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When to talk about spending?

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Stephanie Flanders | 14:14 UK time, Monday, 29 June 2009

The government thinks that the economic situation is too uncertain to have a review of public spending priorities this side of the election.

It is getting rather difficult to find anyone who agrees.

You would expect the Conservatives to call for more detail on future cuts. The tougher things look under another Labour government, the less scary things look with them in power.

But today, the OECD also said that it would like to see more detail on how the government's "efficiency savings" in 2010-11 were going to be achieved. And, though I was on holiday last week, I'm pretty sure that Mervyn King repeated his call for a meatier plan to cut public borrowing as well.

david cameronPolitically, of course the government would rather not provide any more meat for the opposition than it has to. And economically, the outlook is indeed highly uncertain. But if you take seriously the idea of a Comprehensive Spending Review, the experts I've spoken to aren't convinced that the uncertain times are a good reason to delay.

When Gordon Brown launched the first such review in 1997, it was supposed to be about stepping back from all the ups and downs of the political and economic cycles, to think strategically about the long-term priorities for public spending.

Would it be helpful to be doing that kind of strategic thinking right now? The Conservatives are not the only ones who think that it would.

Regardless of what happens to the economy in the next couple of years, we know that a major fiscal tightening is on the cards over the course of the next parliament. Taking the PBR and the Budget together, the "headline" tightening already announced by the chancellor comes to nearly 6.5% of GDP by 2017-18, or £90bn/year in today's money.

In today's report on the UK economy, the OECD says the government "could do considerably more to accelerate its programme of fiscal consolidation, dependent on how the economy evolves."

It also says that:

"[E]xperience in other countries suggests that a focus on expenditure cuts, rather than revenue raising, is associated with more successful consolidations, particularly when coupled with explicit expenditure rules, as it is more likely to result in lower interest rate spreads and instil confidence by signalling a strong commitment by the government to a robust fiscal consolidation. The delivery of the consolidation will require specifying the 'value for money' savings beyond 2011-12 in the upcoming Spending Review."

Or not so upcoming, as it turns out. But the OECD economists clearly think that spending control is where the budget-tightening action should be, coming out of this recession. That's because, in the past, tough spending control has tended to win most points from investors, and thus larger falls in long-term interest rates for every pound that is cut.

As the OECD readily admits, we don't know when we will come out of the recession, or how quickly. Is that a reason to delay thinking about cuts?

peter mandelsonLord Mandelson thinks so. He told the BBC this morning that "any spending review now would be based on entirely speculative projections of what economic growth will be". Well, yes. But they always are. That's what economic forecasts are. Speculative. And, as we are learning, often wrong.

It is quite true that if the economy takes longer to recover than the government now expects, the outlook for spending would probably have to change as well. For one thing, borrowing could rise even further, and the government might find itself having to tighten more, for longer.

Robert Chote, the Director of the IFS, told me: "if you're not sure whether you're going to have to take a medicine for six or nine months, that's not a very good reason to delay starting to take it altogether".

Everyone accepts that the fiscal tightening we're looking at is a job for more than one parliament. (For its part, the OECD says that returning to a ceiling of 40% of GDP for public net debt "is unlikely to be feasible until beyond 2020.")

You might have to delay or to rejig the plans in light of developments - heaven knows, that's what the government has always done before. As Chancellor, Gordon Brown was infamous for fiddling with the spending plans, spending review or no spending review.

But for the IFS and other experts, none of this is a good reason to delay thinking about how government is going to be reshaped to fit a much smaller amount of cloth.

I'm not sure anyone in Westminster seriously ever expected a spending review before the election. But as I said at the start, I've been looking for solid economic reasons to delay. I haven't been able to find very many. Perhaps you can.

Comments

  • Comment number 1.

    "Lord Mandelson thinks so. He told the BBC this morning that "any spending review now would be based on entirely speculative projections of what economic growth will be". Well, yes. But they always are. That's what economic forecasts are. Speculative. And, as we are learning, often wrong."

    Exactly.

    What we're not hearing, from anyone, is what any economic growth is to be based upon. All the indices are contraction/loss of whatever we once did have, because either there is no market for it and/or no funding for it.

    At a time when concrete prosposals is all that anyone really wants to hear from economists, politicians and Lord Mandelson especilaly, all we hear is nonsense about the Iranian election, Michael Jackson or how Swine Flu (sorry H1N1) is of less concern than normal winter flu.

    Of course, if anyone did have any constructive ideas, they'd be taking them to their bank for a loan given we no longer have a state and it's now ever person for themsleves!

    I hope, as ever, I make my point crystal clear.

  • Comment number 2.

    As a father of three I now see the situation as desperate.

    If Brown is allowed to continue his scorched earth policy their futures are ruined.

    We now need to have all of the information out in the open so that the correct decisions can be made.

    The fact that you write your blog not knowing the facts because the Government are hiding the true picture should tell you all you need to know.

    The economy is not being run for economic reasons it is being shaped for political survival. Our futures are just collateral damage in a game of fool the electorate.
    This is why talk of the correct policy for the economy is just a side show.

    We need people to be able to look at the books to see the true picture only then can policy be formulated.

    You Peston, Robinson need to start asking some difficult questions or you are not fulfilling your remit.


  • Comment number 3.

    Stephanie - YOU should be the BBCs economic editor. As usual, clear, concise, and to the point. Totally agree and keep up the good work.

    As for Clown and Mandy and the Liebour Party - La la la land.

  • Comment number 4.

    Stephanie,
    This is when party political interests get in the way of the national interest. Lets be honest - there is no current fiscal framework in operation - we have a Temporary Operating Rule ( finger in the air stuff). Fiscal restraint is being governed by what the gilt markets will tolerate. The Government says it will bring the budget to balance. It told the Treasury Committee in April it will set out how it will apply the "fisdcal framework" in future to deliver on its objectives. Mervyn King expected this to be done at the Pre Budget Report later this year ( you might not have heard him say that).What concerns me is that Mandelson might now be flagging that it wont.

  • Comment number 5.

    tough spending control has tended to win most points from investors

    Yeah, well, it would, but I think we've seen the consequences of a world in which their every whim is catered to.

    That said, it would be nice to have a choice between left wing cuts/taxes and right wing cuts, rather than between la-la-la-I-can't-hear-you and right wing cuts.

  • Comment number 6.

    As a new poster on this blog can I ask what the magical significance of a ceiling of 40% of GDP for net public debt is? There seems to be quite large variations across the G20.

    I would also be careful about what the OECD and IMF say should be done. Experience elsewhere is that countries have had imposed upon them, as a condition of loans, the sort of free-market liberalisation that has led to this disaster with drastic effects on the everyday population.

    Their paradigm is entirely about returning to the status quo ante.

  • Comment number 7.

    well d'oh, Stephanie; turkeys do not vote for Christmas, whether they are Keynesians, Chicago School or even Austrian!

    parliament may as well go off on its summer recess and the 600+ MPs can at their 1st or 2nd or 3rd homes until next June, for all the difference it will make

    the rudderless ship can weave its merry way around the stormy seas and is no more or less likely to hit the rocks than it would if Cap'n Brown or Cap'n Cameron were in charge

    in the meantime, don't you fret, as the boys at Goldman Sachs will be deciding what needs to be done to sustain some green shoots and get back to 'business as usual' in order to max out their bonuses, no matter who forms a so-called govt of the UK

  • Comment number 8.

    How is it that in November Darling will publish his pre-budget report with a 3 or 5 year groth forcast.... yet in September/Octomer the same goverment can not do its spending review and is delay it till after the election?

