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The long and slow recovery of the UK economy

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Stephanie Flanders | 06:22 UK time, Wednesday, 22 July 2009

It may not have seemed like much at the time, but if the National Institute for Economic and Social Research are right in their latest forecasts for the UK economy, the first three months of 2008 will mark the high point for British living standards for some time to come.

After possibly the steepest recession since the 1920s, this respected think-tank now says it could take six years for income per head in the UK to get back to where it was early last year, before the recession began. (To be precise, they think it could take until the first quarter of 2014 for Gross Domestic Product [GDP] per capita to return to the level it reached in the first quarter of 2008.)

The Office for National Statistics has said that the revised 2.4% contraction in GDP in the first quarter of this year was the steepest since 1958, when output fell 2.6%. But the NIESR's director, Martin Weale, thinks that if you measured the 1958 data the same way we measure it now, that first quarter fall would be "probably the worst quarterly economic performance since the 1926 General Strike."

Graph showing GDP, quarter on previous quarter

The forecast is for a 4.3% fall in GDP 2009, with growth of 1% in 2010 and 1.8% in 2011 - the year when the Treasury forecasts growth of 3.5%. These forecasts are not much changed from April, though the institute is now gloomier about the pace of recovery between 2010 and 2012.

If all of this is right, GDP overall will not return to the level reached in first quarter of 2008 until autumn of 2012 - after the Olympics. It will take longer - 6 years - for GDP per head to get back to its peak because of our rising population. (Of course, it will take less time for GDP per head to catch up if, say, more Eastern Europeans go home than the government currently expects. The authors think that is quite possible).

The institute is not just gloomier than the government about the pace of the recovery after 2010 - it also thinks tax revenues for a given rate of economic growth will be lower than the Treasury predicts. That has some stark implications for the public finances, and for any future government.

According to Ray Barrell, one of the report's authors, the Treasury is expecting tax revenues from housing, for example, by 2013 to be back to the level seen in 2004. Only in 2004, we were in the middle of a great house price boom. Hmm.

With what it considers a more realistic view of the likely path for taxes and growth, the NIESR thinks that in 2013/4 the government would still have a deficit of £160bn pounds if it sticks to the nominal spending and tax plans it laid down in the budget, not the £97bn forecast in the Budget.

In other words, on unchanged policy, the NIESR thinks the government would be borrowing £60bn more in 2013-14 than it currently expects.

Then again, how likely is it that policy will remain unchanged? Not very. In practice, the chance are that the spending plans will be somewhat tighter, and borrowing somewhat lower. Though the NIESR still thinks the deficit will be more than £120bn by 2013-14, or 7.5% of GDP.

Of course, these are just forecasts. They come with usual health warnings attached - nothing is likely to go quite as the NIESR expects. But they are by no means outlandish. Many other independent forecasters are much gloomier.

Is there any good news in this report? Well, the NIESR economists do at least agree that employers are shedding labour less quickly than past experience - especially the early 90s - might have led us to expect.

But you can hold off on the champagne: they still expect unemployment to carry on rising for at least a couple of years, peaking at 9.3% of the workforce in the middle of 2011.

And when, you might well ask, will unemployment be back to where it was in those halcyon days of early 2008? I'm afraid the answer appears to be 'approximately never'.

In their "long-term projections" the NIESR forecasts an average unemployment rate of 6.8% between 2013 and 2017. Back in March 2008, unemployment stood at 5.3%. Estelle was number one, with American Boy - and the Queen was just about to open Terminal 5 at Heathrow. We didn't know how lucky we were.

Comments

  • Comment number 1.

    Before the usual 'blame Brown' people get going. There are a few questions I would like to ask.

    Numerically, how do these figures this compare with other 'developed' countries and with the rest of the world?

    If there is to be a new more cautious economic system as a result of this mess how sustainable was the world economic boom (with a few dips) that we have experienced since the early 80's?

    Given that economies seem to work in cycles where would we have been if we had had a series of shorter and probably less painful boom and busts compared with the present very enjoyable massive boom followed by an extremely painful bust?

    Looking at the GDP figures, did we actually have an economic boom at all? Was it really just a spending and credit boom encouraged by Banks, permitted by the government and carried out by us?

  • Comment number 2.

    It's very difficult to believe any figures that this government come out with as it seems they will show anything in order to keep up appearances, although those appearances aren't quite what they were!

  • Comment number 3.

    It sounds as though we are in for a long period of falling living standards. This may not be an all together bad thing as it might help us to come out of isolated internet bubbles and back into environment where community and relationship are treasured above the ipod and the time-share.

  • Comment number 4.

    CHANGE IN LIFE-STYLE NOT CRASH DIETING IS THE SOLUTION

    "The Office for National Statistics has said that the revised 2.4% contraction in GDP in the first quarter of this year was the steepest since 1958, when output fell 2.6%. But the NIESR's director, Martin Weale, thinks that if you measured the 1958 data the same way we measure it now, that first quarter fall would be "probably the worst quarterly economic performance since the 1926 General Strike.""

    If we averaged 2.5% a year growth over 65 quarters (16 years) the contraction of the economy has a long road to run if the past was largely based on securitzing toxic loans even if it was done in the misguided belief that it was in the interests of 'social justice'. People won't like it, but the logic and psychology of all this dictates that this weight loss has to be painful for a long time. It demands a radical life-style change, not just a diet.

  • Comment number 5.

    "respected think-tank" ! - well they didn't see this Credit Crunch coming so I don't give them much respect - why do you respect them ?
    If you model the economy like it is done in NEFS - Net Export Financial Simulation then two things are obvious : a) The Credit Crunch was going to happen b) It will not get better it will get worse (unless i) there is a new financial bubble or ii)we start using NEFS). Its quite simple : If I pay you 1p to make a car and I want to sell it to you for 2p then you have to wait till either a financial bubble or NEFS arrives for you to get the extra 1p that wasnt paid to you in wages to buy it its a simple as that (An increase in wages to 2p wont help as I will then have to sell the car to you for 3p).
    We cant get out of this mess by working harder this is not a production recession where we have run out of real stuff, its a financial recession where we have only run out of money; so if they predict a financial bubble in 6 years then they will be right, if they predict we will be using NEFS in six years theyd be right.

  • Comment number 6.

    "The Office for National Statistics has said that the REVISED 2.4% contraction in GDP in the first quarter of this year was the steepest since 1958, when output fell 2.6%. But the NIESR's director, Martin Weale, thinks that if you measured the 1958 data the same way we measure it now, that first quarter fall would be "probably the worst quarterly economic performance since the 1926 General Strike.""

    This says there is a number 2.6 which has already been revised (and will in all likelihood be revised again maybe after several years) with no 'range' to account for data collection errors, in a statistical series whose method of calculation has been revised several times over a long period.

    Then an economic model is used to forecast this number over some future period. Of course we will never be able to tell if the forecast is accurate, given the quality of the data and the revisions.

    A few years ago serious newspapers use to publish forecasters' results for a forecasting GNP for a year (without any reference to the accuracy of the year end figure). Most were way out

    What can be said is that the economy probably declined in Jan-Mar 2009 and a steep decline is consonant with other observations. On past experience, forecasts for the future will be way out.

    I suggest that the BBC devises a reality TV programme to allow viewers to take part in this game.





  • Comment number 7.

    Did anyone else watch Newsnight last night?

    Joseph Stiglitz was interviewed on the show and he was actually stating that the US bank bail-out package was not large enough!

    This is strange volte face in his position.

    If you look him up on Wikipedia it states 'Stiglitz has advised American President Barack Obama, but has also been sharply critical of the Obama Administration's financial-industry rescue plan.[5] Stiglitz said that whoever designed the Obama administration's bank rescue plan is either in the pocket of the banks or theyre incompetent. [6]

    Did anyone else notice this...or did I simply mis-hear him?

    If he did, then it's a funny old world...eh!

  • Comment number 8.

    Time for a mini-budget just like the good old days. Will have to wait until the autumn though. VAT 20% and 5-10p on tax rates should do it, has to be done to satisfy the bond market. At the same time abolish inheritance tax,car tax,tv licence,insurance premium tax, airport tax etc. Clear the decks, fresh start why not? Who's up for it?

  • Comment number 9.

    'The research body predicts heavy cuts in spending in addition to a rise in taxes over the following four years, to mitigate the significant debt'

    So, we are plundged into chaos by banker's greed. The bank bail-out is funded by public money. House prices fall, job losses increase, consumer credit is more expensive, we have our services cut and now we are to expect significant rises in tax, above already significantly high levels. Whilst macro ecomonics heavily dictates are immediate future, at a micro level why are we not significantly penalising and regulating banker's pay, like the US? The banks have merely changed bonus schemes, not withdrawn them and the bonus culture is still rife. Laissez-faire, Gordon, why not deregulate further... you always intended to? No wonder Britian's going 'down the tubes'... come on, let's roll over and let everybody suffer again. I'm off to Italy.

  • Comment number 10.

    Only the Telegraph's Liam Halligan has the guts to tell it like it is...

    'If the Government fails to make cuts now it will be racked with gilts'

    [Unsuitable/Broken URL removed by Moderator]

    Shame on you BBC!

  • Comment number 11.

    DebtJuggler (#7) "Did anyone else notice this...or did I simply mis-hear him?"

    Hard to say as the point made was that only 1/3 of the sum has been put into the system so far, but he did make the point (as others have, albeit rather more controversially) that some of that has gone in bonuses and other dubious self-interested causes.

