Posts tagged Economy
"If we can’t change the Beeb, we can’t change the country"
Fascinating rant by Boris Johnson in The Telegraph, arguing that the BBC needs a new Tory director-general if we are going to see our economic situation turn around:
We now have the twin problems of dealing with the debt, and recovering competitiveness – and neither of those is easy when the BBC is the chief mirror in which we view ourselves. If you are funded by the taxpayer, you are more likely to see the taxpayer as the solution to every economic ill.
If you are funded by the taxpayer, you are less likely to understand and sympathise with the difficulties of business; you are less likely to celebrate enterprise. I have sometimes wondered why BBC London never carries stories about dynamic start-ups or amazing London exports – and then concluded gloomily that it just not in the nature of that show. It’s not in their DNA. Fully 75 per cent of the London economy is private sector – and yet it is almost completely ignored by our state broadcaster.
Why I confidently predict this recession won’t be as ‘severe’ as the last
Helpful and measured piece by Martin Lewis aka the Money Saving Expert.
Britain's national debt tops £1 trillion
Julia Kollewe in The Guardian:
Britain’s national debt has risen above £1 trillion for the first time on record, underlining the size of the task faced by the government in bringing the public finances under control.
Official figures released on Tuesday morning showed the total public sector net debt (excluding the impact of the banking bailouts) rose to £1.004 trillion in December, the highest since records began in 1993 and equivalent to 64.2% of GDP.
Oh joy. And there I was thinking Osborne’s austerity was bringing down debt!
Ed Balls risks union anger in push to bolster Labour's economic credibility
Somebody’s changed their tune!
Jonathan Freedland gushes over Ed Balls' economic approach but ignores some key issues
As Jonathan Freedland makes the point in his Guardian column, Ed Balls’ alternative approach to the economy could be summarised as borrowing more now in order to borrow less later. By giving the economy a shot in the arm, it’ll trigger growth which, in turn, will mean that the deficit will come down quicker with the result that, in the long term, we actually need to borrow less.
The counter-argument is, of course, that having over-spent our way into this mess, why would borrowing more so that we can do more of the same suddenly reverse the mess that we’ve gotten ourselves into?
As I’ve said previously on this site, I agree for the most part with the Coalition approach. I think that reigning in spending is the right thing to be doing. And this approach has the support of many economists and is what all the other major western nations are doing too. (That doesn’t automatically means it’s right, but it is relevant.)
My issue with Freedland in his article is that he says nothing of the consequences of borrowing more now. It’s as if he really does see it as simply being a nice, simple, borrowing induced shot in the arm of our economy that will automatically lead to more growth without any side-effects.
But if we do suddenly start borrowing more, one immediate side-effect is that we will almost certainly end up losing our triple A rating that is currently ensuring that Britain is paying some of the lowest interest rates on its debt of any country in the world. So, if we adopt the Ed Balls approach, not only do we borrow more, we also will be paying more interest on what we owe. And this is just one of the side-effects. But that - and others -seem to be completely overlooked in Freedland’s somewhat gushing support of Ed Balls.
Income inequality in the UK growing faster than any other OECD country
The Economist:
Today a report published by the OECD, a rich-country think-tank, shows that worldwide the distribution of income—as measured by earnings and investments plus benefits, after tax, and adjusted for household size—is more unequal than ever before. It also claims that in Britain income inequality rose faster between 1975 and 2008 than in any other OECD member country.
According to Michael Förster and his colleagues, who conducted the research, the top 10% of high-earners have incomes that are 12 times that of the bottom 10% in Britain, up from eight times in 1985.
Make sure you take a look at the whole article which further explores why this is happening and whether it actually matters.
Some thoughts on the state of the UK economy
It has to be said that today’s Autumn statement by George Osborne was not one he will have wanted to make. There was a lot of bad news about the state of our economy and it’s painfully sluggish recovery. All of the borrowing figures for the next five years have increased and we will no longer clear the deficit by 2015 as promised with the original plan.