    Does that mean that the Pre-Budget statement will be delayed?

  • Comment number 9.

    Why don't we save some money by just giving less to the banks? Mervyn King goes on about being more savage when it comes to cutting public spending but he was the person who was charged with keeping our economy with its public services and everything else in good working order. Why dosen't he save us some money by resigning? What about the FSA? No-one taking any of the blame there either? The very people who, collectivly, are responsable for this mess are now telling us we have to cut the things we all rely on to the bone just so they can go on making vast profits for ever and ever. Without having the honesty to come clean about where these cuts will fall. Are they living in the same world as the rest of us?
    The real cost to us and the society we live in will only become clear in the years ahead, when it dose I think people will be angry at what they have had to sacrifice in order to maintain the lifestyles of the bankers. Thats why no political party wants to spell out exactly what the price for all this will be. Everyone wants to know where the axe will fall, we are all grown up enough to have the debate whatever side we might take. What is certain is that we will be treated like childeren in the months leading up to the election....my advice, tell the politicians from the main parties that if they won't engage in the debate you won't vote for them. Simple as that.

  • Comment number 10.

    It seems to me that Labour are hoping Darling's last budget forecast of growth in early 2010 will prove to the electorate that Labour know what they are doing and should be reelected. If that means a continuation of Government overspending then we are doomed long term. Any sensible fiscal strategy has got to mean restraint now. The longer this overspend (sorry investment in Brownspeak)goes on the deeper the hole and the harder it will be in the future. It's very sad in these exceptional times that Brown puts saving his Government before the well being of Britain. Or has it been his approach all along?

  • Comment number 11.

    re:2 PortcullisGate

    Well written posting, you elequently express the worries of myself and probably many other readers.

    Brown is arrogant. The longer he stays PM, the more difficult the recovery will be.

  • Comment number 12.

    Addendum (#1) Apart from the obvious typos, who'd be happy today about going to a bank without a team of lawyers in tow? It doesn't look at all good if the best we get is Alan Sugar being called in as the 'Enterprise Tzar' and 'motivational' programmes like THE POLITICS PEN with Digby Jones and Matthew Taylor etc being served up on Newsnight. What we're getting is more of the same nonsense from the very sorts of people who essentially brought us this anarchistic mess in the first place, whilst elsewhere in the world, i.e our competitors, the success stories appear to be where businesses are under state control.

  • Comment number 13.

    What will growth be based upon - answer a housing bubble (unsustainable)!!!! - partly in response to #1 above.

    So far there has been NO improved (tightened) regulation of the banks or financial sector.

    There is NO visible, let alone viable, strategy to get from where we are today to any form of genuine recovery.

    There has been some talk along the lines I have been advocating of getting interest rates up to 5 percent as soon as possible (and this is a prerequisite for sound money and any form of recover!), but not from those with the power to actually do it.

    It can only lead to one conclusion and that is downwards. Unless and until the powers that be actually talk about actual steps to get from where we are today the only direction is downwards.

    I repeat reflating the housing market is not a solution that will bring about a recovery it is insanity! It might have well bee assumed that the country had taken thin on board over the last year - well the county may have done so but the politicians have not. They are still talking rubbish (should we be surprised, given their, and their advisors, education! - All of those so called economists trained at Harvard and Balliol in the last 25 years are charlatans and frauds for it is their faulty, unscientific, education that gave rise to the flawed regulatory philosophy and the belief that asset price inflation did not matter! Mervyn Must GO and Nick McPherson, Hector Sants etc.!)

    Spending will have to contract. Pay will have to come down in real terms for everyone, civil servants, footballer and bankers included. Bonuses MUST be curtailed. Salaries MUST be curtailed. This will happen one way or another, fairly or unfairly. With a huge increase of inflation or without, but as sure as little green apples it will happen. The skill we seek from those we delegate the management of our Nation is to do so without engendering civil unrest by doing so unfairly.

  • Comment number 14.

    Come on. Take the wool away from your eyes.

    Mandelson can give whatever reasons he likes for why the Spending Review figures will not be published next spring, but we ALL know that the ONLY reason being considered is that it is seen not to be in Labour's party interests to do so. The preparatory work for the review will, of course, still be being done, and there are no reasons why the review can't be completed in time for conclusion in the spring.

    Don't play their increasingly desperate little games!

  • Comment number 15.

    #11. expatinnetherlands wrote:

    "Brown is arrogant."

    I am afraid all politicians are guilty of arrogance - we pay them to 'know' when there is nothing but uncertainty! It is our faith in this that is simplistic - we get what we elect!

    I don't think Gordon Brown is any more guilty than an of his predecessors - when have any of them admitted that they got it wrong!!!! Humility does not fit the mould.

    I am also of the opinion that if you believe that by changing the Prime Minister anything will improve you are destined to be disappointed.

  • Comment number 16.

    A possible economic reason for delay is that any fiscal consolidation plan needs to be credible with the financial markets and credit rating agencies.

    But the current political situation (local and EU election results, opinion polls) makes it unlikely that the present government will be re-elected, so any spending plans they announce before the election for the period to 2013/14 would not be credible since they are unlikely to be in power to implement them.

    Furthermore, the scale of the fiscal challenge makes it likely that some combination of tax rises and real departmental spending cuts will be needed. But it seems unlikely that the government, or the opposition, will be prepared to be open about how much they would raise taxes as part of the post-election fiscal consolidation package. Any such package would therefore either be inadequate or put an implausibly large focus on real spending cuts.

    So we will have to wait anyway until after the election for a credible fiscal plan to be put in place for medium-term fiscal consolidation that combines tax and spending measures. Delaying the spending review, while clearly politically convenient for the government, is therefore not a major economic problem.

    But it would be preferable on economic grounds to bring forward the election so that the next government, of whichever party, can bring forward such a credible fiscal consolidation plan without undue delay.

  • Comment number 17.

    I tend to agree with those who are sceptical about the value of forecasts by OECD and other International Organisations who just didn't see this coming! Nevertheless they can influence markets and, together with Mervyn King's comments, create an expectation that "consolidation" (interesting word for the pain to come) should be started now. The Government approach will not satisfy the markets. There is noone at the wheel and noone even admitting that there is a problem. I fear there may be a price to pay in the bond markets for this dishonesty. The risk of a lender strike will become very real once the market comes back to reality after being distorted by QE. That can't go on either...can it?

  • Comment number 18.

    Two points: there is currently no proposals to cut spending from any political party all they are talking about is slowing the increase in public spending - that is simply not good enough. I want to see plans showing how the parties would reduce the public sector by 15% in real terms, if you think that is bad it is merely reducing the public sector from 50%+ of GDP to just over 40% of GDP, which is still too large. Lets get it right it is not about cutting £90 billion off public spending over 5 years it is about a real cut of £150 billion from this years total

    Secondly what cuts there are will almost certainly be made in the wrong areas. Maintenance of buildings is the first to get cut which leads to the absurd position (which I saw in the early 1990s) where the maintenance backlog on a hospital (admittedly of 30 years under-investment in maintenance of buildings) meant it was cheaper to bulldoze the entire site and rebuild to essentially the same design than it was to repair.

    Of course it will be painful but in the private sector it is not unusual for big companies to cut costs by 5% per year so 15% cut in spending over a 5 year parliament is not a big ask. Of course it does mean that govt would have to stop doing certain things

  • Comment number 19.

