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Good news for Mr Osborne, but with a health warning

Stephanie Flanders | 14:00 UK time, Monday, 29 November 2010

The chancellor will find little to concern him in the latest forecast from the independent watchdog he created - and some important reasons to cheer, particularly in the labour market. But, as the Director of the Office of Budget Responsibility, Robert Chote is keen to stress he'd be mad to expect any of the forecasts in this report to turn out to be right.

As expected, the OBR has revised up this year's growth forecast, from 1.2% to 1.8%, but it does not think all of that growth is sustainable. The forecast for 2011 has been revised down, from 2.3% to 2.1%.

The biggest news is the big reduction in the job losses forecast in the public sector between now and 2014-15. The OBR now thinks the public-sector workforce will shrink by 330,000 over that period, not 490,000, though they expect another 80,000 to lose their jobs in the 2015-16.

Mr Osborne will be pleased by the very modest change in the borrowing forecasts, though the OBR expects tax revenues to be £2.4bn lower than forecast by 2015-16, and it now thinks that he will only save £9.6bn from the extra welfare cuts in the spending review, about £1bn less than he hoped.

Bad news for home-owners: the OBR thinks house prices will fall by 3.1% in 2011. Previously, it expected a small rise.

Update 1417: Robert Chote has just confirmed that the chancellor's spending review saved 130,000 jobs.

As I mentioned earlier, the forecast job losses in the public sector by 2014-15 have fallen by 160,000. Of that, around 30,000 is due to the OBR changing the way it makes the forecast, but the rest is down to Mr Osborne - notably the decision to cut welfare more, and departmental spending less.

As the report underscores, the news from the private part of the labour market has been even better in the past few months. In fact, the OBR is in the welcome position of finding that its forecast for the level of total UK employment in the middle of 2012 has already been met.

There has been a 350,000 increase in employment since the first quarter of 2010 - put it another way, around one fifth of the increase in employment the OBR expected by 2016 has happened in just the past six months.

On borrowing, Robert Chote says that the OBR now thinks there is a 70% chance that the government will meet its deficit target by 2014-15.

That's slightly better than in June, and better than the "more than 50% chance" that the fiscal mandate requires. But with so much of the report dedicated to the uncertainty surrounding all of the forecast, I don't expect the chancellor will be planning any spending sprees on the back of it.

Finally, it is interesting to note that it would be better for Mr Osborne if the economy did not re-balance, as we are all supposed to hope. The "rebalancing delayed" scenario in the report shows that a more consumption-led recovery would be good news for the public finances, with borrowing falling faster than expected. It might be good for the government's election chances as well, even if it was simply delaying the day of reckoning for household finances.

A new prayer for Mr Osborne could be "Lord, may Britain have more balanced growth, but please make it after the next election."

Comments

  • Comment number 1.

    Big boys trying to play silly mathematical games would be better description.

    What happens if Spain and Portugal go the same way as Ireland?

    Will the public service job loses be replaced by minimum-wage part time positions?

    Will WikiLeaks start a major military conflict?

    This whole analysis is a silly waste of time

  • Comment number 2.

    Stephanie, I can only think that it is going to be a very cold winter.

    The Chancellor may be relying on prayer, but it is unlikely to help him in the forthcoming months.

    The best thing that could happen to the U.K. economy is a recovery in the global economy boosting exports. Given that the U.K. is surrounded by a collapsing Eurozone and a U.S. market that is struggling to recover - this appears unlikely.

    The weather throughout the U.K. is forecast for artic snow.

    I fear the economy is destined for the same forecast.

  • Comment number 3.

    If Mr. Osborne doesn't see cause for (at least) mild alarm in the OBR Report, then I wonder how sophisticated Mr. Osborne may be financially.
    I loved this statement: "The Director of the Office of Budget Responsibility, Robert Chote, is keen to stress he'd be mad to expect any of the forecasts in this report to turn out to be right." (It made me LOL!)
    With a wathdog like this, you might as well just give away the house.
    The OBR "now thinks" the public-sector workforce will shrink by 330,000 vs. 490,000, though they expect another 80,000 to lose their jobs in the 2015-16. Of course, tommorow he might think" differently.
    Mr Osborne will be pleased by
    1. the very modest change in the borrowing forecasts. How when the OBR expects tax revenues to be £2.4bn lower than forecast by 2015-16? and
    2. it now thinks that he will only save £9.6bn from the EXTRA WELFARE CUTS (about £1bn less than he hoped).
    Do "1" and "2" add up to good news?
    What I see in this snap-shot is UK public debt upwards,
    If you check the actual figures: the financial year to date, borrowing has come in at £81.6 billion, compared with £87.5 billion over the previous financial year, but the interest rate! Oh my goodness, the interest rate!! Within this, interest payments HAVE RISEN SHARPLY; totalling £25.4 billion compared with £15.4 billion over the same period last year.
    Tax receipts have risen by 9.2% compared with the previous year, but of course this is driven by the return of VAT to 17.5%.
    The snap-shot:
    - rising volume of government debt, especially the cost of servicing (i.e. interest),
    - October data show public sector debt excluding financial interventions totalled £846 billion which us up £151 billion from a year earlier.
    - as a share of GDP, public debt has risen to 57.1% - up by 7.8 percentage points from last year.
    Key: can growth in 2011 come in as strong as the OBR previously forecast?
    Doubtful. Too much fiscal austerity. The sovereign debt crisis in Ireland underlines this austerity - and the importance of implementing a credible deficit reduction strategy.
    Has anyone in the UK considered requesting a full audit of the debt (i.e. what it entails) so that it can be verified line by line and assurance can be had that all entries are legitimate?

  • Comment number 4.

    Only 300,000 people will lose their jobs....let us all cheer about that. Projections in to years 14 and 15 seem a bit unreliable as they never even realized how the banks were stealing everyones retirement accounts and creating a worldwide financial crisis right under their nose. they still don't know what the real costs will be, or are simply not telling the public how much of the bankers gambling debts they will be responsible for. Ah, let's think about the royal wedding, bankers will be in the front row, people will line the streets. In case you haven't realized it yet...neither your government nor the bankers should be trusted in these matters. They seem to be unable to be truthful...simply not in the make up of politicians and bankers. The chicken trusting the fox for assistance across the river.

  • Comment number 5.

    "Director of the Office of Budget Responsibility, Robert Chote is keen to stress he'd be mad to expect any of the forecasts in this report to turn out to be right."

    Gee, I wonder why. Could it be for the fact that economic forecasting is make-believe mumbo jumbo based on voodoo economics whose primary purpose is to provide easy, good-paying jobs to the economic forecasting posse.

  • Comment number 6.

    Watching Mr Chote's webcast I noticed some dismissive laughter, including his own, at the idea that forecasts turn out to be accurate ! Some questions : what does the OBR mean when it says its calculation of fiscal aggregates excludes the effects of financial sector interventions - why ; what does it mean when they say they assume that the BoE will permit above trend growth ( in line with inflation targeting?) ; what do they mean when they say they have not indepdendently calculated the output gap 08/09 ; what do they mean when they say their interest rate calculations follow that implied by markets ( what if they are wrong); what do they mean by saying if there are large gilt yield shifts their calculations can change; how do they foresee a gradual improvment in credit conditions and banks' ability to lend ; what do they mean when they say they dont know how much spare capacity is in the economy...lots of questions needing lots of explanations, please

  • Comment number 7.

    I would seriously question the meaning of growth in private sector jobs assertion being made. My feeling is that there may well be a growth in the number of jobs in the private sector but that many of these are low paid and part time. The growth in commodity price inflation will, I believe, stifle any growth in the economy. Energy and food price rises over the next years can only lead to less disposable income for most, particularly families and pensioners on fixed incomes.

    I say again that the figures for growth are over-estimated and the figures for our true structural deficit are under-estimated. More austerity to come by 2012/13.

  • Comment number 8.