    The fact is that there is a self-interested elite which will run rings around the rest of the population because they have no 'family loyalities' or interest in others, except as suppliers to their needs. Most people can not conceive just how cold that is. Such people are literally 'missing something', which actually makes them very ruthless and efficient predators, i.e very good business people. That makes them much in demand.

    That's the problem.

  • Comment number 12.

    ....yawn...first it was 'v shaped recovery', then it was 'w shaped recovery', and recovery in 2010 and blah blah blah. The truth is that the same [neoclassical] economists who are predicting recoveries are in the same establishment that failed to predict the crisis, ignored warnings from those who did see the crisis coming, and seek to preserve the status quo.

    The truth is that these monkeys can't see outside of their own blinkered frameworks and they haven't got a clue. They can't go back to basics and question their own basic, fundamental understanding of concepts like 'cost', 'price', 'equilibrium', 'money', because they are too busy tracking the micro events of political and economic debate, and to do so would be to admit defeat and contribute to what they must feel is the invevitable - the radical alteration of the current political and economic frameworks.

    Well...as Gordon Brown said in the TED meeting , the current establishments set up after WW2 are outmoded and need to be replaced. He's right. Until that's done, the weekly macroeconomic movements of the current systems are irrelevant.

  • Comment number 13.

    The country's got itself into debt, and thereby spent tomorrow's earnings yesterday.

    Therefore, seeing as we've already spent our future earnings, it's obvious that the economy will suffer for some years to come......

    See "A Basic Introduction to Basic Economics" - Chapter One: "Gearing: The Advantages and The Big Pitfalls".

    Take a look at the marginal productivity of debt.

    Sex, debt and rock 'n' roll. Groovy.......

  • Comment number 14.

    Only the Telegraph's Liam Halligan has the guts to tell it like it is...

    'If the Government fails to make cuts now it will be racked with gilts'

    http://www.telegraph.co.uk/finance/comment/liamhalligan/5858485/If-the-Government-fails-to-make-cuts-now-it-will-be-racked-with-gilts.html

    Shame on you BBC!

  • Comment number 15.

    No.12. FrankSz wrote:
    "The truth is that the same [neoclassical] economists who are predicting recoveries are in the same establishment that failed to predict the crisis, ignored warnings from those who did see the crisis coming......"

    Please explain the difference between classical economics, neo-classical economics and monetarism. Please go on to explain how monetarism should be applied to control asset price inflation. Explain why monetarist theory was largely ignored during the recent boom.

  • Comment number 16.

    National Institute for Economic and Social Research is just playing catch up. I recall that many contributors to the bbc's economic and financial blogs were in this territory a year or so ago.

    I have the same problem with the NIESR's report as with many similar reports: they publish the headline central prediction without any error bounds. They will have a view on the probability that the outcome will be twice as bad or half as bad, for example that the recession ends in 2011 or 2017 but all we see is their central prediction.

    In essence this 'news' item is just NIESR doing a promo for its publication and nothing more. Posters to this blog have noted the relationship between this recession and previous recessions and have extrapolated dates. E.g. The 1930 slump can be said to have not ended until 1951 in the home loans bail out company start and end dates are used.

    So their figure of just five years from start to end looks a bit on the optimistic side - how optimistic, time will tell. I know I have banged on about the need to publish error bounds before but in considering any forecast the error bounds really do matter. The uncertainty in a forecast really matters.

    Forecasting figures produced by the Treasury, for example, very much depends on how the Treasury chooses to 'fiddle' the figures from time to time - i.e. the handling of pfi contacts and the banks bailout costs (or potentially profits - not very likely!)

    I still have the feeling that the Long Recession of the 1870's is a better historical analogue that the 1930s (due the the nature of, and potential liquidity(and ill-liquidity) of the overvalued assets involved (financial assets 1930 / property 1870) The 1870s would indicate a higher probability of the slump lasting longer say a central forecast of getting back to 2008 levels in a decade or more (perhaps a decades and a half) rather than just 5 years. But many things will happen. The end of the 1930s slump was hastened by deficit war spending, for example.

  • Comment number 17.

    #15. MrTweedy wrote:

    "Please explain the difference between classical economics, neo-classical economics and monetarism."

    (!) ans. Schools of economics based in differnt places - essentailly cliques of similarly (ill) educated individuals who self defined themselves as economists, some ethically and morally motivated and some not, all however sharing a response to the previous school of economics by differentialing themselves from that school of economics - all sharing the same mistaken claim to be in some way scientific! They tend to use numbers and this they used to suggest that they had something scientific in their study.

    "Please go on to explain how monetarism should be applied to control asset price inflation."

    ans. Infaltion is bad - so use interest rate hikes to squeeze it out of the market (as you know)

    "Explain why monetarist theory was largely ignored during the recent boom."

    ans. Politics - it was expedient to create an economic boom to get re-elected. This was achieved by the slight of hand of creating a property boom in the UK by deliberately/wantonly creating a measure of inflation that ignored asset price inflation and then forcing (the all too compliant and supine, the late Eddie George and Mervyn King) Bank of England to work to this figure. Helped by the fortunate effect of imported Chinese deflation

  • Comment number 18.

    John_from_Hendon (#16) "I know I have banged on about the need to publish error bounds before but in considering any forecast the error bounds really do matter. The uncertainty in a forecast really matters."

    Do your analyses and predictions have error bounds? If so, might we have these explicitly stated please?

    Whilst you're at it, the sampling framework and methods whereby you collect your data/evidence would be extremely helpful, as without any of that, it's very difficult to know whether you are posting anything rational or just making stuff up.

  • Comment number 19.

    Knee - jerk reaction to the public deficits and debts are more likely to exacerbate the recession/depression. Raising taxes cutting expenditure (especially capital expenditure) will give added twist to the spiral of diminished disposible income and reduced demand and further unemployment. Rebalance the tax take to favour spenders (low income) up rate substantially benefits and allow inflation over time to bring them back in line with earnings growth. Public works particularly council housing, transport, massive energy saving spending may help but dont forget the rabbit's foot (mainly for crash brown).

  • Comment number 20.

    What makes me laugh about all these predictions is that they failed to explain how exactly recovery will happen.

    It is now abundantly clear that the growth we have come to know over the last 30 years has been entirely bogus and simply based on banks issuing ever more elaborate IOUs, which were then used to generate ever more rapid consumer spending and thereby foster jobs and new business streams. America, Britain, Ireland and Spain borrowed money that they never had to buy ever more elaborate items developed in India, China, Japan and Germany. Without the former there would not have been the growth in the latter. Hence the domino effect of the economic collapse.

    Simply put, the world economy was supported by a variety of false fiscal stimulai, all of which have now unravelled, and so the US and UK governments are seeking to fill the gap with even more IOUs - this time on the direct behalf of the taxpayer.

    But the essential problem still remains. Without some form of stimulus, whether that be through extensive bank lending or through increased government spending, there is no, and can never be, a self-sustainable economy.

    It surely doesn't take a genius to recognise that something was wrong somewhere, if year-on-year costs of living were rising well above even the official rate of inflation, e.g. utility bills, council taxes, house prices, petrol etc. and yet people were being annually awarded below inflation wage raises - can someone please tell me how someone working in a supermarket on the minimum wage could afford to live? - The gaps were simply being filled by credit mechanisms, masking the growing chasm between earnings and living costs.

    And of course, let's not forget the substantial debt that has accumulated and must also be paid back at the same time as any attempt at growth, meaning that we will see the ridiculous position of goverments cutting spending, which will lead to even more job losses and less tax revenues, and attenpting to raise taxation that will cost even more jobs.

    To my mind, the world economy is rather like a brain-dead patient on life support, with the forlorn hope that at some stage the patient will eventually kick back into life of their own accord.

    It is time economists of all persuasions, left, right and centre, face facts and realise that capitalism, like its predecessors, has reached the end of the line. It may well have been the best system we have known so far, but let's not kid ourselves - it was no panacea, but responsible for creating considerable wealth inequalities.

    Instead, it is time for new ideas and new ways of envisioning a society based around people and not around money.

  • Comment number 21.

    Labour have taken this country back to the Bronze age. Let's hope there is an election soon before we continue back to the stone age.

  • Comment number 22.

    #8 "At the same time abolish inheritance tax,car tax,tv licence,insurance premium tax, airport tax etc."

    NuLabour cutting taxes has the same probability as the sun going nova tomorrow !! I'm sure there are many bookmakers willing to give you those odds !!

  • Comment number 23.

    #9 "I'm off to Italy."

    At the very least, you'll have nice sexy government ministers to letch at over there !! :-)

  • Comment number 24.

    The ability of 'experts' to repeat what happened in the late 1980s/early 1990s - without realising they are doing so - is staggering.

    In the late 1980s, we had an artificial boom based on house prices and cheap credit. Claims of a 'productivity revolution' turned out to be hot air. In 1990 the taps got turned off double-quick. Cue a recession, repossessions, banks demanding back the money they shouldn't have lent. Lots of hot air about 'lessons learned' and how a house is a 'nest not a nest egg', and how banks would introduce new systems so that 'this will never happen again'.

    Fast forward to a few years ago. A mirage of a boom fostered by cheap credit, poor lending decisions and a housing boom. Lots of guff about how this was actually quite sustainable, and built on fundamentals that weren't there before. It all goes wrong; withdrawn credit, house prices plunge, unemployment, recession. Lots of talk about 'lessons learned', and how new systems will ensure 'this will never happen again'.