    I wonder why the BBC (among others) is talking solely about spending cuts and not tax rises? Along with the lax supervision of the banking system, the growing gulf between rich and poor over the last twenty years has been a major contributor to the debt problem we're in. In other words having some people with large amounts of savings and others deperate to borrow in order to meet the standard of living to which (rightly or wrongly) they feel entitled is a recipe for a growing mountain of debt. Just cutting public spending will make that gulf worse and exacerbate the problem. Some kind of major redistributive tax change is also necessary.

    A complete revision of the pensions system is also a vital component of any solution to this problem. The return on investment in pensions is likely to be much lower than during the past few years, and consequently people will need to invest 15% plus of their income into pension funds. This is a vast amount, much more than is needed for real investment in industry (especially as most real infrastructure investment etc is paid for by the Government out of taxation). It will only cause more asset bubbles to form. We need to change to a system where much more of our pensions are funded on a pay-as-you-basis, though of course this needs to be done in a way that applies to everyone, not just public sector workers. A big increase in the State pension covered by an equivalent reduction in public sector pensions and removal of tax exemptions on the private sector funds might do the trick.

  • Comment number 20.

    Normally, if Mandelson said we don't need a spending review then one must be overdue. On this occasion, though, I have taken a few minutes to think it over. I think he is right: we DO NOT need a spending review. In fact we have never needed one; it has always been only a pretext for Gordon Brown to stand on a soap box and spout nonsense. It was his way of getting serious air-time outside the Budget or the pre-Budget statements and the Mansion House speech. He had to think of additional ways compete with Tony Blair's Prime Minister act.

    When Gordon became Prime Minister he didn't need the spending review any longer, as the statement would be Alistair Darling's job.

    Now that he is no longer Primer Minister (that post must be held by Peter Mandelson, who now seems to make all the policies, pull all the strings and - judging by Today this morning - act as government front man) he'll have to find another outlet. Perhaps he could work on his hand-shaking technique and learn how to ask "and what do YOU do?" as I am sure he is a republican. He must be praying that Andy Murray wins Wimbledon, so that he gets his first proper post-PM public engagement.

  • Comment number 21.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 22.

    Given that the Labour party is one of the few institutions in a worse situation than the UK economy right now, you would have thought that they'd do the honorable thing and put the interests of the country first (either by implementing a credible economic policy or, preferably, by resigning).

    The fact that they are unable to do either (in fact, they are unable to do *anything* it would appear) means that they are ruining the country they were elected to govern as well as pushing their next term in office further and further into the 23rd century.

    I find it appalling that I am left seeing Cameron as the necessary evil to get rid of Brown.

    Stephanie, can we please have some details (if there are any) on what the Lib Dems propose as the route out of this mess?

  • Comment number 23.

    Sorry Stephanie - I only have half a tin ear on my radio nowadays - so to make up for inattention - I took a sentence of (your) piece on the 6 o'clock news and played around with it.

    I do not even knows what it means - and that is just the anagram. lol

    Subject: the conservatives are not the only ones who think it would
    Anagram: Sorry - hoodwink HTV villain - USA neocon tweet honest teeth

    July 2009 soon. My - how the time flies when you are not having any fun.

    When not to talk about spending or anything else.

    David Cameron mentioned "riots in the street" - Nicholas Robinson's blog - which is odd because I mentioned the (riots) in the late 1950s in my bookies today.

    No-one admitted to any memory of them - so I take it I was the oldest there. I too was too young to care myself back then but now. Kettling etc .......Sigh.

    I have no idea what context David Cameron was suggesting the possibility but I hope he wasn't being unwise.

  • Comment number 24.

    Here's a solid economic reason to delay :

    If you aren't going to forecast you don't need the forecasters.

    So we can make loads of Treasury staff redundant and save a batch of money in the process.

    After all, Brown is always talking about efficiency savings ...

  • Comment number 25.

    Given that the spending review is supposed to be a stragetic appraisal then I think their is some argument and justification in not having one until things stabilise. Therefore, LM appears to be right, but no one will believe him as he is so political and GB and his Goverment fighting for their lives using everything they can (including can you believe policies it seems from a certain far right party on council housing allocation).

    However, what I find refreshing is that the term Government spending has come back into use - GB shouted "investment" for years even when shelling out on obvious revenue items such as benefits.

  • Comment number 26.

    This government is completely discredited regarding any sort of financial competency.

    For Labour to say that government spending will continue to expand is either dishonest or shear lunacy.

    In either case the perpetator should be locked up.

    Gordon's political legacy is a near bankrupt Britain.

    JUST STOP DIGGING Mr. B !

  • Comment number 27.

    Darling's budget forecast was for growth to restart end of 2009 and to gather pace thereafter but now he ( or the dodgy Lord told him to do so)says that the future is too uncertain to have a CSR. Which one is it ?
    Please Gordon tell your new found little friend not to take us for complete idiots!!!It will all end up in tears with our real PM ( all but in name )retiring on one of his rich friends' yacht while we are left to clear the Brown stuff!!!

  • Comment number 28.

    @Justin

    Well said, now if only someone could get the prime simpleton to understand...!

  • Comment number 29.

    What if it's all been done on purpose, i.e to a Balkanized Britain so it can be slotted into the EU as a number of 'devolved' Regional Assemblies/Development Agencies + Wales + Scotland + Ireland, each about 6 million?

  • Comment number 30.

    #9 Muggwhump

    Is this a case of shooting the messenger, because it is not the first time that Mervyn King has told Brown to curb excessive public spending, the first time noted in Tom Bowers autobiography of Brown was during Mervyn Kings first Mansion House speech. 2004 while Brown was still chancellor.

    So on reflection I would rather heed Mervyn King than GB on the economy.
    p.s. Balls was in tow but was not an MP then.

  • Comment number 31.

    Many good points raised:- let's see if some of them are listened to and/or dealt with ... (e.g. the ones repeated below)

    no 2. At 3:25pm on 29 Jun 2009, PortcullisGate wrote:
    "As a father of three I now see the situation as desperate. If Brown is allowed to continue his scorched earth policy their futures are ruined ... The economy is not being run for economic reasons it is being shaped for political survival. Our futures are just collateral damage in a game of fool the electorate ... You Peston, Robinson need to start asking some difficult questions or you are not fulfilling your remit"

    no 13. At 4:42pm on 29 Jun 2009, John_from_Hendon wrote:
    "What will growth be based upon - answer a housing bubble (unsustainable)!!!! - partly in response to #1 above ... So far there has been NO improved (tightened) regulation of the banks or financial sector ... There is NO visible, let alone viable, strategy to get from where we are today to any form of genuine recovery."

    no 14. At 4:47pm on 29 Jun 2009, ExcellenceFirst wrote:
    "Mandelson can give whatever reasons he likes for why the Spending Review figures will not be published next spring, but we ALL know that the ONLY reason being considered is that it is seen not to be in Labour's party interests to do so..."

    no 15. At 4:47pm on 29 Jun 2009, John_from_Hendon wrote:
    "I am afraid all politicians are guilty of arrogance - we pay them to 'know' when there is nothing but uncertainty! It is our faith in this that is simplistic - we get what we elect!"

    no 26. At 7:58pm on 29 Jun 2009, newsjock wrote:
    "This government is completely discredited regarding any sort of financial competency. For Labour to say that government spending will continue to expand is either dishonest or shear lunacy. In either case the perpetator should be locked up. Gordon's political legacy is a near bankrupt Britain."


    ..................................................