    More of a consumption lead deflation as a result of the CSR. I dont imagine the public sector workers resuming their spending because the forecast says 160K fewer job losses. What of the indirect effect of slashing capital spending on private sector jobs. One interpretation of OBR's figures is that the economy was growing nicely under Labour policies along comes Osborne and next year or two is not looking so good. Welfare cuts will have their impact on the economy too.

  • Comment number 9.

    Stephanie, what fun your job is. You have to sit through these presentations and then try and make sensible news from them.

    Did he factor in ANYTHING based on the recent events of Ireland, and the likely spread to Portugal and Spain? Well, clearly not, he wouldn't be allowed to speculate about these events.

    So basically, they are forecasts only based on a small section of what will affect our economy. So they are of very little benefit. Yet a room was filled with people like you, wasting your time.

    Maybe if you and the rest of the packed room just read the document online, and instead of wasting all the time travelling there, you would help contribute more to the nation's GDP and a little less to CO2 emissions ???

  • Comment number 10.


    According to Credit Action:

    Average household debt in the UK is: £57,737 (including mortgages).

    And:

    The Office for Budget Responsibility (OBR) predicts that household debt will be £1,823bn by end 2015 which is a growth of £159m a day. This would take the average household debt to £72,341 per household.

    Which is an increase in household debt of around 25% over a five year period.

    Given the current circumstances, ask ypurself is that likely?

    And even if it is, with average wages increasing @ 2% per annum, what does the OBR consider to be our future?

    And how responsible would be if we followed the predicted trend?

    The Office of Budget Responsibility!

    I can see the reason for the ‘Office of Budget’ part, it’s the responsibility bit that eludes me.

  • Comment number 11.

    What would happen if the new Irish government post their general election next January decided that the bail-out interest rate was too high and so decided that default would be the best option? Forecasting economic growth for next year is just a tad problematic don't you think?
    Regards, etc.

  • Comment number 12.

    Why is a fall in house prices always seen as bad news for home owners? It's only good news if you are trading down/selling up to rent (and only then if you don't have children to help out). If you are trading up then it's good news as the next rung is more affordable.

  • Comment number 13.

    For me, what everyone seems not to state is the error range for these predictions. Everything that is measured has an error range, e.g. a speedometer is accurate to within +/- 10%.
    So my questions about the numbers from the OBR are:
    1. What is the error range on the current GDP figure never mind the forecast (as it is an extrapolated from a sample)?
    2. What are the error ranges on these forecast figures?
    The bigger the error range is, the more uncertain the figures are. So is it reasonable to say that the forecasted reduction in the public sector workforce is 330,000 +/- 10% (i.e. somewhere in the range of 297,000 to 363,000) or would some reporters start a story on the fact that OBR did not know exact figures?

  • Comment number 14.

    The trouble with economic forecasts is that they really are nothing more than a guess - an opinion. The people issuing the stats have no more idea about the future than does a dormouse.

    You can't do better than trust your own judgement. Look around, consider the issues, and make your own forecast. You'll probably be right more often than the 'experts'.

    If I am wrong, could someone please explain why we are in such a dreadful economic mess!

  • Comment number 15.

    @8

    "One interpretation of OBR's figures is that the economy was growing nicely under Labour policies along comes Osborne and next year or two is not looking so good."

    seriously?!? have you forgotten 13 years of a growing deficit? labour only started talking about cutting the deficit after it ran away from them.

    classic socialism - keep spending other people's money until it runs out

  • Comment number 16.

    Why is a projected fall in house prices supposed to be such bad news? Are more repossessions expected? It could be good news for those who can't afford our very high prices, unless it means less availability. Unfortunately, not much sign of government policies that will improve the availability or quality of housing to rent or buy. And if we are serious about rebalancing the economy, then we should be trying to tie up less finance in housing as a proportion of national assets.

  • Comment number 17.

    Does Osbourne just look stupid or is he really what he looks. To claim that his proposals are working on the basis of this OBR forecast is tantamount to dissembling.

    Can anybody tell me how Osbourne's 'policies' are going to cut imports by the forecast amount whilst achieveing record levels of export growth?

  • Comment number 18.

    17. At 4:41pm on 29 Nov 2010, foredeckdave wrote:
    Does Osbourne just look stupid or is he really what he looks.


    How dare you.

    The man went to Westminster and was a leading light in the Bulingdon Club.

  • Comment number 19.

    Predicting economic growth is like predicting the weather so no surprise that the OBR are cautioning that these forecasts are simply that rather than promises. Only a 70% chance that the fiscal target will be met though so the chances are the next five year parliament will also need deficit reduction measures. So much for the labour spouters who go on about the reduction being too fast and deep. I would hazard not fast or deep enough.

    Still they deny the problem and the sheer hypocrisy of their front benchers to continue to say the cuts are reckless. They really have no idea.

  • Comment number 20.

    BluesBerry wrote:

    Key: can growth in 2011 come in as strong as the OBR previously forecast? Doubtful. Too much fiscal austerity. The sovereign debt crisis in Ireland underlines this austerity - and the importance of implementing a credible deficit reduction strategy.
    .
    .
    .
    An audit trail would be very useful but it seems that this coalition can justify anything so long as the debt is contained. Put it another way, it won't be about the quality they bring to the economy in the short team and the long term is looking less assured. Until they are made accountable they will just preach themselves as doctors treating a sick patient. The fact that Ireland is on its second round of austerity is a warning in itself which Osborne fails to heed. One of the reasons for larger economic growth in 2010 is that business/consumers have brought forward spending from 2011 to counter various tax hikes such as VAT to 20 per cent. Treasury officials accept that this is likely to imply a lower 2011 growth forecast than the Budget figure of 2.3 per cent

  • Comment number 21.

    These kiddies(ORB) should not be allowed out!

    They are an incredibly dangerous group of guessers as they provide false hope of quality. All one had to do was to listen to the caveats in the presentation to know that their central forecast wasn't worth the paper it wasn't written on.

    The problem with this mob (and the Bank of England) is that they look at a very narrow definition of the economy and its impact on Government finances - when we need the big picture.

    For example: they do not see the huge competitive disadvantage for the UK as against countries whose houses have fallen drastically in price. They seem unable to recognise that because we have not matched the fall in house prices of our competitors our businesses are traders are at a substantial disadvantage. They are in short economically blind to the realities of international trade - but it is this that they 'hope' will provide the upturn in private sector employment - some hope!

    Rearranging the deckchairs still.....

  • Comment number 22.

    Stephanie frinished with:

    "A new prayer for Mr Osborne could be "Lord, may Britain have more balanced growth, but please make it after the next election."

    This exposed the corruption and the lies. The Govenrment is still relying on banking and financial services to rescue the UK - they are wrong - the unreformed banks will destroy us!

  • Comment number 23.

    I think we are still at the tag end of Mr.Brown's fiscal bubble and we can expect this to continue as the country is still running a large fiscal deficit despite the pending cuts.

    This means that loads of easy money is still washing about.

    It is going to get progressively harder over the next few years as that money soaks away. There will be many calls for more QE. However, once we return to balanced budgets it is going to get tough all over as then we will have to work for our living.

    We should not squander the opportunity the next four years present to begin to re-balance the economy.

  • Comment number 24.

    A bit of sanity please, regardless on your political views the fact that 160,000 less jobs will be cut is great news.

    The fact that this will happen without any further deterioration in our credit position is largely thanks to George Osborne’s tough choice to cut welfare spending as much as he did instead of departmental spending. As much as the left may bluster that the cuts aren’t needed (or at least by as much) the cold reality of the size of our national debt insists they are. Putting off debt repayment to the longer term mean even higher debts and higher unemployment just deferred for a couple of years. To precede the other obvious leftish argument that higher taxes are then this would simply mean there would be considerably less private sector jobs and lower overall growth – something some on the left would no doubt secretly prefer.

