst way to approach economic policy.  But that is what the clueless oaf is doing.

[tonyh29]

I'm aware of the contents , I thought it was a well written / interesting piece , hence why I linked to it I'm not quite ready to join the Unite party just yet though so the dark side will have to make do without my Jedi skills for now Ps... The link should have taken you to the same page but as its a side bar article it didn't appear to have its own page ??

Oh, right.

So you recognise, as that article says, that we are 20% poorer than we should be. That the whole country is a fifth worse off than it should be.

If even a quarter of your brain is working (listen for the grinding noises) you will know that this is because of austerity policies (see the last article I linked, just hours earlier).

You might also recognise, as the article you posted hints at, that reinflating the house price bubble is the very worst way to approach economic policy. But that is what the clueless oaf is doing.

The thing with the austerity program is that I don't believe the other approach would have worked either.. I know you and Ed Balls think otherwise but , lets face it , it is Ed Balls we are talking about

The 20 % isn't an endorsement of another way as I saw it , more a hypothetical , its possible that had we gone the Balls route that gap would be 40% or 1 % ... Alas I doubt we would ever know

[PauloBarnesi]

Visited Margate in Kent today. Seemed to be very economically depressed, and I am not sure with any party in power could these ‘failing’ places turn it around. Yes things like Turner contemporary and lots of exiles from London seem to give hope, but its hard to see that this is a total answer. 

[peterms]

 

 

I'm aware of the contents , I thought it was a well written / interesting piece , hence why I linked to it I'm not quite ready to join the Unite party just yet though so the dark side will have to make do without my Jedi skills for now Ps... The link should have taken you to the same page but as its a side bar article it didn't appear to have its own page ??

Oh, right.

So you recognise, as that article says, that we are 20% poorer than we should be. That the whole country is a fifth worse off than it should be.

If even a quarter of your brain is working (listen for the grinding noises) you will know that this is because of austerity policies (see the last article I linked, just hours earlier).

You might also recognise, as the article you posted hints at, that reinflating the house price bubble is the very worst way to approach economic policy. But that is what the clueless oaf is doing.

 

The thing with the austerity program is that I don't believe the other approach would have worked either.. I know you and Ed Balls think otherwise but , lets face it , it is Ed Balls we are talking about

The 20 % isn't an endorsement of another way as I saw it , more a hypothetical , its possible that had we gone the Balls route that gap would be 40% or 1 % ... Alas I doubt we would ever know

 

 

Well, we're pretty sure that taking large amounts of demand out of the economy  doesn't help growth.  While stimulating spending would help growth.

 

On the other hand, if you believe in something called "expansionary fiscal contraction", then you are by definition marked down for being sectioned.

[villaguy]

The degree I studied at university was economics, even with a basic understanding of globalisation (free trade) it's clear that countries like ours are going to become more on parity with the poorer countries. Why produce in countries that expect high wages? It's that simple, we was once a great country, just cherish that thought

[snowychap]

Visited Margate in Kent today. Seemed to be very economically depressed, and I am not sure with any party in power could these ‘failing’ places turn it around. Yes things like Turner contemporary and lots of exiles from London seem to give hope, but its hard to see that this is a total answer.

I'm not sure what hope they give for locals other than being a cleaner for x number of hours a week (and the prospect of turning in to Falmouth or Salcombe).

[snowychap]

The thing with the austerity program is that I don't believe the other approach would have worked either...

Why?

Because Osborne et al have hammered home the nonsense about us being a 'step' away from being Greece?

Unless I've taken your sentence wrongly, you're of the opinion that austerity hasn't worked, too?