    Mandy and Brown are clearly doing all they can not to give any ammunition (ie the truth) to us (or to the opposition) and are hoping desperately that continually 'spinning' their 'Conservatives = 10% cuts' line all the way up to the next election will generate sufficient fear* amongst voters to still give them a fighting chance of getting into 'Power' again ... Meanwhile nothing will be admitted/done to improve the situation (or the 'future' of our nation), which will impact all of us for generations to come (as they look after themselves)*. No ideas. No morals. Shame on them, and anyone who knows but lets them (e.g. the BBC).


    David Clift, a Future 500 Leader


    * Creating fear is a common strategy used by people who apply Poweromics*.
    ** Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed). Take a look at http://poweromics.blogspot.com for more info/examples.


  • Comment number 32.

    "Politically, of course the government would rather not provide any more meat for the opposition than it has to."


    The Government or rather the Civil Service don't have a choice and spin says they have given GO a little list of projects etc to cut. This happens because the Opposition has access to the Civil Service one year before an election. Lets stop pretending. I expect the Chancellor has the same list though his preferences may be different.


    "When Gordon Brown launched the first such review in 1997, it was supposed to be about stepping back from all the ups and downs of the political and economic cycles, to think strategically about the long-term priorities for public spending."

    Exactly: A spending review under Gordon was not just about money. It was about the direction and delivery of policy. You can see the 2007 one here.

    http://www.hm-treasury.gov.uk/pbr_csr07_index.htm

    and its outcome was a series of public service agreements with each Department and further defining what was to be delivered.

    Now it is quite possible to do a spending review which is a ends with a set of deliverables with priorities which can be effected under various scenarios. If that is not in fact being done, though not consulted on and published, then we are really in for it

    There will be core policies and projects.There are not Education or the NHS, or the armed forces, but projects with in these and other areas of policy.

    Under the existing regime productivity gains are obtained by "efficiency savings..." which should have provided pressure to cut some of the dead wood. Evidence shows these were tightened this year in HE and FE and in the NHS Acute sector.

    My view is that there will be a secret spending review of this sort going up to 2015 or 2017 in the next six months. But we will not be privy to it, at least until after the election, from either side. (and they may actually be a large area of common agreement between them..... a 'fix' as people will call it ... )

  • Comment number 33.

    brownnothankyou (#27) "Please Gordon tell your new found little friend not to take us for complete idiots!!!"

    But lots of people really are 'idiots'. 'Idiocy' is normally distributed, and politicians know this all too well (whilst making out that entire peoples of the world are equally idiotic). Their speech writers tailor what their masters say according to demographics where lesser 'idiots' are written off as a minorty group (which seems a bit discriminatory to me, but I doubt 'The Commission' would see it as such somehow).

  • Comment number 34.

    Petrol and diesel were the same price ( 101.9p ) at Morrison's Nelson Saturday, over the past year diesel has on average been at least 5p per litre more expensive than petrol. There must be a glut of diesel on the market at present, perhaps reflecting what a bad state our economy is in.

  • Comment number 35.

    Mandelson is really pushing the limits of credulity when he says ..."any spending review now would be based on entirely speculative projections of what economic growth will be"....... Why is this any different from every other spending review or pre budget statements or even actual budget statements during the past twelve years?..they are always "speculative" as even GB does not have a crystal ball.
    So as this is obviously not the real reason we must look for the reason why they don't want a spending review...perhaps because they will find there is nothing left to spend!

  • Comment number 36.

    jolo13 (#35) "Why is this any different from every other spending review or pre budget statements or even actual budget statements during the past twelve years?"

    Are you possibly underestimating the very rare qualities which Lord Mandelson has in abundance which most other people do not?

  • Comment number 37.

    #19 "In other words having some people with large amounts of savings and others deperate to borrow in order to meet the standard of living to which (rightly or wrongly) they feel entitled is a recipe for a growing mountain of debt. Just cutting public spending will make that gulf worse and exacerbate the problem. Some kind of major redistributive tax change is also necessary."

    An interesting concept !! We'll punish the prudent people for saving in order to pay for the foolish spendings of the others and we do it by taxing savings !! Isn't that why there are all these black holes in various pension plans ?? That they were taxed/looted by our then Chancellor and current PM to pay for his Socialist Dreams ??

    Isn't the bailing out of banks another means of paying for the foolish spendings of some by using the savings of others !! Now we want more of the same, only worse ?? If that's so, then truly we need to drop the "l" from "Rule Britannia" !!

  • Comment number 38.

    #24 "Here's a solid economic reason to delay :

    If you aren't going to forecast you don't need the forecasters.

    So we can make loads of Treasury staff redundant and save a batch of money in the process.

    After all, Brown is always talking about efficiency savings ..."

    Taking your concept one step further....

    If you aren't going to govern, then we don't need this government !! That will save even more; especially on MPs expenses !!

    Of course the BBC can't cast any stones on MPs expenses since it, too, is *not* without sins !!

  • Comment number 39.

    #25 "However, what I find refreshing is that the term Government spending has come back into use - GB shouted "investment" for years even when shelling out on obvious revenue items such as benefits."

    I presume that he was thinking of that benefit spending as "investments" in *HIS* voter base and he was hoping to reap the returns on those "investments" now !! Unfortunately, the ungrateful Great Unwashed voted against him and his cohorts in droves !! That's why he has to pull every trick in the book even if he has to steal them from the far right !!

  • Comment number 40.

    #29 "What if it's all been done on purpose, i.e to a Balkanized Britain so it can be slotted into the EU as a number of 'devolved' Regional Assemblies/Development Agencies + Wales + Scotland + Ireland, each about 6 million?"

    There about 30 million in London and the South-East !! The rest can be lumped together and labeled "Here be dragonnes"

  • Comment number 41.

    #34 "Petrol and diesel were the same price ( 101.9p ) at Morrison's Nelson Saturday, over the past year diesel has on average been at least 5p per litre more expensive than petrol. There must be a glut of diesel on the market at present, perhaps reflecting what a bad state our economy is in."

    Neither of those prices reflect the true value, supply or demand of those products !! They are dependent on (a) the government's taxes on them and (b) the seller's perceived costs and saleability of those products !! This is nothing new in the supermarket business as they are forever churning out "loss leaders" in "one third off" and "buy one get one free" offers !!

  • Comment number 42.

    In #19 random_thought forwards some very interesting thoughts and suggestions.

    The knee-jerk reaction of get rid of Labour and bring in the Conservatives will NOT solve this problem - it will not even get close to solving it. Change has to come but a programme of cuts for cuts sake will not make us any better off. We need a whole new view of what we as a country are about and an economic strategy to achieve that.

    If you follow the thinking of the international institutions (OECD, IMF, etc.) you will be drawn in to attempting to rebuild what has gone before. Pain for many for the the protection of the few - a few who's greed has led us into this mess in the first place. The whole fiancial system needs to be urgently addressed. We need to re-address the whole goal of growth. What do we really mean by the term? Are large increases in GDP is developing countries capable of being properly equated with the GDP performance of developed countries? This is a major opportunity to think about who and what we are as a nation state and how we move on from here.

    If you want to ignore these difficult questions then vote Conservative as a change option at the election. BUT Don't moan when things only get progressively worse. If random_thought is right then prepare for riots similar to the Brixton/Liverpool riots.

  • Comment number 43.

    #37 iskandar

    "An interesting concept !! We'll punish the prudent people for saving in order to pay for the foolish spendings of the others and we do it by taxing savings !! Isn't that why there are all these black holes in various pension plans ?? That they were taxed/looted by our then Chancellor and current PM to pay for his Socialist Dreams ??"