    One other point – of course these figures will be wrong. They will either be high or low of the target. But to anyone who thinks that this means the OBR or anyone else shouldn’t make estimates based upon projected income and expected expenditure and base our decisions upon them then I offer this challenge: cancel your bank and credit card statements, set all your bills to direct debit and never look at these or your pay statement - do this for a year and then consider how comfortable you would find it to make decisions on whether to buy the new TV/ the Kids Christmas presents/ a Car / a House etc.

  • Comment number 25.

    15. At 4:39pm on 29 Nov 2010, thetubbster wrote:
    classic socialism - keep spending other people's money until it runs out

    You mean: keep spending new money to the economy until it's healed.

  • Comment number 26.

    Here we go again ... GDP growth?
    Growth in what?
    Net Immigration Costs?
    Population?
    UK liabilities on 'infrastructure'?
    'Invisibles'?
    Inflation?
    Debts of very kind?
    'Toe hold', globalised, multi-national, tax dodging 'transfer trading' using the UK as a bank borrowing and import racketeering base?
    Export tarriffs on our imports? ... Ha Ha Ha ... that's some 'growth' isn't it!

    The biggest 'growth' is in the divide between what that the vested interests in that strange foreign country called London are doing and the rest of the 'British isles'.

    We (UK) are (is) drifting and being provided with mis-information until our government adopts a 'national sustainability index' to measure real progress in our wider economy.

    Measuring 'GDP' (GGP ... Gross Globalised Parasiting) is a fool's paradise without comparing this with concurrent 'growth' in our UK national liabilities.

    GGP that increases at a lower rate of increase than e.g CPI or RPI means that in real terms our economy is declining even on traditional 'GGP' modelling.

    Don't be taken in by this GDP nonsense ... you all have a brain (we hope) ... think about it ... Britain is in still in deline following the damage done to the UK by New Labour.

    However, G. Osborne has done a good job and get's little credit for it ... but he held his nerve and delivered a professional CSR and this is of benefit to the UK ... but surely this growth nonsense language needs urgent reform/ surgery.

  • Comment number 27.

    No. 24 Chris Cox:

    If I thought that these guesses were free of political/financier influence, I would agree with you.

    I don't agree with you.

  • Comment number 28.

    @21 JFH

    I've been reading your comments for many weeks now and, if I may say so, you appear to be utterly fixated with the need for a significant fall in UK property prices.

    I'm not clear why this is such a material factor in the current equation of our economic woes.

    How does this single issue make our businesses and traders so disadvantaged?

    I've no axe to grind, I'm a mortgage-free home owner with no plans to move in the immediate future, but I cannot see how having the value of my property being downgraded from, say, £300K to £200K, will help.

    I'm not being confrontational, I'm just perplexed by your narrow perspective. Perhaps you could help my understanding of your argument - but please, not too much of the complex economic theory. I'm a simple soul.

  • Comment number 29.

    Chris Cox,

    The old adage "plan for the worst but hope for the best" would be the wisest counsel any government could follow. This has consistently not been the course successive governments have followed however. Hence the public and private deficit nightmare we find ourselves in.

    Governments for too long have over estimated and hence poorly planned.

    Better to adopt the Chinese mentality to investment planning which is budget conservatively then spend any excess you achieve, rather than spend before you have it and find you have over estimated your economic performance and hence have a debt problem.

  • Comment number 30.

    RevoxBlack wants to know the error range on the forecasts and he is correct to ask. I suspect that the errors are very big making the forecast more or less meaningless.

    Statistics is one of those subjects which appear simple but which in reality is complex and I doubt whether many people in government understand the subject.

    To me the entire mess that we are in seems to be an example of chaos. There are just too many feedbacks. It will probably go away but as sure as eggs are eggs it will happen again just like the weather.

  • Comment number 31.

    EBAHGUM, It looks like JFH isn't still on line so I'll give you a few of the reasons I see why the UK house price level is a problem:

    1) New buyers can't get onto the ladder and the market becomes investor and speculator led rather than occupier led.
    2) Too much capital is sucked into an over inflated sector of the economy and so other vital wealth creating parts are starved of investment.
    3) Expensive property acts as a millstone around the neck of a mobile work force in that it affects their decisions on moving for a job.
    4) Expensive property builds a mindset that a property is an investment foremost rather than a place to live foremost and an investment as a secondary consideration.
    5) Expensive property generates a NIMBY attitude from communities who object to any development or infra structure plan that they perceive will lower their investment's value and this prevents vital infra structure projects from being implemented in a timely and cost-effective way.

    There are many more but basically they make no sense if you want a dynamic and flexible economy that is socially just to all age groups.

  • Comment number 32.

    This change in forecast is a significant number, but does it mean that hardship will now increase due to the benefits cut?

    Will any charities be in a position to provide numbers about any increase in hardship due to this change?

    In the past he seemed to know what he was going to do, 490,000 joblosses to reduce the size of government and its intrusiveness into our lives. So why was the review swung in the way it was?

    Did he suddenly realise [or more likely did someone else tell him he was getting it wrong] that the joless figure was more politically damaging to the conservatives that a decrease in the benefits?

    Was he told that keeping money flowing into peoples pockets and in work would give a better outcome in the coming downturn in the economy?

    I wonder at his motives for the balance ending up like this. I cannot know for certain any of the answers, but it would be nice to live long enough to read the government papers of this period.

  • Comment number 33.

    Stephanie flanders said:"Bad news for home-owners: the OBR thinks house prices will fall by 3.1% in 2011. Previously, it expected a small rise."
    ------------------------------------------------------------------------
    Please oh Please !!!....this is not necessarily bad news for home owners, it may be bad news for those the will go into negative equity (ie people who recently borrowed large loan to value mortgages), and I do feel for them, but that is only a fraction of houseowners
    I own a house, and TBH I couldnt care less if the value halved overnight....why would this be bad news for me ?.....I would feel better about the cost of a house for my kids.....it would cost me less to upsize (if everything halves then it also costs half as much to buy up!!). Sorry but we really do need to drop this brainwashed mindset that house inflation is good, whereas any other commodity that rises in price is bad.
    Personally I would like to see a fall in property prices across the board of at least 30%, pain for a while yes, but it needs to happen, and in the long run we would all be better for it
    PS, a 3.1% fall is way off the mark, I expect and hope prices to fall much more than that

  • Comment number 34.

    #28. EBAHGUM wrote:

    @21 JFH précis why house price level are a curse on UK business

    (Thanks #31 Sage. I back from dinner now!)

    EBAHGUM consider the following: Let us say I am an employer who can locate his business anywhere in Europe. I employ staff. These staff need to be paid I think you will agree. They also need to live somewhere near the Airports I fly from. I can employ them near any airport I fly from so I have a choice of say London or Dublin. If houses are half the price in Dublin then other things being equal I can pay lower wages to Dubliners and they can still have more after housing costs disposable income than staff in London. So as an employer my costs are higher in London and my profits lower and my staff more dissatisfied with their pay - so I employ my staff in Dublin, because the house price element of wages is far less. Do you follow the economic argument?

    Consider also Farming: I will not run it through in detail, but for housing costs alone growing stuff in Spain or Eire is a better business decision than in the UK for as long as our house prices are almost double those of our competitors. It is all about economics!

    There is the further argument that housing is absurdly expensive in the UK and that this 'caused' the collapse of NR, HBOS, partly RBS and we still haven't unwound that problem and we must do so.

    OK, as you may recall I have a particularly evil place in economic hell reserved for Mervyn King, The Permanent Secretary of the Treasury the FSA and the MPC as it was through their collective stupidity and ignorance that absurd multiples of income became the norm for house purchase which will crucify the British economy for decades.

    One more reason is that small retail and other premises are price related to housing via the land element at least so having double your competitors house prices makes making or trading thing very much more difficult in the UK compared to our competitors.