    The interesting thing is what happened to public finances. I think I'm right that in 1992 the budget deficit was around 8% of GDP, yet by 1999 we were in surplus. Without (I worked in the public sector at the time) draconian cuts; just some pruning and reigning in of long-term costs.

    I think forecasters (and journalists) tend to overshoot in each direction - boom or bust. I would think that, without going crazy and mangling our public services, we can be back in fiscal balance within six or seven years.

    It would be interesting, Stephanie, to compare the rhetoric of the early 1990s with that of today. I think they would be remarkably similar.

  • Comment number 25.

    Taking up an earlier point it is quite valid to ask if there was ever any real economic growth during the bubble. My guess is that there was but it was more built around imports rather than anything of added value.

    Taking that point along with the content of this NIESR report we are left with not just an economic defecit and a recession but a reduced manufacturing capability to lift us out of the consequent slump.

    This is just no longer a case of a spending tweek here, a little bit of tax-cutting there and Bob's-your-uncle but a complete radical reassessment as to where we are and where we need to be as an economy.

    Also are our expectations greater than our ability to provide? Personally, I believe this is why we had the bubble in the first place. The bubble was the only way the Labour government could meet the expectations they had raised in the people at large. But what else could you expect from a political party whose objectives revolve around increasing public spending?

    It is this concept of a social-democratic society built around public services sustained by increasing economic wealth derived from a broader globally based service economy which has failed. Does this mean that the social-democratic model is broken? Perhaps not for Germany where the model can possibly sustain itself from a manufacturing economy, but for the UK the model is broken: perhaps forever.

    If the truth be told the public services are as bust as the economy. The state has lost its way and the main driver of the economy, the City, is in the process of losing its confidence. The public deficit will only be resolved by cutting entire functions out of the state structure.

    There is a long way to go before we hit the bottom. It will be an interesting journey for the simple reason that nearly every concept on which our social, poliical and economic model has been found to be redundant.

    When the run on sterling comes it might even be welcome as that might be the only way we could get some people back to work.

  • Comment number 26.

    XCAnderson (#20) "What makes me laugh about all these predictions is that they failed to explain how exactly recovery will happen."

    What's worse is a) the fan charts and b) how much of the data is collected (even for the ONS) as it's often via questionnaires where samples are self-selecting, unrepresentative in other ways and depend on people knowing/telling the truth. There *are* measures which exist at the population level however. The problem there is that researchers have to sign confidentialiy agreements and ocnsult the data owners if and when they want to publish. If they break the rules, they lose access to data. Some of the things I have been saying don't break agreements, and some is based on population behavioural level data which is in the public domain. One would have to follow the links to see that.

  • Comment number 27.

    No.20. XCAnderson

    If we did capitalism properly, we wouldn't have had such a big bust as a direct result of a big artificial boom.

    The answer is to just do capitalism in the proper manner.
    It's not perfect, but it did give us the fridge freezer and it does pay for the NHS......

    With a little bit of government intervention, we can knock the country back onto a even keel.

    In the meatime, we'll just have to roll up our sleeves and work hard for the next 10 years to pay off the cost of the artificial boom.

    After that, we can all relax into a 3-day working week, as technology will support productivity and allow us to enjoy more leisure time for similar wages. Smaller mortgages mean we will be able to afford a small reduction in take home pay.

    (PS- We must remember to stop competing against ourselves to see who can borrow the most money).

  • Comment number 28.

    What would happen Government Debt if the share prices of Lloyds and RBS were to double and the government sold its interest?

  • Comment number 29.

    #16 "The 1870s would indicate a higher probability of the slump lasting longer say a central forecast of getting back to 2008 levels in a decade or more (perhaps a decades and a half) rather than just 5 years."

    This is my view too !! This "prediction" is off the mark by at least a factor of 2 or 3 and this recession will be more likely to last nearer 10 to 15 years than 5 !!

    Already, I'm hearing rumblings of mistrust from friends in foreign places about the wisdom of doing business in Britain !! How can they do reliable business here when the economic goal posts are planted in quicksand ?? Without major international trust, how can Britain get out of this recession ??

    There will be those who will blather on about "manufacturing our way out of a recession" whilst conveniently forgetting that manufacturing, per se, is utterly useless if the manufactured goods cannot sell !! Just look at the acres and acres of disused airfields infested with unsold cars !! Without international trust, these goods will remain unsold !!

  • Comment number 30.

    #18. JadedJean wrote:

    Is support of the status quo, yet again... How can anyone take you seriously when all you do is to support the status quo, when there is ample evidence that the people who ran the system did not see the recession coming and did not see so many of the causes of the recession as a problem that might blow up in their faces. Your position is illogical, not in accordance with the visible and obvious facts and thus ridiculous and contemptible, (sadly as usual).

    On the subject of evidence relating to my feeling that the NIESR is probably underestimating the length of the recession: Historical recessions of the last two centuries, 1870 and 1914, 1931 recessions, where similar asset bubbles have had to be unwound took longer to work through than they are estimating the current one will take to work through. The same structural problems of retaining overpriced assets within the banking system occurred and where theses did there is overwhelming historical evidence these assets weighed down both the national and World economies. (As was the opinion of the vast majority of the posters to this and related blogs for the past 18 months!)

  • Comment number 31.

    #20 "America, Britain, Ireland and Spain borrowed money that they never had to buy ever more elaborate items developed in India, China, Japan and Germany. Without the former there would not have been the growth in the latter."

    This is not strictly true !! The latter countries have already made large inroads into selling to the formerly oppressed masses in Latin America, Asia and Africa. These are *TRUE* growth markets, since they start from such low beginnings !! However, it is true to say that the latter countries' growth will be much smaller without the former countries' profligate spendings !!

  • Comment number 32.

    Rampant and unregulated globilisation has crushed the added value that the supply chain in western manufacturing used to provide. It used to be the case that a fair proportion of whatever you spent here passed down a vast and complex chain of manufacturers/suppliers.
    What's happening now...virtually everything you buy comes straight from an importer. The more that we buy the more money is sucked out of circulation. The only way to make up this persistant shortfall is ever increasing debt.

  • Comment number 33.

    We cannot start the recovery until we have reached the bottom of the imminent depression.

    Even then, recovery cannot start until the central problem of spiralling debt has been addressed.

  • Comment number 34.

    IMHO nothing will truly improve until Ignoromics* reduces and more people challenge Poweromics** ...

    In your last blog, the following summed things up well:

    #79 Random_thought ... "No-one with their hands on the levers of power have any intention of doing anything at all to make the world a more equal place (or fairer place)"

    # 86 armagediontimes ... "If they have what you want then you will need to fight, just as they are willing to fight in order to maintain their power/control."


    And I believe this crisis has got much further to go before we reach this point (in the UK at least - due to a large dose of apathy) I'm afraid ... and will things will be far more desperate when it does happen ... however history says it 'happen it will', but I believe (and hope) it will happen in different ways to the past ... (i.e. not wars - as it's a 'battle of values' that transcends nations - which will be powered by the internet ... as the internet will eventually change everything, including politics and power - we just don't now exactly how, or when) ...

    I was particularly interested in one of comments you've made in this article ... "Martin Weale thinks that if you measured the 1958 data the same way we measure it now, that first quarter fall would be "probably the worst quarterly economic performance since the 1926 General Strike." ... as perhaps history is pointing to one of the ways 'poweromics' may be challenged (around the world?) in the future ...



    David Clift, A Future 500 Leader


    * Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

    ** 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 information/examples of Poweromics.

    *** See a good quote from Ishkandar/MrTweedy in previous blogs 'For evil to flourish, all it need is for good men to do nothing' [Edmund Burke] ... and take a look at http://poweromics.blogspot.com/2009/06/for-evil-to-flourish.html for instance too.

  • Comment number 35.

    #15 MrTweedy

    "Please explain the difference between classical economics, neo-classical economics and monetarism. Please go on to explain how monetarism should be applied to control asset price inflation. Explain why monetarist theory was largely ignored during the recent boom."

    Neoclassical economics is just an alias for modern mainstream economical thinking, which relies on the ideas of supply and demand determining prices, and a microeconomic view where people behave rationally (game theory, utility, etc). The main characteristic is that they perceive markets (ie prices) as always tending towards an 'equilibrium' of supply vs demand, ie an optimal distribution.

    Monetarism is the idea that you can regulate prices and keep things stable by manipulating the money supply, as far as I understand it. It is rooted in the quantitative theory of money, which originated after the Spanish poisoned their economy by mining too much silver in South America, in the misguided belief that silver equated with wealth. Only after the huge amounts of silver floating around Spain resulted in local labour demanding too high wages did oriental imports start to be comparatively cheap. As a result silver ended up coming in to Madrid and then going straight out to oriental traders without circulating around the labour force. This was investigated later and led to the creation of the first central banks, which manipulated a national 'reserve' of money by raising or lowering central lending rates. This 'reserve' can be pictured as a large tank that sucks or injects money to or from the circulation around the domestic economy to prevent inflation or deflation leading to the kind of collapse that befell Spain.

    Monetarist policy is perceived in the neoclassical framework as these days to do with regulations and rates that affect the minimum levels of liquidity and risk in private banks. However, in a credit economy where private banks are the major creators of money, the amount of money is largely determined by consumer demand for credit. The balance of power is with the private banks, and contrary to mainstream thinking what actually happens is that demand for credit forces the banks to overstretch their reserves, and then they place the demand on the central banks for further relaxation of those monetarist policies (thus accelerating the deregulation and exarcebating the problem). This is one fundamental flaw in mainstream economics that led to the crisis.