    Yes it was an interesting concept until you userped it! The holes in pensions plans derive far more from the investment system used than any 'tax-looting' by GB. As for this Labour Party having Socialist Dreams then it is you who should dream-on.

  • Comment number 44.

    #43 "As for this Labour Party having Socialist Dreams then it is you who should dream-on."

    Actually, I have no dreams, only disillusionments !! This NuLabour government's one-size-fits-all education policies have destroyed the dreams of a generation of school kids !! Its attempts at hiding the unemployment statistics by sticking loads of young people into "training schemes" that give them little or no benefit in future employment is what most Socialist/Communist governments did for a long time. Now Britain has a large portion of unemployed/unemployable kiddies that have been force-fed the idea that they "deserve" all the luxuaries of life without having to work for them. If they can't get it through the state, they they will attempt to get it directly/indirectly through crime !!

    Deng Xiaoping said, "To be rich is glorious" !! But the battle cry here seems to be "To be selfish and/or bent is glorious" !! This might explain the things that have gone on in the financial industries !!

    Meanwhile, the Tories are more socialist and politically correct than many socialist governments !! On the other hand, the socialist/communist governments of the East are becoming more and more capitalist !! One look at Shanghai or Shenzhen will tell you all about the glories of "Communist" China. Communist Vietnam is following hard on its heels and Communist Laos is desperately trying to catch up !! Then there is Singapore and its "guided democracy" which seems to be the best advertisement for Eastern Socialism !!

    After years of turmoil and misery for hundreds of millions, Russia has abandoned Western Robber-Baron Capitalism and is set to embrace Eastern Socialist Capitalism !!

    However, Western European socialism has been exposed as a failure by the floods of Eastern Europeans into Western Europe. Those floods gave rise to right-wingers(??) (I wonder who ??) shouting "British jobs for British people" and the riots in Ireland against the Romanians !! Fellow-feeling has given way to fellow-bashing !!

    This has horrible echoes of the rise of yet another Western Socialist movement - the National Socialist Party under a certain Herr A. Hitler !! We have already seem the gestapo-raiding of Parliament on the orders of Reich-minister Smith !! What's next ?? Night of the Long Knives ??

  • Comment number 45.

    Tough luck all you Tory moaners (you know who you are), the recovery is under way, and getting stronger every day. That's why Cameron is desperate for an election now (riots in the streets, indeed). house prices are rising, there was growth in the UK economy in April and May, if it happens again in june, the recession is officially over.

    "Experts" are doing their best to dampen it down, but hey, when have they been correct in their pessimism, any of them... go on, name one who actually got anything right this year... one, that's all I'm asking. let me throw a few of the "experts predictions" out there. "worse than the thirties depression" leading to "the next world war", "the collapse of sterling" obviously caused by the "Run on sterling", "recession worse in UK than anywhere else". I must have fallen asleep because I don't remember any of those things happening, Before my nap however I do seem to remember reading about all these things being poised to destroy western civilisation and now they just appear to be the ravings of a bunch of depressives unable to see the good in anything, or alternatively the choice of reporting material selected by the Tory press who have decided it is time for a change of government. This is the most likely scenario if we take into account the enormously negative reporting on the world pandemic of sniffles that is threatening to engulf the world in used tissues and lem-sips. Despite the "Experts" The swine flu stubbornly refuses to mutate into the killer bug Journalists are all looking forward to with such glee. just like SARS, just like the Bird Flu two years ago, and as it happens just like the recession. Oh and that old chestnut Global Warming... Well the "Experts" say the Icecaps are melting, however the average summer temperature at the Ross research station in the antarctic is -32 degrees celsius, have they discovered some new Physics where water remains liquid at these temperatures or could it be they are ignoring Mount Erebus, the erupting volcano close by, because it doesn't fit their agenda. just like economic recovery doesn't fit the Torygraph's agenda to get Diamond Dave into Downing Street.
    You guys can deny it all you want, you can choose your bad news stories to push and your good news stories to suppress, you can quote "Experts" till you're blue in the face, but you ain't foolin me. 8)=)

  • Comment number 46.

    There is a great political reason for delaying any spending review - it would expose the lie being touted around about spending continuing at its current levels - and that would be excellent ammunition for the Tories

    But when has a politician EVER put country before party (maybe Winston Churchill ..) - as far as both Tory and Labour seem to be concerned this is about their politcal advantage and not much more

    The country needs to balance the books - one way of another and the only vitue of the Tories is that at least they are starting to talk about reality - goodness knows what Gordon Brown is talking about

    The suggestion this morning is that the program announced yesterday is using money other departments do not want to give up and policies from up to 10 years ago that will magically become rights instead of an expectation - thats some vison ..

  • Comment number 47.

    DYSLEXIC ALCHEMISTS

    ishkandar (#44) "This NuLabour government's one-size-fits-all education policies have destroyed the dreams of a generation of school kids !!"

    They subversively continued the Conservative Party's policy of turning Higher Education qualifications into 'bling'. How else can one explain what has happened? How can guaranteeing a place in 6th form to anyone who wants one be rationally justified given what I have covered at length elsewhere?

    "Deng Xiaoping said, "To be rich is glorious" !! But the battle cry here seems to be "To be selfish and/or bent is glorious" !! This might explain the things that have gone on in the financial industries !!"

    Deng Xiaoping....... unusally short.....(CYP21?). The student rebellions in 1989 were against the corruption which he had brought to China, not a call for Western democracy.

    Here, a couple of generations have now been encouraged to believe that confidence is all, which comes appallingly close to believing that talking oneself and others into believing what's not the case (i.e wha's not true) is in fact the case, i.e is true. This used to just be called 'lying'. The consequence has been an ever more corrupt culture and economy where those who got on best were those who were the least trustworthy/in touch with reality. Today we have euphemisms galore for this opacity and we even hear the word 'tranparency' bandied about as if by doing so it could magically fix this mess.

    The credit crunch came from many people lying to others, encouraging them to have inappropriate 'confidence'. The entertainment industry and those industries furnishing its trappings flourished as a consequence. Look how it's celebrated even now when it's all gone terribly wrong. Lok at spending on Michael Jackson's stuff. Just how painful does economic contraction and spending have to get before people wake up to what's been going on?

    My explanation: idiocy is normally distributed.

    States with draconian proscriptions of such behaviour, which emphasise duty and morality, refer to our leaders as evil. They appear to have a surfeit of evidence for what they say do they not? Why, then, are their actions deemed 'unacceptable' by our FCO whilst ours is not? Why is Gordon Brown cleaning up politics then? Is it because if we adopted statist ways, those peddling 'confidence' (arrogance, narcissism and dishonesty etc) as good, would quickly be out of business/office/jobs if not sent to prison like Madoff?

    One thing's for sure: the answer isn't The Conservative or the Liberal-Democrat Party, and the incumbents are in the middle of their Balkanize Britain project, so what hope statism?

  • Comment number 48.

    The OECD have been preaching this rumour of a "recovery" in the later half of 2010 since the crisis hit the banks. Their models are still the same models that failed to predict this crisis.

    As #6 dekehoustie says above, "Their paradigm is entirely about returning to the status quo ante."

    That status quo ante is an unstable system that no one has faith in anymore, thus further undermining stability. It has already been shown (see Steve Keen) that as long as debt can be issued to invest in assets that have no productive value ("leveraged speculation"), the "economy" is an unstable dynamic system that does not necessarily tend to "equlibirium" and inherently permits breakdowns that must be bailed out by states. This is heresy in the eyes of free market and neoclassical ideologues - but fact that flies in the face of the status quo.