    Perhaps you see why I am so concerned that house prices need to fall by 50% in the UK!

  • Comment number 35.

    EBAHGUM wrote:
    @21 JFH
    I've been reading your comments for many weeks now and, if I may say so, you appear to be utterly fixated with the need for a significant fall in UK property prices.
    -------------------------------------------------------------------------
    I am 100% with JFH here, the ludicrous cost of housing in the UK is one of the reasons that we are in the mess we are in, and to make matters worse, it seems fine for property prices to double in a few years, but there are cries of outrage when it is suggested that they may fall by even a few percent....what other commodity do we think of in this way, the cost of the product (housing) can rise by 100%, 200%, 300% over a short period and this is considered good news????
    Commontators like Stephanie Flanders are equally brainwashed, just look at the language she used about a fall of 3.1% being bad news...its bizzarre
    The average age of a first time buyer without family financial support is now said to be 38...how can that be sustainable ?. Overall, high house price inflation has been a disaster for the UK encouraging people to treat their house like a piggy bank, we need a fall of around 50% to restore some balance (after all they tripled in only a decade or so).....It seems obvious to me, but so many people just dont seem to get it

    .

  • Comment number 36.

    "classic socialism - keep spending other people's money until it runs out"

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

    Couldn't agree more, the bail-outs of the banks has pauperised us.

    Did you really manage to post that with a straight face?

  • Comment number 37.

    Could someone tell me how many jobs are lost through natural wasatge? I thought we were told that 490 000 over 4 years was not too bad because it was close to the natural wastage figure. So if it is 330 000 does that mean that they will start recruitment?

    Job creation figures sound good, but I would like to know what jobs in what sectors? Are we talking about working in a coffee shop, or are we talking about designing and making something useful, or is it just in financial services. What sort of pay and prospects are there? Without that information we are being sold a lie. Cutting unemployment figures by having loads of low paid jobs is perhaps an improvement on living on benefits, but it is hardly a recipe for satisfying long term prospects for all those unemployed graduates.

  • Comment number 38.

    @31 SofC
    Many thanks for such a comprehensive response. I can see the broad thrust of your argument but I do wonder what proportion of people actually enter the property market on an investor/speculator basis rather than as simple nest builders. Don't most people simply want a roof over their heads where they can raise a family?
    Since I married many moons ago I have only owned two properties and on both I made a handsome "paper" profit, but at the end of the evening I need a roof under which to place my pillow. I suppose I'm not one of the types that falls into your point No. 4.
    I can see your point about the NIMBYs but it's not a factor in my neck of the woods which is why it never entered my thinking.

    Again, thanks for a considered response.

    @34 JFH

    I trust you had an enjoyable dinner and that I did not disturb it.
    Thank you for a non complex response that even my feeble mind can assimmilate. I fully understand the point you are making in respect of both manufacturing and farming costs but surely the cost of LAND is only ONE factor in a complex economic equation.

    Is your argument that this is such a fundamental factor that it over-shadows all others? If so, I suppose I can accept your point of view.

    As Mervyn King made himself Judge, Jury and Chief Prosecutor (an unholy trinity if ever there was one) I suppose he deserves the place you have so kindly reserved for him.

    Regards from the (very) chilly north.

  • Comment number 39.

    17. At 4:41pm on 29 Nov 2010, foredeckdave wrote:
    Does Osbourne just look stupid or is he really what he looks. To claim that his proposals are working on the basis of this OBR forecast is tantamount to dissembling.

    Can anybody tell me how Osbourne's 'policies' are going to cut imports by the forecast amount whilst achieveing record levels of export growth?

    +++

    FDD - Osbourne's policies are definitely going to cut imports - higher inflation (nudge nudhe wink wink BOE etc), less disposable income mean that imports will cost more which we wont be able to pay! Initially import value will go up but the volumes will (probably) come down. You never know - maybe some manufacturers may decide to set up here!

    The problem is the export bit - it takes a lot to make successful companies but it is quite easy to destroy them through managerial incompetence and over regulation.

  • Comment number 40.

    @35 mangizmo

    I think you are helping me to get my head around this damnable issue of domestic house pricing. Thanks for that.

    As you say, it is quite bizzarre that a particular commodity can rise by hundreds of percentage points almost without comment yet raise howls of protest when a short term single digit fall in price occurs.

    I ask myself who can bring this about? The financial sector.

    Dohh - EBAGHUM you are a plonker.

    125% mortgages, 7 x earnings, self-certification - it's obvious you drip.

    It's a lack of EFFECTIVE regulation (repeat ad infinitum).

    I'm getting there, slowly.




  • Comment number 41.

    Hopes by the Chancellor for the ’rebalancing delayed’ scenario is, at best, disingenuous.
    Your post - and the report on which it is based - highlight the profound problem with the UK political and economic infrastructure. It is clear that, to avoid an inevitable return to the sort of economic mess that we are just emerging from, we need to rebalance the economy. Households need to repay their debt and rein in their spending; it’s elementary, isn't it? As we know, left to their own devices, and cheered on by a morally bereft banking system, households will not make the 'right' decisions. Far from it. They certainly will not take in to account economic rebalancing and long term happiness indicators when making spending decisions. Shouldn't government policy be designed to encourage the ‘right’ household decisions to be made today?
    And here's the rub. Politics gets in the way. Rather than taking any sort of (admittedly difficult) policy decisions which might be essential for long term stability, we have a political mindset which cannot focus beyond the next election. Decisions will continue to be taken with this goal rather than anything more Hence the predictable ‘prayer’ undoubtedly ringing around Number 11 for the return of house price growth and the reckless consumption this helps to feed. The only depressing conclusion of this state of affairs is that the prescription required is one that our political system cannot deliver. And where does that leave us?

  • Comment number 42.

    Some more of G Osborne's speech:

    'We will identify cross-cutting reform priorities that can benefit the whole economy. Specific priority will be given to:

    * Improvements to the planning system and employment law;
    * More support for exporters and inward investors;
    * And reforms to the competition regime;

    At the same time we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities.

    Some of the resulting changes will be substantive on their own, others will in very specific ways help particular industries.

    Some may be controversial if they confront vested interests.

    But brick by brick we will remove the barriers that are holding Britain back.'
    .................

    I'm looking hard to find something radical in the speech ... and I can't find anything substantial in terms of achieving this.

    * More support for exporters and inward investors;

    More support for inward investors? They're already controlling the best part of our economy ... why do inward investors need 'more support' ... how about more support for British investors and entrepreneurs?

  • Comment number 43.

    EBAHGUM wrote "I think you are helping me to get my head around this damnable issue of domestic house pricing. Thanks for that."
    -----------------------------------------------------------------------
    Well its not that suprising that so many accept the idea that house price inflation is good, because the media and commontators parrot it as some kind of statement of fact, and if you dont actually question it, then I can see it is taken as a given.
    I had a thought only today, when I was a lad, most people could afford a house (even on a reasonable single income), but luxury consumer goods were expensive and out of reach, so TV, washing machine, car even!, these were all luxuries....but a house was affordable for most people, and could be bought on a single (decent) wage
    Contrast that with today, a house is barely affordable to even a dual income, childless couple, but imported consumer goods have fallen in cost dramatically, so we are now in the paradoxical situation, that we can afford all the consumer goods, but we cant afford a house to put them in, this is surely not a healthy state of affairs


  • Comment number 44.


    The OBR is irrelevant, has no track record and only synthetic independence.

    The true state of the UK economy will be revealed in the next 2-3 years.

    Excellent comment in Evening Standard as to why the Eurozone will probably prevail...

    https://www.thisislondon.co.uk/markets/article-23901936-germanys-economic-might-makes-angela-merkel-ber-alles.do

    There is too much poltical will for it not to succceed.

    The contrast with the UK could not be more marked. This country is bereft of leadership, ideas and is running out of time.

    In particular one particular metric stands out. The inability of the UK to adequately house its population.