    Now, with quantitive easing being proposed as a solution, the governments are surprised to find that base money injections have no effect. This is because money supply is determined primarily by credit demand, and in a deflationary situation the credit demand is negative!


  • Comment number 36.

    #28 "What would happen Government Debt if the share prices of Lloyds and RBS were to double and the government sold its interest? "

    Either inflation makes it meaningless or it will make the horse sing in contralto !!

  • Comment number 37.

    OK, so all will be well in the end, just that the end is someway off. In the meantime it obviously helps to suspend all critical faculties, and for both reader and writer to engage in a race to the intellectual bottom.

    So the National Institue for Economic and Social Research is "this respected thinktank." So who respects them and why? What has this institution done to be worthy of respect?

    So GDP has fallen, but no-one is sure whether it has fallen the most since 1958 or 1926. Seems strange that the ability to make effective comparisons has been lost over such a short period, and it would also appear deliterious to forming an accurate understanding as to what is going on.

    Still, let us not dwell on the reasons behind this - better to just proceed as though it is just an act of God. Anyway it cannot be important otherwise "respected" think tanks would have the raised the alarm when statistical chicanary was introduced.

    Next we learn that GDP per head can recover faster if Eastern Europeans go home. Surely this must mean that Eastern Europeans contribute less to the economy than they take from it. This should get the juices of the BNP flowing. Are we to assume that Eastern Europeans are uniquely unproductive, or maybe in due course the net can be widened a bit further. Oh to be "respected"

    No clue is provided as to how the economy will recover. Presumably the "how" is considered unimportant.

    On the positive side the "respected" forecasters note that labour is being shed less quickly than in previous downturns. How joyous that they do not concern themselves with the multiplicity of firms that are encouraging staff to take long term sabbaticals, or to reduce the number of hours worked. Neither do they bother with all those self employed people running businesses at below optimum capacity, nor with the army of people "forced" into early retirement.

    But, its all just a forecast complete with the usual health warnings. It is lucky indeed that the NIESR is so "respected" because if a less respected person started hypothosising about the potential for superior economic growth in the absence of Eastern Europeans he may find himself in breach of one or more of the 3,500 new laws introduced since 1997.









  • Comment number 38.

    John_from_Hendon (#30) "Is support of the status quo, yet again... How can anyone take you seriously when all you do is to support the status quo, when there is ample evidence that the people who ran the system did not see the recession coming and did not see so many of the causes of the recession as a problem that might blow up in their faces."

    As I've said before, read the ETS report: 'America's Perfect Storm' or at least, watch the video (links provide dmany time snow).

    I haven't a clue how you've arrived at the view of what I allegedly think/support, but it's clear to me (as it should be to others) that it certainly doesn't have anything to do with what I've posted. You have arrived at a uniquely peculiar understanding of what I've posted and then attributed that bizarre misunderstanding to me.

    "Your position is illogical, not in accordance with the visible and obvious facts and thus ridiculous and contemptible, (sadly as usual)."

    No, you have simply not understood what you have read. As I say, read the ETS report 'America's Perfect Storm' (feb 2007) and the Leitch review from HM Treasury (2006), both on deteriorating skills and the consequences. The ETS report also covers the changing US demographics. This is complemented by OECD PISA data and warnings over recent years.

    Keynes was well aware of the importance of these classes of data - this is generally understood in terms of Mathusianism and eugenics. I have no idea why you aren't aware of this. To change behaviours one has to change populations, but that can not be done via fine words or naive advice to Mervyn King etc.

    Is English not your first language? Perhaps you have no training in, exposure to these subjects? They are descriptive (and corrective) of trends. Good governance is good population management, rather like good farming.

  • Comment number 39.

    No: 27 Mr Tweedy

    ...If we did capitalism properly, we wouldn't have had such a big bust as a direct result of a big artificial boom...

    You are indeed correct that the bust was preventable. However, without the artificial boom we would have seen widescale and permanent mass unemployment a lot earlier, simply because technological efficiencies have done away with the need for mass labour. It was a simply a sticking plaster solution, that is now unravelling.

    Many claim that our consumerist culture has created the problem, but this fails to recognise that the capitalist system needs us to keep spending. In the 1950s in a world without fridge freezers, videos, DVDs, satellite TVs, IPods etc. there was a significant opening for new developments, but in 2009 when everyone has everything what more can companies sell us?

    That is the problem and why we have seen such a rapid growth in new and ever more efficient technologies, i.e. just to keep us all spending. No spending means businesses going bust, which mean people losing their jobs and not paying their bills etc.

    At the same time with an aging population, we are being told that people will have to work for longer, which is fine, but then how on earth are the next generation going to find jobs in a shrinking employment market if they are frozen out by their elders?

    You can't square the circle.

    I thus maintain that capitalism has run its course and is why neither the left nor right have a solution.

    Instead, we need a paradigm shift.

  • Comment number 40.

    34 leanomist
    My view too... the Internet has already and will change everything.
    From a business perspective, it is impossible to see where any recovery will come from. My gut feeling is the UK is going to have a DD sized recession lasting years.

  • Comment number 41.

    No.35. FrankSz

    Mainstream economics does recognise the need for adequate controls and safety limits.

    Unfortunately, the recent strategy of the UK and USA has been a desire for their economies to run out of control until they inevitably crashed. This over-liberal anarchic economic strategy is outside mainstream economic theory. It was dressed up with a thin veneer of respectability to fool the general public into thinking all was well. Phrases such as "sub-prime", "no more boom and bust", "fairer society", "financial innovation", "CDO", "chaos theory" etc etc were used to disguise the complete lack of control by those with a duty of care........

    We are governed by managers who failed to manage.
    Their pensions are protected and the honourable members are generally safeguarded from the outcome of their own poor decisions.......
    Tony Blair is still being described as a political heavy weight today, when all he really amounts to is a presenter. However, compared to Des O'Connor or Nicholas Pasons, Tony Blair is a mediocre presenter....

  • Comment number 42.

    GDP has been a dangerous statistic from a national point of view. It is given more credence as a measure of success than it should.

    Borrowing money from overseas providers and then converting it (mostly via government deficit spending) into wages and thus GDP is what has given the illusion of well-being over the last few years.

    I am far from convinced that national units as they stand are relevant any longer, but if we must persist with a nationalistic perspective, then a better indicator of our economy's performance would be the balance of trade in goods and services (and perhaps net investment income - but not recoverable capital flows for securities etc). This comprises, in the broadest terms, the national "profit and loss" account".

    Looking at this measure, the economy has been operating at a "loss" since 1997 the greatest annual loss being in 2007 - just before the year of horrors - (and for quite a few years before then). This economy has been sick for a long time - it's the illusion of ever-growing GDP that has been the problem.

    (I know there are all sorts of reasons why this analogy is strained), but UK plc has been operated like a company patting itself on the back for increasing its sales figures but failing to notice the spiralling costs they have needed to achieve the growth. Result - the bottom line goes to hell in a handcart and only when the bank manager calls in the inevitable overdraft does it dawn on them that they are in big trouble.

    Moral - looking at GDP without balance of income stats. is a dangerous practice.

  • Comment number 43.

    Long live our Glorious Leader!

    Today itself, he redefined "Quantitative Easing" as "Injection of Resources"! Adding Zeros onto the Bank of England's accounts is an injection of resources. For God's sake, please do inject more resources! We certainly need them!

    He also assured us, as a universal truth, that had we not used Quantitative Easing (and bailouts etc), we would be having more unemployment and a bigger budget deficit! How lucky we are, that our leader has a crystal ball. Because of this crystal ball, none of the journalists deem it necessary to question these "universal truths" or to ask for proof.

    He said that thanks to his glorious policies, UK unemployment will not increase as much as that of other countries! Bless him! He certainly doesn't think that unemployment is going to decrease. Later on, he clearly pointed out that "we never make forecasts on unemployment". This must mean that the crystal ball can only look into the past, not into the future.

    He criticised the Conservatives' policy of disbanding the Financial Services Authority, saying that all "informed opinion" agrees with him! But surely, we all agree with him, not just the informed opinion!

    When will we have a gigantic bailout of car producers and car-part producers? Please, please, let it be soon! With Labour, no failure can go unrewarded, no success can go unpunished!

  • Comment number 44.

    #38 Jadedjean. You appear to have a uniquely repetitive message, and yet never seem to understand the meaning of that message.

    I have no real idea what causes people to be "not very bright." I suspect it to be a consequence of a multiplicity of factors - but I really don´t know.

    Even if your single explanation is correct then it is dangerous - because it will be misused.

    It is in any case totally irrelevant. You really do not need to be that smart to flip burgers or sell some kind of hot liquid branded as coffee. It positively helps not to be too smart when you earn GBP15,000 per year and yet become pesuadable that you too can buy a house for GBP200,000.

    The dumbing down of the population is a clear policy. It extends to all sectors. Even educated people are forced into narrow specialisations leaving them largely ignorant about everything outside of their specialization.

    Education comes in many forms - schools and colleges certainly, but also from family and communities. Look at the history of mine workers, most miners were not formally well educated, but they had a clear appreciation of the world around them. Often, if their children showed academic talent, great sacrifices were made to ensure that they could receive appropriate formal education.

    You are on to a loser because you are challenging a central policy of the 21st century. That policy is to dumb down the population by whatever means available whilst continually denying that that is the policy.