    The only way there can be any type of recovery is if the state(s) invest heavily in technology and new,"cheap" energy sources (cheap=including environmental impact and long term sustainability), and if investment is properly regulated.


  • Comment number 49.

    #47 Re Balkanised Britain - Britain will break up into London and the South-east and all the rest. The rest being defined as North of the Watford Gap where the inhabitants are painted in woad or what ever colour(s) their local tribe/football club deems to "own" !! :-)

  • Comment number 50.

  • Comment number 51.

  • Comment number 52.

    #45 "....there was growth in the UK economy in April and May, if it happens again in june, the recession is officially over."

    Er, what about this ....

    http://news.bbc.co.uk/1/hi/business/8125898.stm

  • Comment number 53.

    ishkandar (#49) Yes, I got it the first time. My point was about what they have been trying to engineer as policy in the context of the EU and its NUTS. It's the only way I can make any sense of what has been going on, i.e less is more (manageable). I just don't think the pro free-market 'not_the_constitution' enshrining private business is the panacea it's made out to be given teh demographics. We are just producing/importing dumbed down consumers.

    The OECD pretty much echo what's been said to this blog about our skill base (we tried to hide this in the 2000 and 2003 PISA sampling of schools - and were caught out).

    "Most embarrassing for ministers is the OECD's "health check" on important public services. The OECD agreed that, since Labour came to power in 1997, health spending has "surged" but "the returns so far appear modest". Ironically, given official enthusiasm for "league tables", the OECD says the UK's economic future is endangered by the inequality of educational achievement a factor which has left the UK towards the bottom of the league table of advanced economies for social mobility: "International standardised tests show that the UK lags better performing countries significantly.""

    My emphasis.

  • Comment number 54.

    The British economy will suffer a permanent reduction in economic activity. Britain has lost some of its competitive edge in the world. I am certain of this. It's a case of less customers and smaller margins from now on.

    Therefore, government spending must be permanently cut to match.
    Cut your coat according to your cloth, and cut your cloth according to your means.

    We can't escape Mr Micawber's "Micawber Principle"........

    http://en.wikipedia.org/wiki/Wilkins_Micawber

  • Comment number 55.

    No.48. FrankSz

    To be honest Frank, this is all mainstream economics.

    It's just that, in the rush to dumb down, most people chose to "forget" the basic principles.

    Anyone with a CSE grade 4 in economics, or history, is aware of the basics...........there is no excuse.

  • Comment number 56.

    Anyone who knows people knows the basic principles of economics. The trick is elaborating on that to develop predictive macroeconomic models.... And then one problem for example is immunising the macroeconomic model from becoming prescriptive (in favour or not in favour of its descriptions) as it enters the minds of the individuals it models.

    (I know, this is where JJ chimes in about behavioural perspectives and correlations of behaviour and so on, but essentially it amounts to the same thing)

  • Comment number 57.

    FrankSz (#56) "(I know, this is where JJ chimes in about behavioural perspectives and correlations of behaviour and so on, but essentially it amounts to the same thing)"

    It doesn't, you are too free with that intensional notion of sameness. Behavioural-genetics is extremely hard work with lots of inconvenient gaps at present. Most of contemporay writing in economics, on the other-hand, appears to me to be largely creative writing. I'm with John_from_Hendon on that (and much else too, I just don't think getting rid of King would achieve much).

    You should listen to MrTweedy.....

  • Comment number 58.

    #57

    Well I will agree that most contemporary economics is nonsense.

    The rest I will ignore for fear of dragging the thread down into another irreconcilable philosophical contest (which I would win as usual of course) :-)

  • Comment number 59.

    HOW MANY MORE SCAMS ACCOUNT FOR SPENDING CUTS?

    Anyone watching the recent programme on Madoff before his sentencing can't help but to have noticed the ethnicity of the 'charity' feeder funds which both contributed to and benefited from the scam. It is also worth noting that the Jewish community comprises under 3% of the USA population and so could not have been the main victims of the scam. In fact, one could surmise that the exclusivity of membership may have benefitted large parts of this community with the steady 1% return a month over decades, in much the same way that the hyping of research into BRCA1 and BRAC2 and breast cancer disproportinately benefitted the same group. The fact that Madoff pleaded guilty ensured that many of the details have not come out in court so far.

    Population base rates matter. It is not 'discriminatory' to identify exploitational, predatory, self-serving behaviour. It's intelligent.

  • Comment number 60.

    No.58. FrankSz

    I pay attention to your posts because you are interested in finding solutions. You seek to learn, and are not afraid to ask questions.
    In doing so, you then help others with their understanding, me included.

    I would caution you to not see economics as "nonsense".

    If economics is nonsense, there is no need to try to manage the economy, which leads again to the anarchy of unregulated free markets, and a smash and grab raid on the wealth of the population.

    There is nothing wrong with mainstream economic theory: what you see as cutting edge is actually part of mainstream theory, but it has been suppressed by those with a vested interest.

    Social control is a necessity, and always will be. There are many ways to influence and manage a workforce......

    When it comes to human behaviour, start by going top down and be less concerned with bottom up.

  • Comment number 61.

    The obvious answer to " why are politicians avoiding the question of how much government expenditure needs to be cut?" is obviously that the answer is that we the voters are really not going to like the answer and some are going to shoot the messanger regardless of how much they are actually to blame.

    But I also think that it also represents a lack of new ideas. Both the Brown/Blair labour party and current conservative party grew out the partial success/failure of Thatcherism.
    To explain I think no one would argue that Mrs Thatcher set out to do two things.
    1. Cut back the role goverment including cutting goverment expenditure and taxes. The cutting of taxes she saw as a way of giving the middle ranking members of society an opportunity to make some provision of there own in areas such as education, Pensions and health care which they had grown to totally depend on the state for, with all the problems of "one size fits all" that that implies.
    2. Deregulate the economy and in particular limit trade Union power. This she felt would create higher growth and I believe she felt it would create near to full employment.
    Politically Thatcherism was a success. With the Unions crushed and a philosophy in many areas of "leave to the Market" Britain became far easier to govern. No more involving themselves in day to day micro management of the economy ,our leaders could concentrate on looking Presidential.
    Levels of growth were much in line with historical levels so the effects of deregulation are debateable.
    But the killer for Thatcherism was that unemployment remained high. So as quick as Mrs Thatcher cut into public spending the money released was almost totally absorbed by the costs of unemployment. So Taxes could not be substantially cut for the ordinary bloke who was now seeing his kids schools and Hospitals etc falling apart.
    So what happened next.
    Exit the idealogies and enter the pragmatists.
    They concluded:
    1. The economy seems to run OK with 3 million unemployed.
    2. Society does not fall apart with unemployment at that level.
    3. Given 3 million unemployed we can not cut public expenditure enough to make a noticeable difference to the average persons taxes. So spending a little more on public services may be better option, provided you do not put up headline taxes too much.
    4. The electorate will not tolerate a Tax take much above 40% of GDP. (Which probably amounts to 50% of income for joe average as the very poor can not pay much tax and the rich can decide if they want to pay it).
    5. No party leader wanted to go back to "Beer and Sandwiches with the CBI and TUC at No. 10" which was the lot of a PM in the pre thatcher era.

    On that basis the Major government reduced headline unemployment by moving a large chunk of the unemployed onto invalidate benefit. About 1.5 million. Headline unemployment under labour stablised at 1.5 million about a year into their term. The rate dipped a little around the 2000 mark, But this lead to a tighting of the labour market and consequent industrial unrest. This was in turn was met by a loosing of immigration policy by Labour. (formal and informal)
    Labour finally stepped up public spending, as good Keynesians, to ride out the Dot com downturn 2002/2003. Which in fairness they were successful in doing.
    They were in the process of winding back some public expenditure to make a reserve for the next election when the present Tsunami struck. Which in some ways must have been a relief as it allowed them to put off cuting spending for now.