    Another is the poor record of generating 'real jobs' - jobs that are not low skilled and part-time.

    It is almost if the country is run by and for a small clique. Almost, well actually it is and has been for years.

  • Comment number 45.

    40 EBAHGUM

    A doubling of house price does not make the building more valuable it makes the plot more valuable. Therefore consider who benefits from this. Also consider the supply demand relationship with planning issues and other lobby groups.

    BTW re yr earlier I am just a simple soul etc etc. Yeah right whatever : )

  • Comment number 46.

    @15

    "seriously?!? have you forgotten 13 years of a growing deficit? labour only started talking about cutting the deficit after it ran away from them.

    classic socialism - keep spending other people's money until it runs out"

    A classic bit of missing the point on your part. The point being made was about the growth in the economy being there under Labour but now being forecast down. It's clear the treasury select committee were right to take Osborne to task for overstating how bad things are.

    As to the deficit, in no year pre the financial crash in 2008 did Labour ever borrow as much as did the Major government in 1997.

  • Comment number 47.

    @45 NBW

    Is it now a sin to claim not to be a master of the universe?

    I would have been quite content to take on board your comment had it not been followed by a quite unnecessary jibe.

    Dumbo signing off.

  • Comment number 48.

    Google "5 point plan to save Ireland".

  • Comment number 49.

    My AS Economics teacher has introduced me to your blog and I find it quite interesting. I was reading through an article earlier which said "If employment, unemployment and average earnings follow the path forecast by the OBR it will be felt more in workers' pockets and living standards than the in terms of lost jobs." I was hoping to hear your opinion on the OBR, as the possible statistics and projections seem to be quite misleading to many people. To what extent do you think these statistics should be taken as literal?

    P.S My teacher has offered £20 to anyone who gets a reply from you. If you do decide to reply, I'd be happy to send you £5. Times are hard and I'm sure anyone could do with a free fiver. :)


  • Comment number 50.

    #38. EBAHGUM wrote:

    #...but surely the cost of LAND is only ONE factor in a complex economic equation."

    The importance of the cost of housing is related to the proportion of a worker's pay that is taken up by paying for housing. As to the price of land - you can't do much with land except pitch a tent! But consider the labour part of building a home just like the farmer or the airline (see my previous posting #34).

    (PS the think about Hendon is that there are two - one in London and the other in Sunderland!)

  • Comment number 51.

    https://www.bbc.co.uk/news/business-11860879

    `Gavin Hewitt BBC Europe editor

    Europe's leaders, who have recently added a tone of desperation in their comments about the euro's future, have taken refuge in the long game while hoping that something turns up that enables countries such as Ireland and Greece to reduce their debts”


    Gavin Hewitt BBC Europe editor`


    I put it to you Stephanie,that the British establishment and it`s 3-in-1 political party have also "taken refuge in the long game while hoping that something turns up" that enables the UK to reduce it`s debts.


    Hoping something turns up.....what a rotten scam it all is!

  • Comment number 52.

    It is good to see that the ancient art of necromancing is alive and well. Pharoah would be proud...

    As for George Osborne, he has some nerve. If you can read anything into this forecast it is all based on past evidence, namely the tailend impact of the policies of Alastair Darling, rather than those of Slasher Osborne. And given that it will be 6-months to a year before the Coalition's polcies work their way through into the real economy, I suspect that it will be a very different picture as we head into 2011 and beyond. Not least because these ridiculous predictions from the OBR make such blinkered and somewhat optimistically naive assumptions on the world economy and future global demand.

    Wallow in your false optimism Mr Osborne whilst it lasts...

  • Comment number 53.

    What seems to get lost in all this micro analysis is the simple point that we now have a government that tries to keep the nations finances in balance instead of devising ever more complex tricks to take more tax off us and spend more on giveaways to seek favour. If this coailition stand for nothing else that gives me more confidence to go out and spend and I see a consumer boost when the BBC and Labour stop trying to run everything down by screaming we are doomed,day after day.

  • Comment number 54.

    #50 JFH,

    John,

    The cost of land is important as it is an essential part of the Golden Equation used by so many builders - third for the land, third for the building, third for profit = price.

    On top of that the land itself equates to a major part of the asset value of the major builders.

  • Comment number 55.

    #18 Richard Dingle,

    :)

  • Comment number 56.

    #39 EmKay,

    I wonder if you are right? I accept that what you present is the accepted logic. However, I have the feeling that the credit cards will take a bashing before any significant import reduction is achieved.

  • Comment number 57.

    #34. John_from_Hendon

    Your argument on business profitability and house prices is patently absurd and does not reflect reality. If you were right then you would think that London, New York and Tokyo would all be bereft of businesses by now Based on your rationale businesses would take their businesses to other cities with cheaper prices and good communication links.
    You appear to be unfamiliar with the theory of comparative advantage however, if you ever get the chance to visit the deep level basement of the BOE you will find a beautiful Roman mosaic that has been there for perhaps just under 2000 years illustrating that London has been a centre of trade and commerce for most of that time ...and for most of that time, I think you will find that London property prices have been much higher than the provinces
    However,I do agree with you that high property prices are a problem and in fact property prices generally reflect the underlying land prices - this is why the Duke of Westminster who owns a relatively small amount of land in Westminster, Mayfair and bBelgravia is a billionaire
    There are a number of factors that gave rise to the property price boom we saw between 1995 and 2008.

    The first and most important factor was the availability and expansion of cheap credit. The prime cause of low interest rates and cheap credit was US monetary policy after the dot com bubble burst. The US attempted to reflate asset prices that had collapsed by holding interest rates low - this unusually did not result in general inflation as prices were held in check by production and jobs being lost to the Bric economies. Simultaneously the trade surpluses in these economies particularly China were recycled to the west as short term credit which in turn drove the consumer boom.
    All of this was clear to some economists when this was happening its just that Gordon brown, Eddie George and Mervyn King all chose to ignore it as they had done away with boom and bust.
    The second factor was labours drive to increase the graduate population to 50%. They increased the number of students (a laudable aim) but they failed to make provision for the increase in student accommodation it is no coincidence that the buy to let phenomena started in our university towns taking out large number of properties from the market which in turn drove up prices This in my view is what kick started the housing bubble. The year on year increases in student numbers added fuel to the flames. The housing bubble once started was also responsible for sucking in hundreds of thousands of skilled workers from eastern Europe adding further stimulus to the demand for housing.

    The third factor that added to what was a perfect storm was the regional spatial plans that feed down into Local development plans. These plans through a complex process determine the volume of houses to be built and also designate on which land houses can be built. The process tries ensures that the number of houses to be built and the the land available for building are balanced however in practice it results in a shortage of building plots that people want and as a result the price of building land is held artificially high - the only people that really benefit from this process are large land owners (the House of lords is stuffed full of them) who are able to realise one thousand percent profit simply by having agricultural land re designated as building land even bankers cant achieve that sort of profit.

    Unwinding this problem has to be done slowly with house prices undershooting inflation for a number of years as if property prices were to collapse as you appear to be advocating then the banks across Europe would be in much deeper problems than they are now

  • Comment number 58.

    The truth is that the Euro was always an artificial construct, an idealistic fantasy, the stuff of dreams. Now the banking crisis has exposed it it to be thus and you can see the reaction to the Irish loans today, namely that the Euro has not shown any sign of a positive recovery, and that the costly project has failed

    https://finance.yahoo.com/news/Markets-give-Irish-bailout-apf-419309495.html?x=0

    Forgive me but I have a three legged black cat who I maintain, despite the fact that she spends all day moving from one choice sleeping location to another, knows more about economics than the people responsible for coming up with the idea of the Euro. So I asked her this question. If you have a load of different countries with the same currency bu the same value is fixed for all of them, but at the same time all of these countries have widely different levels of taxation including corporation tax, as well as huge differences in public expenditure, including retirement benefits and ages, health and social provision, as well as different levels of productivity, investment and employment, do you think it is a recipe for disaster?