    Educated people would rise up - and that is why the denial of education will never ever be surrendered.

  • Comment number 45.

    I dont believe anyone who forecasts for the next 6 months to a year, the fact is all forecasters use data modules to predict future data trends and figures.

    The problem with that is (if you are a mathematician like me) current data (since the beginning of the Credit Crunch/recession) is jumping all over the place, which mean the statistical standard variation will be well out of the acceptable value, hence your margin for error is very great to be able to predict any future data/trend. At the moment the needle is jumping all over the place, you cannot get a reading!!

    We need at least 6 month of data stability to be able to forecast where we heading. The only reason why we never saw the recession coming is because it came down very quickly otherwise we would have been predicting it accurately.

  • Comment number 46.

    #40 moorlandwoman wrote:

    'My gut feeling is the UK is going to have a DD sized recession lasting years.'

    ------------------------------------------------

    That's a strange way of quantifying the size of this recession!

    Are you implying that GDP will shrink from size G to DD...please clarify.

  • Comment number 47.

    This does all look as though we are in for a hard time for a generation. Its time the Governments started thinking out of the box, at our standing in the world, our competitiveness, and what we have to offer. Without a doubt, in recent times, we have been more concerned with equality, human rights and political correctness, across the board, as social priority in all areas, education, health, social services etc.
    I reckon the total spend on PC related subjects must be 15% of all spend, if you take into account, related quangos, enquiries, legal cases etc. Related to any inequalities, for example, social services failures versus poor deterent, dumbing down education so as not competitive world wide, and numerous other examples, making schools 50% crowd control, equal professions access etc.
    We need to think again as to how to get back to basics of getting people working hard and ambitiously, respect and value adding.

  • Comment number 48.

    Post 42 - an argument well put. I was also particularly interested in this too as it aligns well with one of the simple Leanomics tests too (called the BUTS test) ... and it adds a little more sophistication to the "T" term too ... take a look a previous post below which was made back in June, as I think it supports your point too ...

    ______________


    "In a global economy only those capable of offering (and exporting) things other nations want will survive in the long run. This country lost this concept some years ago and/or wrongly believed financial services were the answer!

    'Leanomics', a much wider and far more holistic form of 'economics', looks at community factors too ... such as individual well-being and community contentment, as well as the sustainability of enterprise and the environment. For example, one simple Leanomics test, called the "BUTS" test, can create a great deal of insight by looking at debt alongside the capability of the community to pay it back.

    B=Borrowing
    U=Untapped talent
    T=Trade deficit
    S=Stress

    Trade deficits, untapped talent and stress all negatively impact on a nations ability/capability to pay back debt, and what do these look like at the moment ? I'll give you a clue - terrible!

    We have got into huge debt, sold the family silver, demoralised people, stressed people out, created a broken society, overburdened our children (and our children's children), and still have the 1940's baby-boom to come (with a poorly funded pension system).

    Nothing has changed, it's just becoming increasingly clearer (and/or harder to hide!) ... I think Mr Tweed summed up the situation very well ... just to re-iterate ...

    " ... If Germany, China and Japan invested their surpluses in their own economies, and they successfully uncoupled from the US and the UK, it would leave the US and the UK high and dry.

    Without foreign investors to buy gilts and treasuries, our governments would struggle to afford their spending plans, and we would struggle to afford our imports.

    Britain and the USA would need to find exports to sell to China, Germany and Japan. But just what would Britain sell? I can't think of anything, seeing as exports of bank loans, insurance and defence manufactures were Britain's only trade surplus during the years preceding the economic crisis. North Sea oil is not what it once was.

    The search continues for Britain's magic exports" ...

    ... and as I also raised in one of Robert Peston' previous blogs ...

    " ... so tell us the robust plan to pay back all the extra debt we're taking on and at the same time create 21st century products and services that ...

    1. People around the world want and are willing to pay for
    2. Will create millions of jobs in the UK, and
    3. Will systematically reduce our trade deficits and national borrowing ... *

    Next question ... how are we nurturing and accelerating creativity/innovation to develop these new products and services?

    Next question ... how are we adopting 21st Century leadership and management to enable both the above?

    I've been in meetings with Ministers and the CBI - and guess what ... when difficult questions like these are asked they are all 'weighed, measured and found wanting' ..."


    But are you really surprised ? ... We can't trust them with their 'expenses' ... never mind the 'economy' !


    David Clift, a Future 500 Leader


    * Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

    ______________

  • Comment number 49.

    #41 MrTweedy wrote:

    'Tony Blair is a mediocre presenter....'

    ------------------------------

    But you have to agree...he was/is the most supreme of con-artists!

  • Comment number 50.

    Recovery will be long and slow huh!

    More like there will be no recovery that will follow the current doctrines, we are in a transition phase working towards a new global economic model.

    I watched Newsnight last night, I cant quite put my finger on it but I could not help but get the impression that even the great and the good nobel prize winning economists interviewed did not actually believe what they were saying anymore and continued out of habit rather than intellectual conviction.

    To be fair it is a bit tough to suddenly realise the system you have dedicated 30 years of your life to study and make a career of well...no longer works and you need to bin all that and start again.

    The world economists collectively are like the coyote running off the edge of the cliff in the road runner cartoons, their legs are still going like crazy yet there is a slow realisation that there is nothing underneath them anymore. We all know what comes next. That was the feeling I got from those economists last night.

    What is most perplexing is nobody in the so called free press asks them the right questions to get them out of their comfort zone, perhaps they are afraid of being cold shouldered, I dont know, I just dont get it.

    Here is a question I prepared earlier, if anyone else here can answer it also PLEASE do as I think I am going insane most days.

    Here it is, designed specifically to save the reporters blushes..

    ''A contributer to my blog would appreciate the opinion of a recognised expert to put his mind at rest on a question that is unsettling him as he cant seem to find an answer and I would like to ask you it on his behalf if I may as simple act of compassion.''

    'We need continual growth to create jobs, especially as we now make things using less and less human labour year on year through the continous efficiency business demands to remain competitive and generate profits.

    That seems ok up to a point but won't we reach a point where we can no longer grow because we are too efficient to sustain a consumer society while maintaining socially acceptable levels of employment and keeping within the limits of viably available natural resources.

    Are we at that point?

    Is that not the real cause of the economic problems?

    Does that not mean we need an entirely new model?

    What is it?

    Is it me, am I mad?

    Can someone help me?

    Jericoa


  • Comment number 51.

    armagediontimes (#44) "I have no real idea what causes people to be "not very bright." I suspect it to be a consequence of a multiplicity of factors - but I really dont know."

    All the more reason for you to pay attention and learn one might think?

    "Even if your single explanation is correct then it is dangerous - because it will be misused."

    When people like myself do research they do a lot of data-reduction. Here it's Factor-Analysis for 'g' (and at a push, Regression-Analysis for its relation with other measures on GDP and TFR etc). You need to show a little more respect for what you don't know, and then you might learn something. There's a lot of research (decades of it) behind what I've been saying. I am just putting all of that into simple words in the blog. Follow the links.

    Most of those who say it will be misused are scare-mongering, as they don't want their anarchistic free-market threatened. That's when they roll out Hitler and Stalin etc as evil-dooers. Much of it is just propaganda you know. These were statists, i.e socialists at work. They looked after people before money, which is anathema to free-market anarchists/capitalist, so the latter turn such 'dicttaors' (here we call them PMs or presidents) into baby-eating madmen.

    Try to learn instead of rant.

  • Comment number 52.

    @John_from_Hendon [your argument about publishing the headline central prediction without any error bounds.]

    I agree. Point estimates are not particularly informative. A point estimate (central prediction) from a regression model needs to be accompanied by information on model fit, and confidence intervals around the estimate, to be of more value. Compare the presentation of economic point estimate forecasts to epidemiologists publication of error bounds around their predictions of swine flu deaths (3,000 - 65,000 in UK if I remember correctly). I expect this was either a 95% or a 99% confidence interval. The latter is more informative.


    @MrTweedy. Apologies that my username is similar to yours. It was not intentional. Mine is actually a slang name for the 1953 Fender Champ amplifier. I agree that Nicholas Parsons is a good presenter. One of the greats, perhaps. However, the "Sale of the Century" franchise itself was perhaps a little too influential as a template for management of the UK economy and as an influence on people's life expectations!





  • Comment number 53.

    RaulMagister (#42) "Borrowing money from overseas providers and then converting it (mostly via government deficit spending) into wages and thus GDP is what has given the illusion of well-being over the last few years."

    Nicely put. Thanks.

  • Comment number 54.

    ''will unemployment be back to where it was in those halcyon days of early 2008? I'm afraid the answer appears to be 'approximately never'"
    Hardly suprising, given that London and New York are the bountiful financiers of speculative asset bubble. If you really want to ramp up your GDP numbers, just begin again another round of international financing of speculative asssets.
    The Western Governments are poor learners of practical economics, but instead prefer the 're-marketing' of the 'same old same old'. Has it not got into their heads, that the 'financial gurus' who touted esoteric financing in ABSs, CDOs, CDSs etc have no other aspirations than unduly enriching their own pocket books.
    Not even the their obligations to their employers, the financial institutions' shareholders, are worth their bother. And the deluded Western Governments expect patriotism and civic morality to make these finacial 'munafiqs' to behave better. If the national economies do not support these 'munafiqs' assertions, they will still go the route of destroying their home-based economies just for self-fulfilling their contentions.
    What we are witnessing now is the unraveling of the overreaching influence of financiers possessing 'funny' money. No laws or moral persuasion will make the greedy behave. And in the meanwhile, the Western economies continue to enjoy 'groping in the financial dark' to get their economies in order.