    If this is a fair accessement. We have just gone through the longest period of continous growth in modern times without really bringing down unemployment
    to anything approaching full employment. I accept that unemployment did fall, even allowing for all the tricks, just not to anything like the level that it was when Thatcher came to power and certainly nothing like the 60s.
    On the otherside the equation the Tax take is as high as its ever been in peace time and thats despite all the Free market reteroic.

    So it seems to me that whether you are a free market advocate of the thatcherite model or a pragmatist there is no where left to go. In those circumstances is to let the other guy first and then pull whole in his solution.

    Feel free to point any errors in my reasoning and any solutions which do not involve halving the average wage.

  • Comment number 62.

    MrTweedy (#60) "I pay attention to your posts because you are interested in finding solutions."

    I'm not so sure. It seems to me that he, like so many these days, is a tad more interested in appearing right than learning about what is right adn why it is. There's a world of difference. Ever fewer seem to appreciate this sadly.

  • Comment number 63.

    "There is nothing wrong with mainstream economic theory: what you see as cutting edge is actually part of mainstream theory"

    Why do you say that? I have been looking carefully at some of the literature regarding macroeconomics, the stuff that is being used at university level to teach, and finding it plain wrong (in terms of description). I work in a bank, and if you look at the macroeconomic mainstream theory of how banks operate, it simply doesn't tally. For example, the idea that the central bank manipulates interest rates to regulate retail banks and thus the overall (reserve multiplied) money supply is just causally backwards. What actually seems to happen is that confident borrowers place a demand on private banks, blow out the money supply, inflate assets via feedback loops such as ponzi style leveraged speculation, which results in the retail banks going to the central bank to ask for help covering the private debt demand, to which the central bank responds by lowering interest rates.

    While this may seem an academic difference, that the chain is reversed, it is important to me in that : the mainstream economic materials on banking system and money supply are completely wrong; it is significant politically in that (up until the crisis) it was the banker tail wagging the government dog.

    Ok that's just one example - banking. Take the idea of price systems, supply and demand resulting in "optimal, equilibirum" distributions of scarce resources - it's all ideological nonsense.

    But going to banking, it does highlight the point you raised in your post. My take is that the era of deregulation and free market ideology went hand in hand with a shift of power from the state to the bankers, financiers and particularly the general system of credit expansion. The politicians began to play a background role as things got increasingly privatised, leaving the credit economy to run...seeing as things seemed to be ok. They didn't recognise the inherent instability, or rather saw it as manageable, but now that the crisis has happened, that "social contract" has been broken, and power is being taken back in hand by the state.

    This process is ongoing, as things get bailed out, renationalised, and a new sense of direction becomes increasingly valuable, the state and its services become increasingly valuable....



  • Comment number 64.

    ...and thus the top down becomes more important as you suggest. At least in that sense. However - to bend grammar - "we" is a system of people, and people must be understood for that "we" (macroeconomics) to be understood? You would agree I am sure, so I must be missing your point.

  • Comment number 65.

    #62

    "It seems to me that he, like so many these days, is a tad more interested in appearing right than learning about what is right adn why it is."

    The only reason you say that is because I am not kind to you about some of your assertions. A lot of what you say I do agree with - for example the effects of education and emancipation on female fertility and IQ - it's all interesting stuff. Although I agree with you that it is not good that female fertility and IQ is dropping, I do not agree that in some absolute sense it is bad. I just happen to agree with you. On the whole, others may not. Your position is absolutist. You seem to advocate changes to policies such as what you call "education, education, education" on the grounds that it reduces female IQ for example. While I agree, others may not. You present your positions as absolutely right, and while I agree with many of them, they are not.

  • Comment number 66.

    No.64. FrankSz

    I agree that human behaviour is an important part. It's always been difficult for economics to model how humans will respond to a given set of circumstances. Think of how the British unions handed their jobs to the foreign competition by going on strike and losing productivity during the 1970s. Back then the phrase was "is Britain governable?".

    The aim since the 1970s has been to manage the population by giving it the impression of wealth, but all the time enslaving it with debt. This has gone too far, and we've ended up with a big economic smash, as the debts outweigh Britain's productive capacity.

    I know very little of the theories of human behaviour, which is why I find your posts and JJ's posts interesting. I know human behaviour is important to economics. I tend to go "from top down", as it seems logical to start with the controlling interest - the head of the monster. We have all history to refer to regarding the theories and practice of social control.

  • Comment number 67.

    sorry guys I posted my last comment accidentally before proof reading.

    My conclusion should been that given the circumstances (there is no acceptable solution) it makes sense to let the other guy go first and then pick holes in his solution.

  • Comment number 68.

    #66 MrT

    For me economics and human behaviour are inseparable. I think, or hope rather, that one outcome of this economic crisis, is that more people will realise that 'economics' , and a lot of the ideological hogwash that goes with it, needs to converge with, or be replaced by, models of human behaviour that are derived from empirical observation.

    Where JJ and I disagree is the role of the "mind" in these models.

    One reason why "economics" must differ from other sciences however, is the following (and it is what Soros refers to as reflexivity), which I will try to explicate as:

    a) I have no social standing and I make a model that predicts fairly well
    b) People adopt the model, and within the current system, that very adoption increases the predictive ability of the model (self-fulfilling prophecies for example)
    c) This goes on with one of two possible, not mutually exclusive, outcomes
    i) As owner of the model I am able to manipulate human behaviour (I become the power - as bankers with respect to credit money systems over the last 30 years)
    ii) Human behaviour somehow adapts the new system, thus undermining the principles upon which the model was based, predictive ability fails and the system appears to collapse

    Another explication:

    a) A telecoms company is doing fairly well, long term prognosis sets its share price at X based on investors' expected returns
    b) A madman (irrational agent) proposes a new model, that the telco will be able to earn 100times as much, and invests accordingly
    c) The telco receives increased share price and with newly acquired capital invests in new infrastructure and services, acquires new assets, eliminates competition and within a couple of years earns 50times as much
    d) The behaviour of the system has adapted to fit the model

    In short the models we create to describe the "economy" - affect what we believe, affect our behaviour, and thus later affect the effectiveness of the model.

    This is where I disagree with JJ on the role of the mind in these models, and I believe it is possible to create a "reflexive" model that can accomodate itself, and thus remain predictive without the need to hide the model...

  • Comment number 69.

    No.63. FrankSz

    Take Monetarism for example.

    Monetarist theory is applicable when there is a risk of price inflation.
    The theory teaches that when the money supply (volume and speed of circulation) matches the underlying real productivity of the economy, price inflation will be kept to a minimum. The theory also states that the money multiplier must be kept under strict control by commercial banks lodging significant proportions of their deposits with the central bank. Interest rate policy is only one of a number of tools open to monetarists; it is not the main tool. Tight government spending control is another important tool, as are general lending controls.

    The issue seems to be that in pushing more people into higher education, coupled with a more free market approach to economics, we end up with a very simplified version of economics, which fails to cut the mustard.

    The British and American governments have not been following any economic theory........and the media did not disagree. Hence, real mainstream economic theory was conveniently "forgotten", as those in power thought it beneficial to do so. However, anyone who has lived through 3 recessions, can remember what real higher education and real mainstream economics is all about.....