    She didn't bat an eyelid, demonstrating, as far as I am concerned that to her it was such a no-brainer that any response would have risked dignifying such a stupid question!

    PS The subtle flick of a paw reminded me that my question to her had made no mention of the absurd hourly wage differentials that have existed over the Eurozone and of course the UK too where over a million East-Europeans have come to compete for private sector jobs. When the farce of European enlargement occurred there was in the East a population that would work for a week for what those in the West were expecting to work for an hour to earn, and yet the value of the common currency of all the member states was the same for all.

    The Euro will go down in history as one of the dumbest ideas we humans ever came up with. Don't shoot the messenger, that's what the flicking claw was obviously (indulge me) meant to convey. Total lunacy and now we will all pay the price!



  • Comment number 59.

    Morning Stephanie,
    Thank you for sitting through what must have been a boring presentation by the OBR and giving us the distilled opinions.
    Have any of that nice Mr Osborne's cuts taken place yet?
    It's two years since we had the BOE QE, has there been any measurable effect on inflation?
    We've just had to borrow more money (plus interest) for Irish bailout and the EU assistance scheme, were these figures included in the latest forecasts?
    I see that the banks are at it again, reducing the provisions for write-downs on credit card losses and mortgage defaults. Do they inhabit the same country as we do? All to make their profit figures look better so that the Christmas bonus pot will not be affected.
    That splendid Quango, Offgem is doing a fine job and I am pleased to be paying their £26m salary bill, helping us poor pensioners to fight off those greedy energy supply companies (not).
    It would seem that after the pillaging by the banks, the UK populace will be fleeced to pay for illogical, insane and badly thought out energy supply changes. That nice Mr Cameron stated that this will COST all energy bill payers a great deal of money which they can't afford at the moment but that we will feel better for it by 2020. I suggest that any bloggers here read up on Government energy proposals which are being passed at the moment without any comment or debate. There is enormous scope for fraud here as vested interests pay for effective lobbying of our elected representitives.
    It's no good to me, saving the world if I don't have enough money left to buy food or pay my elec/gas bill!

  • Comment number 60.

    to-das wrote "Unwinding this problem has to be done slowly with house prices undershooting inflation for a number of years as if property prices were to collapse as you appear to be advocating then the banks across Europe would be in much deeper problems than they are now"
    -------------------------------------------------------------------------
    Disagree on this one, property prices are at such a level now, with self funded first time buyers so locked out of the market as to have rendered the system dysfunctional (average age is said to be 38), even a modest standard semi is selling for £1/4 million in many parts of the country.
    Whilst I take your point about the consequences for the banks of a crash, unfortunately, thats just the way its going to have to be, there will not be significant wage inflation for the forseeable future, and I can't imagine the supply of mortgage returning to previous levels, nor the requirement for big deposits
    If people are not buying houses because they need a 25% deposit, the answer is simple, the prices will have to fall to a level where that 25% is realistic for a first time buyer
    One of the problenms with our handling of much of this debt crisis is our determination to maintain an illusion of business as usual..."Kicking the can down the road" has become a popular expression of late....it cant be done
    If we just rely on house price inflation undershooting general inflation to free things up, this could take decades, it is also a mindset that needs changing, no more silly "how to make a fortune out of your house by doing nothing" TV programmes, and people need to understand that a house is not a virtual piggy bank with people borrowing more and more on the increasing value of their house to buy imported goods and go on holiday....sorry, but we need to grit our teeth and take the pain as we do with many other aspects of the economy....else it will all end in tears in any case, there is no painless answer, as with the debt crisis in Ireland, the real crisis has just been delayed for a while

  • Comment number 61.

    There may be some good cheer for most of us but this will all taste very sour in the mouths of the left and the unions who have been hoping that their doom-mongering would have resulted in a far greater lack of confidence in the British economy.

  • Comment number 62.

    [[ 57. At 01:03am on 30 Nov 2010, tao-das wrote:
    #34. John_from_Hendon ]]
    Tao-das; An excellent and well balanced analysis of property prices and the economy. I particlulary agree with the conclusion that price deflation must occur resonably slowly.
    However this needs to be accompanied by measures to significantly increase supply of new land and property for redevelopment particularly at the lower end of the price range. So planning laws and particularly planning processes need to be streamlined and the attitude of planners; "No" now whats the question, needs altering. In the past few years we have needed an oversupply of homes not a shortage.
    BTW I am not a builder!


  • Comment number 63.

    #61 sandy winder,

    Time will tell.

    If you care to look around the world, you will see many reasons to doubt that the environment for the level of expected export growth actually exists.

  • Comment number 64.

    I think that Osborne is being pretty wise here - he's not crowing about the forecast as GB or TB would have done, he's announcing it and there's a healthy dose of cynicism. I find it nice that this seems to be more inclusive - treating the electorate as if they do understand and not like small, excitable children. I for one am pleased that we have the coalition government, they seem to be so much better than the last lot, in the same way that Tony Blair was so much better than the last lot. It all goes around......

  • Comment number 65.

    All this user's posts have been removed.Why?

  • Comment number 66.

    64 PW

    GO has a happyland whilst GB can be held to account for the downside. Therefore attempts will be made to lock GB and his buddies in that position for as long as possible. At present MilliEd is not looking like Houdini, he is looking like he is struggling to find a personality.

    There are two main messages being promulgated - 1. It is the fault of the banks. 2. It is the fault of GBrown Et Al. - Neither know how to answer in shortform so remain quiet.

    At present GO reminds me of someone who wanted to build a supermarket on a disused WW2 airfield. They sought permission for a operational executive jet airport and in the face of substantial and entirely expected agitation suggested a supermarket which was the actual objective. The relieved locals supported this proposition and it was duly built. It was considered unlikely a supermarket was built if it was proposed initially. As I have pointed out before not enough people read Machavelli, many clues are there, it should be taught at school.

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

    Various re housing. The market price is directed by the banks whatever anybody wants to think, they supply the key money. A healthy market turnover is in the region of 2 percent of stock. Moving turnover one way or the other levers price significantly. The obvious conclusion is banks de facto did not want a market crash so acted to keep the market where it is until a moderate drop could be enabled year on year. Best not frighten the natives too much.

    The market will go where the banks see fit. A drop of 3+percent has to have inflation added to give the real drop. It does not take many years to give a significant drop. This will then give a big boost to housebuilding activity which feeds thru to the economy possibly even coincident with a GE.

    Regards

  • Comment number 67.

    Stephanie
    You hit the nail on the head with the following "A new prayer for Mr Osborne could be "Lord, may Britain have more balanced growth, but please make it after the next election." My reading of the Chotian choir singing is "You're all doing very well" in an 'Are You Being Served' sort of way. Rebalancing the economy in a planned way is what we need to start now and that requires that there is a disconnect with financial services and property which is why the JfH comments are relevant. The reason why single point falls in house prices are "bad news" to many Daily Mail readers is twofold. A fall in prices is potentially the sign of the asset price bubble being pricked and the mania being faced up to. Whether Tulip bulbs, South Sea Bubble shares or 21st Century Property there comes a time when the mania turns. Secondly, and why many fear falls in prices, is that in the UK ownership of property is a proxy for status. The drive to get bigger, better houses is how many (often unconsciously) measure their self worth. Cheap credit allowed improvement in feelings of self worth to be achieved without the hard work associated with improved status in the past. We have to restructure the economy so that merit and status comes from hard work, entrepreneurship, education and efficiency (hopefully causing exports and growth) for the common good. These may lead to material wealth but not purchased on easy credit. Notice Osborne & Chote remain silent on dealing with the private credit overhang. Silent prayer perhaps?

  • Comment number 68.