  • Comment number 55.

    jericoa (#50) "To be fair it is a bit tough to suddenly realise the system you have dedicated 30 years of your life to study and make a career of well...no longer works and you need to bin all that and start again."

    For several decades, it's pretty much been a closed shop - a family affair.

    "Does that not mean we need an entirely new model?

    What is it?

    Is it me, am I mad?

    Can someone help me?"


    Not mad, but you certainly don't know how to take instruction. That's never a good thing when one doesn't know the field from whence it comes.

  • Comment number 56.

    To the BBC

    Are there any plans to invest in a "voting" or "recommend" feature applicable to the blog entries? Something similar to the BBC "Have your say" section, or the similar features in the Guardian and the Daily Mail sites. There are many posts I would endorse with a "vote"/"recommend" given the chance.

  • Comment number 57.

    RECOVERY?? COME ON THERES 799 BILLION TO REPAY FOR A START!

  • Comment number 58.

    #51 Jadedjean - Yeah great, so you tell me what use is some high IQ super educated research trained person to a burger franchise. That is all there is. That is the future, that is why we need to dispense with education for all but a tiny minority.

    The government understands this, and that is why it is busy abolishing education. It also understands that should they enunciate this policy in clear terms it would be a vote loser - that is why they claim to be doing the exact opposite of what they are doing. Is this so hard to understand?

    All you do is provide intellectual cover and run black operations to hide this simple fact.

    The reasons why individuals or groups of people are not educated matter nothing. The fact is that the vast bulk of the population must be denied access to education because governments understand that aggrieved educated people can be dangerous. Aggrieved ill educated people are not dangerous - except to each other, and no-one cares about them.

  • Comment number 59.

    #37 "How joyous that they do not concern themselves with the multiplicity of firms that are encouraging staff to take long term sabbaticals, or to reduce the number of hours worked."

    Not forgetting our National Air Carrier asking their staff to work for nothing !! I wonder what happened to the bosses' massive bonuses in the prior years ??

  • Comment number 60.

    #44 armagediontimes you wrote:

    'You are on to a loser because you are challenging a central policy of the 21st century. That policy is to dumb down the population by whatever means available whilst continually denying that that is the policy.'

    ---------------------------------

    This comment really disturbs me for some reason.

    What knowledge allows you to make this statement and whose policy is it?

  • Comment number 61.

    #43 "How lucky we are, that our leader has a crystal ball. Because of this crystal ball, none of the journalists deem it necessary to question these "universal truths" or to ask for proof."

    Of course they are "universal truths" !! The Ministry of Truth said so and they *CANNOT* be wrong !! See posts above !!

  • Comment number 62.

    #48 "Britain and the USA would need to find exports to sell to China, Germany and Japan. But just what would Britain sell?"

    Err...Harry Potter and the Half-blood Prince ?? I doubt that they'll be interested in either of the Beckhams. What else ?? Hmmm, lets see....

  • Comment number 63.

    #49 "But you have to agree...he was/is the most supreme of con-artists! "

    Surely, you've forgotten Mr. Charles Ponzi, sir !!

  • Comment number 64.

    armagediontimes (#58) "Yeah great, so you tell me what use is some high IQ super educated research trained person to a burger franchise. That is all there is. That is the future, that is why we need to dispense with education for all but a tiny minority."

    To understand how government works (or in our case, how lack of government works) you have to think statistically about populations. You have to be able to work with distributions and their properties. You are thinking about individuals. You therefore see what I say as abstract because you don't think in terms of distributions and how they are related lawfully. How I think and write is how policy makers and implementers have to work. Do you want to learn?

  • Comment number 65.

    DebtJuggler (#60) "This comment really disturbs me for some reason. What knowledge allows you to make this statement and whose policy is it?"

    ETS report 2007, OECD PISA data 2000,2003, 2006, Leitch (2006) - trends in National Curriculum SATs. Look some of it up.

  • Comment number 66.

    #60 DebtJuggler. Take a careful look at British public examinations up until the early/mid 1980´s and then take a look at them now.

    Ask why the study of Home Economics has been essentially abolished. See if there is a correlation between the effective abolition of this subject and the rise of the burger eating generation.

    Take a look at the quality of programmes on TV - ask what information they are imparting. Take a look at this blog, and ask why the BBC does nothing more than report a press release or official announcement. Ask where is the critical analysis. Read something by someone like Robert Fisk or Seymour Hersch and qualitatively compare what you read there with what you read, or see, on the BBC.

    Get hold of an old newspaper from the 1960´s or 1970´s and compare the content with any current newspaper.

    The knowledge that allows me to make my statement is all around, and is available to all who wish to see.

    It is the policy of the government, and the policy will not change as a consequence of an election. Just because the government denies its own policy does not mean that it is not policy.

  • Comment number 67.

    People have not respect for either the political or financial systems and therefore no confidence that either will act in their interest. I would say that the lack of confidence is reflected in the economic forecast. The Alice in Wonderland approach to the financial crisis is a cause for concern. Plotting charts and printing money is hardly a solution. The West sold the middle class for cheap Chinese goods and now wonders about the economic stability of the society. The global economy was nothing more than taking jobs and exporting them to unregulated labor markets in exchange for higher profits. The bankers, not satisfied with obscene profits, began to scheme about how to maximize their profits though a bait and switch housing scheme. During what was called the boom one can see that real income for the working folks did not rise and probably decreased. As politicians represent business and not the people the game was on. Serious dicussions are in order for redefining the political systems in the West and some resolution to the matter of international corporations and their role in national economies. Currently the only activities are to maintain the status quo and the status quo is the villain in the whole affair. Had discussions been held on how to replace the losses in the individual retirement accounts and letting the individuals determine which banks would be recapitalized through individuals reinvesting the money, that had been gambled away by an irresponsible financial services industy with the blessing of governments, the banks would have had to provide the investors with assurances that substantial changes in policy would take place and their investments would be protected. We now have the bankers telling the governments that puting lipstick on this pig will be sufficient and the governments shaking their heads in agreement. When the economies have recovered and the chests are full of money again the thieves will return and blame us for being so stupid to let it happen again...and they will be right.

  • Comment number 68.

    #50 "We need continual growth to create jobs, especially as we now make things using less and less human labour year on year through the continous efficiency business demands to remain competitive and generate profits."

    1) There are still many areas of growth in this world (see above). However, it will not be had by the exploitation of the "damned natives" since said natives are getting rather tired of being exploited and are getting rather revolting !!

    2)Efficiency does *NOT* equate to less labour !! This is a fallacy sprouted by most MBA courses without detailed examination !! A combine harvester may be very labour efficient but is certainly not productivity efficient !! The amount of food lost through "wastage" is deemed to be "negligible" when compared to the cost of (local) labour !! However, if another locale has surplus cheaper labour and starts to be more productive( i.e. less wastage), they can produce food more cheaply when the cost of land usage is taken into account !! Since the amount of arable land is (almost) finite, this could be a large factor in the final costs !!

    This is why much of the out-sourcing happened !! Bangalore is *NOT* less technologically advanced that Britain and yet much of the "services" have been out-sourced there !! Why ??

    "That seems ok up to a point but won't we reach a point where we can no longer grow because we are too efficient to sustain a consumer society while maintaining socially acceptable levels of employment and keeping within the limits of viably available natural resources."

    Again, there has to be a differentiation between "consumer society" and a "less productive society" and an "ostentatiously consuming society" !! I believe Britain will or already have fallen into the second category !! *ALL* societies are consumers !! However, when a society has only a lesser part of it in productive activities, then it becomes a "less productive society" because the few has to support the many who consume !!

    The third kind is where the danger really lies as far as natural resources are concerned !! When resources are used up to satisfy the needs of a purely fashion driven society, then it is ostentatious consumption !! This is a society where "wants" have a greater priority than "needs" !! Most of the developed countries fall into this category !!

    As for future growth, a famous science fiction author once wrote - Space is effectively infinite !! Anyone planning a farm on Mars or Alpha Centuri ?? This will never happen so long as we continue to waste resources being politically correct !!

    See you on the slowboat to Sirius !!

  • Comment number 69.

    Post 50 Jericoa - a good point, and a good question ...

    I believe the answer is partly in how we re-define value, and how we alter/accelerate the way we innovate & improve ... freed up resources/capacity should be used to innovate and create even more value (ie. identifying & providing new/better products and services, as well as continually improving the way we provide current ones) ... e.g. the book 'Lean World' is all about this and explains the leadership / management practices required to do this too (which are mostly common sense, but unfortunately completely opposite to mainstream UK/US practice). Take a look at my post on Stephanie's blog yesterday which I've summarised here below (or at 'Lean World' - you can read it online at Google Books* too) ...

    "... I tend to use the word 'innovation' in relation to new (and better) products / services that provide more value to people / communities (e.g. warmth, transport, food, shelter, entertainment ...) and 'improvement' for finding better ways of creating it (e.g. more efficient means of production) ... when one looks at the innovation in relation to new potential products/services the possibilities are actually vast (which is what entrepreneur's see), and in terms of efficiencies the opportunities are also great too (e.g. using 21st century practices and technology as you have quite rightly pointed out) ... 21st century enterprises will be the ones who marry both of these together properly (ie. more resources are continually needed than are freed up) and communities should (if this is done right) benefit from both (which is what the book 'Lean World' points out) ... "

    I hope this helps to ease the pain a little and goes some way to answering the question - and I don't mind if 'leaders' use this in their answer ... so long as they act upon what they say ...