    Take the "marginal productivity of debt". This is mainstream economics, but is it included in the text books you are reading.....?

  • Comment number 70.

    SHOOTING THE MESSENGER

    FrankSz (#65) "Your position is absolutist."

    No, my stance is austerely empiricist, or at least, it strives to be so. What I don't like is people personalising my description of the facts and trends. I don't like the facts or trends any more than you. I just don't think we should avoid discussing these matters empirically because they are deemed politically incorrect, especially when I am not at all sure that this has not been socially/economically engineered by a sub-group of narcissists/psychopaths.

    Note also, it is not a reduction of female intelligence per se, it is a reduction of the progeny of bright females and thus a reduction in the skill base in the national population (both male and female). In terms of international competition, this is surely accurately described as a bad thing for the Liberal-Demcoracies (I keep pointing out that this holds in Japan, S Korea, Singapore etc) given the international empirical data that we have relating IQ, GDP and TFRs. Note also that the OECD uses its PISA samples every 3 years as IQ proxies but doesn't say so. What nobody dares say is that education per se makes no difference to attainment per se. It's essentially down to differential birth rates and school intakes. I suggest this is a radical point to grasp, especially when you see Brown's romantic plans, and what Ed Balls comes out with. It's accurately described as nonsense. It has to be. Worse still, it is socially and economically destructive nonsense. The Liberal-Democratic system is insidiously self-destructive is my substantive, empirical, point and I don't think you'll see that said explicitly elsewhere....but I have good reason to believe I am correct :-(

  • Comment number 71.

    #67 Anthony

    I think in circumstances such as these democracy and democratic cycles become a hinderance. The escape in the past has been the sparking off of wars, consolidating belief in one particular approach and opening fiscal doors. It doesn't matter which party is in power, the overwhelming consensus is and results in long term deflation. By this I mean that one party is not better than the next one on grounds of popularity and level of confidence.

  • Comment number 72.

    No.67 Anthony_analyst

    You have put forward a fair summary. I could go into depth about each issue you raise, and clarify a few things, but I don't have the time.
    (For example, Mrs Thatcher moved away from income tax in favour of taxes on spending - ie increased VAT).

    I agree that the underlying rate of unemployment will remain relatively high as Britain loses competitive advantage in the world. We have been losing to the USA, Germany and Japan since around the year 1900. Now we are losing to Korea, China, India, Brazil, Taiwan et al......

  • Comment number 73.

    No.68 FrankSz

    Good luck with modelling human behaviour.
    I hope your research delivers what you are looking for.......
    (It shouldn't take you too many years to reach a conclusion).

  • Comment number 74.

    #73

    I imagine it will take about 10 years. The exponential growth in computing power, if it continues, will ensure this.

  • Comment number 75.

    No.62. JadedJean

    Sometimes you have to flatter to influence.

    Everyone's a narcissist these days........

    Remember: teachers must engage with pupils by entertaining them with song and dance routines. Chemistry must be taught by blowing things up with loud noises and bright flashing lights.....

    You won't get their attention any other way.

  • Comment number 76.

    #53 Sorry, I got called away. Someone had to turn the grindstone and I got "volunteered" !! :-(

    "the OECD says the UK's economic future is endangered by the inequality of educational achievement a factor which has left the UK towards the bottom of the league table of advanced economies for social mobility: "International standardised tests show that the UK lags better performing countries significantly."

    Currently, UK has a two-tier education system, thanks largely to the NuLabour government. There are *STILL* good schools and universities to which many foreign students still aspire to attend. However, the majority of them have been so "dumbed down" that they are an international joke. Worst yet, some have become tools of criminality, used by crooks to obtain "student visas" for foreign students that never attend a day's study or for "degrees" that are not worth the paper they are printed on !!

    As for the products of these dumbed down schools and universities, having a piece of paper and waving it around will not automatically get them a job, let alone a decent/well-paying job !! The international demand for Oxford, Cambridge and London graduates are still very high but the demand for graduates from the other universities are decreasing daily as (a) the degrees are increasing viewed as less valuable and (b) the local universities increase their levels of education !!

    Of course Big Balls will thunder till he's blue in the face that "All British degrees are valuable" but how much importance the foreign employers place on his utterances is another matter entirely !! A degree in Surfing and Beach Management will not get one a job in an electronics manufacturing factory, except, maybe, on the workbench !!

  • Comment number 77.

    #69 "However, anyone who has lived through 3 recessions, can remember what real higher education and real mainstream economics is all about....."

    As a certified and fully paid-up BOF (Boring Old Fart), I think I can put up my hand and truthfully say that I have lived through 3 recessions and 4 economic crises. These crises being (1) Bankrupt Britain and Dennis Healey going to the IMF, (2) the Dot.com bubble, (3) the Asian Currency Crisis and (4) the current mess we are in !! Hopefully, I may not live long enough to go through *another* one (presuming, of course, that the current one has been solved somehow) !! :-)

  • Comment number 78.

    No.77. ishkandar

    When you put it like that, it makes the phrase "no more boom and bust" look a bit silly......

  • Comment number 79.

    77. At 3:38pm on 30 Jun 2009, ishkandar wrote:

    "I think I can put up my hand and truthfully say that I have lived through 3 recessions and 4 economic crises. These crises being (1) Bankrupt Britain and Dennis Healey going to the IMF, (2) the Dot.com bubble, (3) the Asian Currency Crisis and (4) the current mess we are in !! "

    In recalling all the crises you have lived through, You didn't mention any of the financial crises that occurred under Saint Margaret. where you, perchance, spending a couple of years dead for tax purposes?
    See my previous post re. "accentuate the positive, eliminate the negative" when it agrees with the viewpoint.

    the OECD says this, the CBI says that, however, nobody knows what you say because you just quote the "Experts" throw the odd URL link in, fold your arms and give a little smug grin. How many times can these "Experts" be wrong wrong wrong before you will start to doubt them.
    What you fail to realise is that, if you quote an "Expert" who is wrong, however "respected" he is, then unfortunately, YOU are wrong also.

    nobody responded to my challenge to name One single "Expert" who got any of his doomsday scenarios correct (or even close). whether in the field of Economics, Climatology or indeed Immunology. I thought that someone would have come up with an obscure quote from an obscure commentator that kind of loosely fits with a close approximation of actual events, but hey you probably don't read those "crackpots" eh.

  • Comment number 80.

    #79 "That's why Cameron is desperate for an election now (riots in the streets, indeed). house prices are rising, there was growth in the UK economy in April and May, if it happens again in june, the recession is officially over."

    Definitely *NOT* dead !! Just enjoying warmer climes, hence the Asian Currency Crisis !! Some of us, especially those with some linguistic abilities, can be quite mobile and enjoy the benefits of a global economy !! I heartily recommend that to anyone !! Broadens the horizons and all that !! :-)

  • Comment number 81.

    #79 If not the experts, how about this -

    http://news.bbc.co.uk/1/hi/business/8127248.stm

    However, overall, the TUC General Secretary Brendan Barber has no doubt that this is the worst recession in 60 years.

    "The picture for jobs and growth is already bleaker than the last recession, and is looking more like the deep recession of the 1980s every day," he says.

    "There are no signs that the outlook for unemployment is starting to improve."

    Of course, by your definition, Brendan Barber does not know his posterior from his upper appendage joint since he's still "talking down" the economy !! Terrible people, these Union blokes. Running around wrecking the economy with their scare-mongering !! Why can't they "accentuate the positive, eliminate the negative", as you put it ??

 

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