    Renewable energy strategy under fire from MPs- Can you get thei one going please-- The fixation with wind that only works ~30% of the time and has at very best a 40% power efficiency - OUR EGGS in one basket versus developing and using Tidal power alweays seems to get burried - we- the human race have never defied gravity-yet- surely therfore tidal power conversion projects make more long term sense??

  • Comment number 69.

    #43 mangizmo

    Hear, hear.

  • Comment number 70.

    #62. ObserverinMonmouth
    and #57. tao-das wrote:

    "#34. John_from_Hendon

    Your argument on business profitability and house prices is patently absurd and does not reflect reality."

    A repost:

    You are either an idiot or a banker or both to say such things. Perhaps you have never run a business in your life and faced international competition!

    The real world (outside banking) does real things, and has to trade in real goods.

    I have run real manufacturing business in the UK and experienced the absurd problems created by Thatcher's stupid obsession with the strong pound and bankers. I had absolutely no choice in shifting manufacturing abroad if the business was to continue. In the UK I had to pay far too much (comparatively) for equally efficient workers in terms of output per hour. My UK staff had to pay for their housing and have very little left to meet other needs as I was often informed by their representative, whereas my overseas staff were well off in terms of their after housing costs disposable income on a lower income. This slaughtered the UK jobs and I moved the manufacturing abroad with the loss of a moderate number of skilled hi-tech jobs in the UK. These micro-economic decisions add up to the rebalancing of the whole UK economy to become totally dependent on banking and financial services - which in turn has slaughtered us! In short: you can spout your rot all you like, but it is wrong!

    However both of us agree (I think) that UK the house price bubble has to be unwound. I favour the rapid and deliberate delevearging - you want to wait until the current home owners die. However consider the enormous cumulative damage the overhang of overpriced property will do to current business event day, week and year and in your case decade. What was good about the 1930s was that debt evaporated almost 'instantly' so a more rapid recovery could take place. Whereas what you are advocating is the 1870s solution of gently does it - I remind you that the property bubble in the 1870s was not unwound till 1896 - 23 years after the start of the Long Depression. I want to avoid this if at all possible.

  • Comment number 71.

    Housing re the 'elephant in the room'

    https://www.migrationwatchuk.org/

    Quoted from the above website:

    'Seven Key Facts

    Net immigration quadrupled to 237,000 a year between 1997 and 2007. In 2009 it was 196,000. 3 million immigrants have arrived since 1997.

    A migrant still arrives almost every minute.

    We must build a new home every six minutes for new migrants.

    England is already, with Holland, the most crowded country in Europe
    (except Malta)

    Immigration will add 7 million to the population of England in the next 24 years - that is 7 times the population of Birmingham.

    To keep the population of the UK, now 61.2 million, below 70 million, net immigration must be reduced by 50,000 a year. With balanced migration it would peak at about 65 million.'

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

    For most British people (with an estimated 800,000 empty homes in the UK)
    this means:

    1) Higher rents for greedy landlords

    2) Despair for young British people trying to buy their first house or replacement house on their homes being re-possessed ... or

    3) Competing with foreigners for council housing

    The 'health warning for Mr Osborne' is that either more scarce greenfield and other resources need to be put into housing or immigration policies need to be based on population density and not on human rights and/or 'eurocrat/ bureacratic edicts' from Brussels.

    The 'crush' is here ... let's crash the Euro instead!

  • Comment number 72.

    Krugman blog 26 November 2010, "When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioral assumptions are essential.
    So what? Inconsistency in the pursuit of useful guidance is no vice. The map is not the territory, and it’s OK to use different kinds of maps depending on what you’re trying to accomplish: if you’re driving, a road map suffices, if you’re going hiking, you really need a topo.
    But economists were bound to push at the dividing line between micro and macro – which in practice has meant trying to make macro more like micro, basing more and more of it on optimization and market-clearing. And if the attempts to provide 'microfoundations' fell short? Well, given human propensities, plus the law of diminishing disciples, it was probably inevitable that a substantial part of the economics profession would simply assume away the realities of the business cycle, because they didn’t fit the models.
    The result was what I’ve called the Dark Age of macroeconomics, in which large numbers of economists literally knew nothing of the hard-won insights of the 30s and 40s – and, of course, went into spasms of rage when their ignorance was pointed out."
    Micro as macro was the line Nigel Lawson took, and the one which Gordon Brown accepted. And here we all are...

  • Comment number 73.

    49 Ish

    `My teacher has offered £20 to anyone who gets a reply from you. If you do decide to reply, I'd be happy to send you £5. Times are hard and I'm sure anyone could do with a free fiver. :)'

    A five spot, eh, cully?

    Gawd bless 'ee, young master.

    Performs hat honour, knuckles forelock and exits stage left..

    Keep up the good work, Ish. Just think in about forty years time you will be as much at sea as I am now. Only don't let the fact put you off as learning is fun.

  • Comment number 74.

    72. At 10:31am on 30 Nov 2010, ntp3 wrote:

    Krugman blog 26 November 2010, "When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioral assumptions are essential.
    So what? Inconsistency in the pursuit of useful guidance is no vice. The map is not the territory, and it’s OK to use different kinds of maps depending on what you’re trying to accomplish: if you’re driving, a road map suffices, if you’re going hiking, you really need a topo.
    But economists were bound to push at the dividing line between micro and macro – which in practice has meant trying to make macro more like micro, basing more and more of it on optimization and market-clearing. And if the attempts to provide 'microfoundations' fell short? Well, given human propensities, plus the law of diminishing disciples, it was probably inevitable that a substantial part of the economics profession would simply assume away the realities of the business cycle, because they didn’t fit the models.
    The result was what I’ve called the Dark Age of macroeconomics, in which large numbers of economists literally knew nothing of the hard-won insights of the 30s and 40s – and, of course, went into spasms of rage when their ignorance was pointed out."
    Micro as macro was the line Nigel Lawson took, and the one which Gordon Brown accepted. And here we all are...

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

    So what ... we know all of that ... the question is what is to be done about it? Krugman, like many other economists as quoted the world over, has made his name out of saying very simple things in the most complicated fashion ... in other words the paragraph means (amongst other things) that 'economics does not work' without a strategy to implement a chosen or desired economic principle/effect.

    There is a very descriptive and particular word for this kind of circumventory narrative!!!

    BTW
    'Micro as macro was the line Nigel Lawson took, and the one which Gordon Brown accepted. And here we all are...'

    Comparing Nigel Lawson with Gordon Brown? ... Oh, never mind!

  • Comment number 75.

    "The OBR is irrelevant, has no track record and only synthetic independence.

    The true state of the UK economy will be revealed in the next 2-3 years."

    How very true but all economic forecasters (if they are honest) should admit that all economic forecasts which stretch beyond a matter of a few days are conjectures which depend on what assumptions are made. Credible economic forecasters are simply ones whose "educated" guesses ultimately turn out to be fairly close to economic reality.

    The truth is no one knows what will happen in 2 years time, much could de rail the forecasts.

    As for the forecasting proving that 130,000 jobs could be saved - this is completely the wrong question for me. The right question should be were those 130,000 jobs necessary in the first place. Moving from a severely bloated public sector to a smaller but still bloated public sector is about as useful as telling a man with a cancerous tumour that it is now 20% smaller than it was, but still on track to kill you in 18 months time.

  • Comment number 76.

    I started my working life in the early to mid 1970’s. So I had had 2 experiences of labour governments, both with the same outcome – a lengthy period of austerity.

    I cannot knock anyone who hadn’t had experience of the late 70’s and early 80’s for voting in labour because we did need a change but that decision is coming home to roost.

    We were a +50k household in 2000 and our standard of living reflected that, and because of labours ingrained beliefs of; if you throw enough money at it will work, in 2005 we became a +30k household (-20k out of the system), our standard of living now represents this level.

    I have said this before but repeating it will not hurt.