    David Clift, A Future 500 Leader

    * http://books.google.co.uk/books?id=-8xAIgkewOUC&printsec=frontcover

  • Comment number 70.

    #52 "Compare the presentation of economic point estimate forecasts to epidemiologists publication of error bounds around their predictions of swine flu deaths (3,000 - 65,000 in UK if I remember correctly)."

    The dreaded SARS pandemic that was to depopulate the whole of Earth ended up will less people dying of it that in road traffic accidents that year !! I expect the same for swine flu !! Therefore, I'd advocate less worries about it unless you are a real swine !! :-)

  • Comment number 71.

    #41 MrTweedy

    Yes, economists do and did recognise the need for regulation and yes that is how they thought they would regulate money supply.

    They did not however recognise that it was the private demand for debt, exponentially increasing because of debt-funded asset speculation, that drove the private banks to put pressure on the central banks to reduce rates and other regulation to do with reserve minimums, and to increase base money indirectly through selling debt to foreigners.

    They had the causality backwards.

  • Comment number 72.

    48 Below is a key question:

    " ... so tell us the robust plan to pay back all the extra debt we're taking on and at the same time create 21st century products and services that ...

    1. People around the world want and are willing to pay for
    2. Will create millions of jobs in the UK, and
    3. Will systematically reduce our trade deficits and national borrowing ... *

    While resource costs are so much higher in the UK than they are elsewhere - particularly labour and social infrastructure, then in a global market, investors will always seek out to perform production where these overheads are cheapest - and that will not be the UK for a long time. (It did start to happen in the early '90s when it became cheaper for television producers to set up plants in South Wales rather than South Korea - but proved to be a blip rather than a trend).

    The UK's function has been to provide a base for finance (English language, advanced legal structures) for the global economy rather than a manufacturing centre - that is the niche we have carved out for ourselves as the Chinese have with their factories. The problem is what happens should the specialist niche you have carefully "evolved" your economy to fit in the wider global market "eco-system" suddenly experience a big adverse shift in conditions? Like a Giant Panda, from living in clover (shurely bamboo!?) you are suddenly in danger of economic extinction.

    Our governments hope to offset such effects by always staying with these and other "high value-added" products through "education, education, education" (Remember that?). But such knowledge is now also global and there is no long-term inherent national superiority in anything for anyone anywhere (In the 1830's Britain was supreme in the high value-added business with its steam engines et al. and Japan barely out of the middle ages - how times have changed.)

    So if the global market is to reduce your corner of it to an economic wasteland for the time being, should you just wait until the unseen hand deems it to be your turn to receive its favours again? There is a question as to whether the dedicated exploitation of market forces to wring the last dollar and cent of cost reduction delivered to the consumer by having, say, computers made in the middle of China, programmed in India and marketed by the US and then shipped around the globe in flag-of-convenience vessels is really worth the price in terms of the uncontrollable risks to national integrity and independence that any hiccup in the system might bring - even, as we have seen, to a nation as mighty as the USA.

    If feeling part of an integrated nation (operating under the premises of its own laws and customs and looking after fellow citizens who share the same cultural values) still means something to people around the world, they must decide whether they are prepared to accept a sub-optimal global economic system to pay for that perceived benefit. Sadly, there's STILL no such thing as a free lunch.

  • Comment number 73.

    #64 Jadedjean Policy makers and implementers tell us that we need troops in Afghanistan to prevent the spread of terror to the streets of Britain. So far, the only terror has come from people born and raised in either Leeds or the home counties.

    You will then forgive me if I do not instantly genuflect before the honesty, integrity, and thought processes of policy makers and implementers in all their guises.

    My point does not change. The clear policy of the government is to effectively destroy education for all but a tiny minority. Even that minority are likely to be highly specialised and ignorant of much that is outside their area of specialisation. How they achieve this policy is of less immediate interest than the fact that they are achieving this aim.

    The economy requires uneducated people. This is because of the correlation between education and wage levels, and because of the general passivity of the uneducated. Sure people that have effectively been abandoned by substantially all systems are likely to commit more crime - but crime is good. People become afraid of their neighbours, become more atomised, and more likely to support draconian measures against crime...more likely to support illegal state sanctioned acts of aggression against the foreign man.

    This is the policy and the policy is not affected by immigration. It maybe makes the policy more efficient (or not - I don´t know), but the policy would remain irrespective of the constituent parts of the population.

  • Comment number 74.

    #46 BankSlickerminustheR
    Its my primitive way of saying a double dip recession. When the axe starts to fall on public sector jobs as it shortly must, and when swine flu effect is taken into account things can only get worse. I also find it impossible to identify where any recovery can come from.
    I am not an economist, just a simple minded businesswoman who keeps her finger on the pulse.


  • Comment number 75.

    Post 72 - I agree with a number of points raised ... and it's important to note that 21st century enterprises like Toyota do not make all their cars in China (or wherever the lowest cost labor is at the time) and ship them to everywhere else ... they invest in most nations/communities it supplies to (including the UK/US*) ... and they do not talk about their values ... they apply their values (e.g. trust, honor, responsibility and respect) ...

    I feel economies have much more to learn about the future of communities & nations, as well as the future of enterprise too ... I hope this helps a little, and goes some way to answer the points raised ... whilst highlighting even more of the challenges ahead ...

    * e.g. Whilst the global economy (and GM) is collapsing, Toyota have just announced plans to build their next generation Toyota hybrid (Auris) here in the UK ... http://news.bbc.co.uk/1/hi/business/8155163.stm ...

  • Comment number 76.

    63. At 2:40pm on 22 Jul 2009, ishkandar wrote:
    #49 "But you have to agree...he was/is the most supreme of con-artists! "

    Surely, you've forgotten Mr. Charles Ponzi, sir !!

    --------------------------------------------

    Sir,

    I beg to differ...

    ...Charles (like Madoff) was eventually caught and prosecuted!

    Teflon Tony is still has his money and is still at large!

  • Comment number 77.

    Just a comment on the unemployment situation now compared to the nineties.

    During the eighties and nineties more than one million people set up their own small businesses to escape unemployment.

    Many small businesses are the ones now suffering the most but the self employed are not counted in the unemployment statistics.

    Fiddling statistics seems to be the favourite pastime at the moment so we should be at a stage where we have to be sceptical of all of them.

  • Comment number 78.

    FrankSz (#71) You're on form today.

  • Comment number 79.

    #7 DebtJuggler To be fair to Mr Stiglitz, who with Vince Cable has been one of the better performers in trying to analyse this whole mess...and in previous years has warned against it...his point wasn't quite as you took it.

    He was saying that the stumulus package HAD been badly designed and for that reason was not delivering any significant stimulus (indebted Banks ARE taking the money to rebuild THEIR capital balances and indebted consumers ARE using tax windfalls to pay down debt....neither of which is producing constructive improvement in the overall situation.


    Being badly designed AND 'helping Banks' fits with the quote you do give in which he says to an observer it would appear that the designer of the package was in the pocket of the Banks.

    Stiglitz has a long history of being clear-eyed about many aspects of the modern world...the US using the IMF as an arm of the State Department to deliver foreign policy goals 'by other means'; being one.

    In the interview he ended up being agreed with by Phillipa Malmgren, an ex special assistant to George W Bush on Economic issues, and not a natural Stiglitz ally; because his point was that a second stimulus was needed precisely because the first was so badly designed it had evaporated like a desert shower.

    It wasn't a volte face in that he has always advocated action to alleviate the issue ..that's the mantra of the 'do something' Govt...but Stiglitz's has consistently advocated the 'do something useful' course...and not the US and UK's present (and recent past) course of "Do something...anything...!!and if that doesn't work do something else...what? ...anything!!!!' Course.

    He gave caveats..one being that 2/3rd of the stimulus hasn't been deployed even yet.

    However it's fair to say his view was similar to that of the Fire Chief on the steps of a blazing Albert Hall as he's watching the first bucket failing to even make the flames flicker.... so while holding the idea that the other two MIGHT have an effect; he's really inclined to the view that it's probably more sensible to assume they won't put out this blaze either, and a couple of fire engines had better get here soon.

    But the key point...and the one where I disagree with part of the '#1post by Boilerbill' is that annoying as it is for Gordon Brown to trumpet his competence when 'winning', but blaming 'the whole world' when losing.

    Also,Annoying as it is to have heard the comparisons with previous busts when those were temporarily advantageous, but not now this one is officially the worst ever....

    The REAL issue is that by doing the wrong things right now, and continuing to do so---- he, or rather his Government; is causing demonstrable, clear and obvious bad outcomes to arrive in 2010 and 2011 that COULD be averted with just better choices and better execution on plan.

    IF this is being done in an attempt to curry electoral advantage then a lamentable state of affairs becomes a disgrace.

  • Comment number 80.

    armagediontimes (#73) "Jadedjean Policy makers and implementers tell us that we need troops in Afghanistan to prevent the spread of terror to the streets of Britain. So far, the only terror has come from people born and raised in either Leeds or the home counties."

    There are only something like 9,000 UK troops in Afghanistan and about 10 Chinooks. Whatever they are doing there (in a country of 30 million with 150 million Pakistanis across the broder) it's more likely this is strategic and they aren't spelling that out for operational reasons. That doesn't vitiate my point. I don't expet them to tall the public everything.