Inevitably, political persuasion will taint the way we interpret the state of the economy and Osborne’s response to it with this mini-budget. The government continue to lay the blame primarily at the feet of the last Labour government’s ‘reckless spending’ and on the Eurozone debt crisis. Labour claim that the slow down of economic growth and rising unemployment is all because the government is cutting ‘too far and too fast’.
So who’s right?
Much as Labour would like to assure us that their plan would definitely have avoided our having a flatlining economy and rising unemployment, the truth is that we will never know. But, if I’m honest, I’m very sceptical that Labour’s plan would have made anything better. In fact, I very much suspect the opposite. For one, Labour’s plan was based on hopelessly optimistic growth figures that we can be 100% sure would never have become a reality.
It is worth emphasising too that if Labour was in power, our approach to the economic crisis would be significantly different to what all the other major economies are doing. The leading countries all seem to be united in an approach that focuses on tackling the debt hard and fast. So Labour would be at odds with the rest of the world. That doesn’t mean they’re wrong of course, but it is worth mentioning that the support for Labour’s economic approach globally is very, very scarce.
The saddest thing of course with all of this is the impact it has on individuals and families. With all the gigantic numbers being thrown around on days like today, it is easy to forget the significant hits people and families are taking on their personal finances. It’s no fun for anyone having less money to spend in real terms due to stagnant salaries and rising costs. The cap at an increase of just 1% on public sector salaries at a time of 5% inflation is a painful salary cut. A cut that will no doubt be similar for private sector workers too.
Despite how painful it is right now, I do think that, on the whole, the government’s approach is essentially the right one. I don’t think that the way out of a crisis triggered by excessive spending and borrowing is to commit to more spending and borrowing. That said, it is worth emphasising that the plans of the Coalition government and the Labour party are not as far apart as both would like us to believe.
Whilst Labour never give their support to any of the cuts the government makes, the truth is that their plans would see them making cuts that amount to around 95% of what the government is cutting. So the view that some people hold that all of these cuts are ideological Tory attacks on hard working people is hopelessly naive. Most of these cuts would still be happening if Labour was in power.
And, not only are the parties closer than they might admit, the sad reality is that there are an awful lot of factors outside of our control. The Office for Budget Responsibility* (OBR) make clear that everything in their report today could be totally irrelevant if the Eurozone crisis doesn’t get resolved. The harsh truth is that there is not a huge amount anyone can do to magically turn the economy around.
It’s easy in opposition to pretend that your plan will sprinkle magic dust and make a dramatic difference. And it’s easy to critique the plans of the government when your own plans never have to face the cold, harsh world of economic reality. But, sadly, neither George Osborne nor Ed Balls can wave any wands that will dramatically change anything.
The truth we all have to face up to is that, regardless of who is in government, we’re in for a long, slow, painful recovery. And, who knows, maybe things will never get back to how they were. We live in a dramatically different world post 2008.
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*Speaking of the OBR, both political parties always treat the reports by the OBR as if they were Scripture and use different sections to support their own stances. But, for time after time, the OBR’s forecasting has been way off the mark? Why should we trust them at all when their forecasting abilities are so clearly limited?
FactCheck: It's not all bad news on the economy
Cathy Newman at Channel 4 does a fact check on this claim by Ed Balls:
These forecasts… suggest our economy will continue to flatline, or worse, well into next year and that unemployment will rise even higher. And with our recovery choked off over twelve months ago, they show that the UK will grow more slowly than the eurozone or the USA this year.
Was he telling the truth? Click through to see the verdict.
Has George Osborne just declared war on the public sector?
Paul Waugh at PoliticsHome:
It’s worth remembering that some public sector staff - who know exacty how much taxpayers money can be and has been wasted - are determined Conservatives. But even they may not take too kindly (particularly the higher paid among them who lose most from pension changes) to today’s news. And although several doctors and health workers shifted towards the Tories at the last election (partly due to promises of being freed from targets), since the row over the Lansley reforms they may have changed their mind.
So the big question is this: has Osborne has calculated that he can write off public sector votes and still win the keys to No. 10?