    "You will then forgive me if I do not instantly genuflect before the honesty, integrity, and thought processes of policy makers and implementers in all their guises."

    I think you need to reconsider that. You don't appear to know how governments work, everywhere. There are indeed national security cnstraints, as well as civil order issues which limit how much can be said.

    "My point does not change. The clear policy of the government is to effectively destroy education for all but a tiny minority."

    Or use education to achieve a poorly perceived, paradoxical objective? It keeps kids off the streets and off the unemployment register, but it also shifts the demographics downwards and it's the latter which I am concerned about.
    //
    "The economy requires uneducated people."

    It requires all sorts of people, but it especially needs able people for essential services and to innovate/produce goods for export etc. The rest are easy to find anywhere. What's concerning a lot of people is how both the USA and UK have been running down their demographics, as one can't build these back up again if ability is largely genetic - except by attracting native talent to the country. It's the dawning on many that human capital is largely innate which is so worrying, as in the past, education was seen as a corrective. Do you not see the problem?

  • Comment number 81.

    Post #74 Moorlandwoman...Just wanted to say that apart from a gender difference (substitute man for woman) I 'd like to take the description for my tombstone epitaph...

    To be honest if 'a simple minded business person (of either sex, any race, whatever species) who keeps their finger on the pulse' stood for election I'd vote for them.

    At least I would know their politics would be jargon free, sensible, down to earth, and practical.... because anyone running a business at present, caring about their staff and just trying to get through a bad situation being made worse by idiots; the rosette colour would be immaterial.

    Stiglitz actually agreed last night on a Newsnight interview I mentioned earlier that it is small business and entrepreneurs (agreed with Phillipa Malmgren) who would better use govt largesse...to drive the economy out of the recession...not Nissan, RBS,Lloyds, GM, Tata, Corus, or the rest of the multi-national tax avoiders and financial swindlers our govt keeps chucking it at.......

    That isn't going to happen of course and whether it's because of some sort of conspiracy, or just inepitude, running off a last century agenda, using out of date economic timetables, or whatever; I haven'tgot time to spend thinking...too busy trying to save the jobs of friends who happen to work for the company I own...

  • Comment number 82.

    e2toe4 (#81) "To be honest if 'a simple minded business person (of either sex, any race, whatever species) who keeps their finger on the pulse' stood for election I'd vote for them.

    At least I would know their politics would be jargon free, sensible, down to earth, and practical.... because anyone running a business at present, caring about their staff and just trying to get through a bad situation being made worse by idiots; the rosette colour would be immaterial."


    Is that irony? if not, you appear to be forgetting estate agents, property developers and hordes of other people who want to behave like/work for the likes of Alan Sugar or worship what gurus like Digby Jones come out with.

    Since Thatcher and Reagan, 'the people' seem to have become coextensive with 'shareholders' or more accurately, pension fund/nominee account managers (banks) and 'freedom' has become coterminus with 'the right to run a business', the more venal the better.

    What we really need is to invite some of the Chinese and North Koreans over to advise on how to run a country and deal with economic predators. Oddly, they never get invited onto Newsnight. No doubt they're very busy with all their 'evil-doing' - making people miserable in their socialist hell-holes/countries etc?

  • Comment number 83.

    I too was intrigued by the Stiglitz / Malmgren debate, but was struck by the complete lack of understanding of where the new stimulus will come from. What fails to be accounted for by the neo-Keynesians is that the West could afford to invest in the early part of the 20th Century, as science and technology still had room to improve the efficiency of production (e.g. more use of oil based fuel, the turbine heat engine etc.):

    http://www.southerndomains.com/SouthernBanks/p2.htm#9

    Debt is all well and good if it will pay dividends in the future. But the latest waves of stimulus have done nothing more than heap greater piles of debt up.

    P.S. Jericoa #50 Stiglitz has spent the last 30 years avoiding these sort of fundamental questions from Georgescu-Roegen:

    http://tinyurl.com/stiglitz-ducking

    Pages 127-135 highlight the fundamental flaw in Solow and Stiglitz's reasoning. Only time will show that G-R was on to something and that the Economic canon has repeatedly used the "ostrich policy of burying the head in the sand in the hope that that will thereby choke the ears and throw dust in the eyes of the pursuer also" to quote from Soddy.

  • Comment number 84.

    #82...JadedJean.... just heading off for a business meal not on exes...to keep on working through the current situation with two key suppliers (of IT hardware and software)

    It wasn't irony... but the 'simple minded' tag..by Morlandwoman..... was taken by me to mean ..decent, legal, fairminded, trying their best, connected to the real world, not spinning a line, cutting their pay to not have to make staff redundant, wading through red tape that is so stupid even Kafka couldn't dream it up (whilst being told Red-tape Tsars are everywhere cutting it away --even as more arrives...

    -------------What exactly do the Govt think that my company is going to actually do to PLAN for large numbers of staff collapsing with swine flu; staying off through fear of swine flu? staying off to care for dependents or loved ones with swine flu?........It's beyond nonsense...---------------

    Anyway I took it for a list of virtues as per above... and more.

    I take it your 'shorthand of 'hordes of other people.....to......gurus like Digby Jones.'-----Is meant to include the vices of lazy, exploitative, swindling,uncaring of staff and so on and so forth.

    I don't believe ALL estate agents, property developers etc are swindling, horrible people but I see the point---- I just wouldn't identify the 'vices' with that simple-minded businessman tag..

    Basically I guess simple minded business people take people as they find them...and don't let labels or systems get in the way...that's unlike 'politicians' in the main...and that's what I was meaning..



    (I guess not all the Chinese and North Koreans are totally fantastic...though many are....?)

  • Comment number 85.

    #80jadedjean. How strange that you now seemingly consider your ignorance to be a virtue. Still, not to worry I can help you out.

    Afghanistan is strategically located for the export of natural gas from Turkmenistan and Uzbekistan. Both Turkmenistan and Uzbekistan are "bonkers regimes" - but we support them. They are quite happy to sell us gas, and they may irritate the Russians - beyond that who cares. (The US and the UK seem to have a particular prediliction for annoying Russians - check out the Ukraine, Georgia and the fabled Missile Defecnce).

    Afghanistan borders a nuclear armed Pakistan. Almost certainly the activities of A Q Khan were known to some very switched on high IQ individuals in both the UK and the US. Still not to worry both China and India are much closer to Pakistan than we are. (You tell me how smart you need to be to work that out? But you need to be really smart to justify to yourself the stark amorality of taking that judgement)

    Adghanistan also borders Iran - and we may calculate an advantage in invading Iran. How lucky that we have troops both to the immediate East and West of Iran. What a stroke of fortune. Maybe we can persuade the Iranians that it is Gods will, and they may give up without a fight. Oops, almost forgot the fighting bit would be central to the plan - so best not to push that argument too far.

    Oh...and I almost forgot there is a lot of money to be made in the Heroin business and the Taleban were busy closing it down. Luckily since the British deployment opium production and exports have reached new record highs. Is this a cynical point? - Not really, check out US involvement in Columbia which serves a similar role in Cocaine production.

    The national security and civil order aspects to all this? Nothing, beyond the fact that the people would rise up and overthrow the government in an instant should they ever collectively understand the truth as to what is going on.

    In the light of the foregoing I think you should consider that your point has been vitiated.

  • Comment number 86.

    #85 Errr... so Marx got it wrong "opium is the opium of the people"?


    or should it be "Oprah is the opium of the people"?

    I'll get me coat............

  • Comment number 87.

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

  • Comment number 88.

    armagediontimes (#85) "In the light of the foregoing I think you should consider that your point has been vitiated."

    Some of what you have posted may well be so, but as you aren't in government issuing policy directives or on the ground giving commands, how can you know? All you can go on is what you see on the news and read in the press surely?

  • Comment number 89.

    #88 Jasedjean. Apart from an educated guess as to prior knowledge of A Q Khan everything I have posted in #85 is true and verifiably so.

    What does it matter how I know what I know?

  • Comment number 90.

    armagediontimes (#89) "What does it matter how I know what I know?"

    A twinkle of insight? What matters is not so much what you think you know, but whether any of your statements are in fact verifibly true, and the only way to ascrtain that, is through your supporting evidence. That's why I try and provide my sources and why I try to make sure they are based on sound sampling or population level data.

    In what you post, what evodence do you provide? Without that, how is anyone, yourself included, able to ascertain whether what you post is true, or fabrication/speculation/delusion?

    We live in windy times.

    Newsnight's covering usury tonight.

  • Comment number 91.

    #90 Jadedjean I have no pretensions with regard to academia, and this is a blog not a book. It is easy enough to check if you want to, one of the benefits of the internet.

    If it is insight you are after; Well in a past life I have lived and worked in many of the dodgier places in this world. The people I worked for were keen to understand the magnitude of risks that may attach to physical assets that they either bought or constructed. I was very interested in risks to my own physical integrity - Fear tends to concentrate the mind. I am not about to post my cv so I could be lieing, or just delusional and you can´t check, so I assumed it would be of no interest to you.

    I don´t get Newsnight in my neck of the woods - hope you enjoy it.

  • Comment number 92.

    armagediontimes (#91) "I have no pretensions with regard to academia, and this is a blog not a book."

    Why is there a difference?

    One of life's great confusions is to ever think that demands for truth-functionality are merely 'academic' when in fact they're a matter of veracity/reliability i.e safety.

 

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