Interesting take. I think it would be a very foolish move by Osborne if this was the case (which I doubt). Whilst I do think the public sector got too big and there needs to be a stronger private sector, I don’t think there’s any sense in George Osborne being at war with such a vital cog in the wheels of our country.
Why is the democratic world faring so much worse in this crisis than its authoritarian rivals?
Jonathan Freedland:
China’s rulers can switch national budgetary priorities in a heartbeat, spending trillions on stimulus with a stroke of a pen. If China’s banks show the same unwillingness to lend as they have in Europe or the US then the politburo in Beijing simply issues an order for them to do so. No wonder that, contemplating the paralysed decision-making of Washington DC, the New York Times columnist Tom Friedman has fantasised about America becoming “China for a day”. For democracies, saddled with the creaking machinery of checks and balances, slow, incremental change is possible – but firefighting in a crisis is much harder.
The whole article is a very interesting read.
Not good news on the employment front
Highest level of unemployment since 1994 and youth unemployment has just crossed the one million mark.
Spending cuts aren't the cause of slow growth
Chris Giles at the FT argues that those like Ed Balls who are saying we are cutting too much, too soon are failing to understand what’s really going on with the economy:
Instead of cuts curtailing growth, we see poor productivity derailing the prospects for expansion. Instead of deficit reduction squeezing the life from the economy, the pain has come from rising commodity prices over which Britain has no control. Instead of demand falling short, we see supply shocks that have cut output and kept inflation high.
It would be wonderful if slower deficit reduction could address the problems Britain has encountered in this recovery. But the economy is not facing a sudden crisis of confidence similar to 2008, when household and company spending suddenly stopped and macroeconomic policy was the right tool to prevent a slump. The economy faces a hangover from the hubristic years of the past decade and must adapt.
Talk of “plan B” increasingly sounds irrelevant – it is favoured by those who are unwilling to face up to the true problems facing Britain’s economy today.
Ed Balls needs to switch tactics
Fraser Nelson in The Spectator argues that Labour are heading for a decade in opposition. He picks on Ed Balls in particular for going about opposing George Osborne in the wrong way:
[Balls] killer instinct has led him to take the wrong line of attack on the economy. Osborne’s cuts aren’t harsh or drastic: they’re mild and probably insufficient. There’s almost no organisation on the planet that agrees with Balls that cuts of less than 1 per cent a year are too harsh and too fast — he ends up looking like a loser. Better if he’d focused his attack on tax rises and the cost of living (the latter is the no.1 concern for ordinary voters). But Balls always goes in for the kill: that’s his modus operandi. It’s tragic that someone of his intelligence and understanding of economics should succumb to such a temperament. He’s the best Shadow Chancellor available to Labour, but he needs to switch tactics.
The austerity hasn't started yet
Fraser Nelson at The Spectator challenges the idea that George Osborne is cutting deep and fast at all:
Another month, and another all-time record for state spending in Britain. The government splurged £1.8 billion a day in April — of which £332 million a day was borrowed. Up goes the national debt. All of which leaves us with the question: where is this austerity that George Osborne keeps talking about? He’s been in No.11 a year now, and each month state spending has been — on average — 4.9 per cent higher than the same month under Gordon Brown. He seems to be taking the St Augustine approach to fiscal conservatism: Lord, give me spending restraint. But not yet.
One thing is clear: the idea that the cuts are ‘savage’ is a very misleading narrative. Of course, that doesn’t make the impact on individuals lives who are losing jobs in the public sector any less real. Nor does it in anyway detract from the organisations and groups who are losing funding. But compared to both the US and most of Europe, we are actually cutting much less and much slower. Don’t expect to hear that from Ed Balls though!
Unemployment down by 36,000, employment up by 118,000
So far so good. Private sector job creation is currently overwhelming public sector cuts. More still need of couse, but it’s definitely looking positive.
Youth unemployment is also down.
(These figures are for January to March.)
UPDATE:
Andrew Neil has a good breakdown of all the stats on his blog.
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