    In 2003 I came away from educating (in part due to government priority changing for new money propaganda) and started my own business. The first few months of 2005 were hell for the sm/me high street shop and I folded with 56K of debt. So with a life style based around +50k and an income of +30K, a period of personal austerity measures were needed. A further injection of money at this point or further along the line would have meant collapse! I lived by ‘if it is not a need or it was beyond means, then it is a liability’. Since this point we have not used a credit card or had anything on loan. Have we had ‘growth?’ – not really, have we ‘stagnated?’ – no, have we ‘stabilised?’ – yes, are we now looking to move forwards ‘again?’ – yes.

    Before anyone says ‘I cannot see any correlation with UK Plc’ let me say this (Blairs words will haunt me for ever) in scale and scope - no, but in principle - YES!

    When building a brick wall you need a foundation that is fit for purpose. If the foundation breaks or becomes unfit for purpose then work on the wall stops and it has to be repaired or the wall falls down completely.

    If you understand what I’ve said then comment either way. If you do not understand then you may not be as cleaver as you own perceptions, try removing the blinkers.

    Unfortunately this government (who I voted for) is not meeting my expectations and are quickly falling into pandering to the establishment mode.

    PS. If we loose the world cup, prosecute the offenders and their manager for treason against the people. IS THIS RELATIVE - yes, do the same with the city

  • Comment number 77.

    19. Predicting economic growth is like predicting the weather

    Except that you also have to factor in human perceptions and reactions. Since weather forecasting is only good for at most 5 days and there are no irrational humans to predict, it probably follows that economic forecasts are just another influence on the many factors that already exist. In short a complete waste of time.

    However, it is possible to influence conditions and I can only conclude that Osbourne and chums have decided that its "gentle good news all the time" to keep us content and munching grass. Apart from those who contribute to this blog with such knowledge and passion, he may get away with it.....

  • Comment number 78.

    12. clive

    I was about to ask the same question myself. Personally, as long as I can sell my house and buy something similar somewhere else, I'm happy. I have no plans to sell my house and camp in a field!

  • Comment number 79.

    • 15. At 4:39pm on 29 Nov 2010, thetubbster wrote:
    @8

    "One interpretation of OBR's figures is that the economy was growing nicely under Labour policies along comes Osborne and next year or two is not looking so good."

    seriously?!? have you forgotten 13 years of a growing deficit? labour only started talking about cutting the deficit after it ran away from them.

    classic socialism - keep spending other people's money until it runs out

    Ha Ha!! – So you’re accusing our Banking chums of being rampant ‘socialists’ are you tubbster?
    As I understand it those pals in pinstripes have ‘spent’, or wasted, so much of ‘other people’s money’ that there’s now ‘non left’!

  • Comment number 80.

    https://www.mindfulmoney.co.uk/2560/economic-impact/obr-report-adds-weight-to-uk-recovery-just-watch-those-pounds.html
    It’s snowing outside, you may get stuck trying to get home. BUT, here’s some reasons to be slightly happy, like Jack Dee on a good day. Almost. I’ll bullet point:
    - OBR released some positive figures
    - Only 130,000 – 160,000 public jobs to go now!
    - Osborne happy with himself for cutting welfare more than departmental spending which,
    - Makes it look likely for strong UK growth ahead...
    - BUT wait, some snow,
    - Apparently too much growth may weaken currency and lead to...

    I’m not too sure, but doesn’t sound good. Would like to know your thoughts on a non bullet pointed commentary here:

  • Comment number 81.

    'Finally, it is interesting to note that it would be better for Mr Osborne if the economy did not re-balance, as we are all supposed to hope. The "rebalancing delayed" scenario in the report shows that a more consumption-led recovery would be good news for the public finances, with borrowing falling faster than expected.'

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

    Much of the 're-balancing' that is required should not cost anything, in terms of direct or indirect govt investment - with UK tax payer's money.

    'Rebalancing' needs to happen now ... what are we waiting for?

    'Rebalancing' means being radical and doing things differently and applying strategy like e.g. directing the banks as to where to lend, to whom and why ... with taxpayer monies/deposits.

    The govt can also require the banks to account for the opportunity cost of capital before lending any money ... this would get the UK economy moving again quicker than anything else and would put the elected UK govt in strategic control of the UK economy. Failing to do this can only mean one thing ... our govt is running scared of knowing what to do and how to 'pull the levers'.

    Comprehensive review of UK import and export tariffs can bring in several billion £'s of extra cash and create profit margins for British business and e.g. compete in areas of globalised/domestic industry than are protected and subsidised overseas, by denial of e.g. workers employment rights.

    No matter what the OBR growth projections are - The UK Coalition govt has to 'intervene' or the UK regions will not 'recover', in the short/medium term and that would say goodbye to their re-election chances, in 2014/15.

  • Comment number 82.

    I am not an economist however it seems to me that taking £9600000000 out of benefits which are almost all spent immediately and on the local economy ie in the UK High Streets or on renting a property in the UK would seem to indicate a devastating impact on our economy - something which would not happen if you taxed the rich - I expect that thousands of british businesses will suffer a sharp downturn -
    Certain areas of the country will become economic wildernesses
    As a higher rate taxpayer I believe that taxation is a fairer way to solve these problems

  • Comment number 83.

    The OBR are entirely relying on exports, private investment and consumption. Their projections do not seem to take account of the fact that the private sector is still deleveraging. If the banks need a further bail-out, this will block any recovery in bank lending and therefore investment. The recovery so-far is almost entirely due to the government running a strong fiscal deficit to fill the spending gap.

    If private spending and net exports are not as robust as the OBR is predicting (and it is hard to see their forecasts being accurate) then the harsh cutback in public contribution to nominal demand growth will reduce the capacity of the households to further insulate themselves from their debt exposure. If housing prices continue to fall then further financial strife is likely.

    I'm still expecting at least 2.8 Million unemployed by the end of 2011, and a double-dip before the end of next financial year still looks probable to me.

  • Comment number 84.

    82 Tony,
    I'm not an economist either, but i'm told that if the Bank of England chose to target a 0% Interest Rate, then they no longer have to issue any debt (borrow) to cover the government's deficit. This would mean that the deficit could be maintained or as long as it takes for the private sector to run-down its debts and start spending again.

    The currency might depreciate slightly, but that would help exports. The costs associated with any increase in the price of imports, would be dwarfed by the reduction in the costs of having lower unemployment.

    To me, neither spending cuts, nor tax increases makes any sense - maintain the deficit instead.

    Kind Regards
    Charlie

  • Comment number 85.

    70 John_from_Hendon:

    'I have run real manufacturing business in the UK and experienced the absurd problems created by Thatcher's stupid obsession with the strong pound and bankers. I had absolutely no choice in shifting manufacturing abroad if the business was to continue.'

    What a surprise an accountant moving a business abroad. It was obviously a me-too manufacturer. I have news for you. It is entirely possible to make something in this country. It just has to be something people value and done better than they can do it abroad. So in your time having made people fall on their collective swords you have the nerve to lecture about everybody should halve their house price and go on endlessly about high interest rates, despite the fact that very few people can borrow at low interest rates and the banks do not want savers being awash with QEasy money. Quite what state you wish to reduce the UK to I have no idea. Do you sing Living in a Box everyday.

    'Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.'
    Niccolo Machiavelli

    There is plenty of opportunity. There is plenty of money about. We do not find domestic sales a problem and do not have an export problem. We have zero sales budget, we dont need a sales effort. All efforts go to trying to meet demand. But I guess we are not me-too.

    As far as I am concerned an accountant is a man who walks backwards so he can see the past.

  • Comment number 86.

    82 tony

    One mans tax increase is another mans job loss.






  • Comment number 87.

    Can we be very careful with public sector jobs and job cuts. Currently public sector jobs include the nationalised banks' employees in the UK. Secondly since the aim is to cut expenditure, you can do this with out making people unemployed... cut their hours, make them part time... even cut public sector jobs by employing lots of temps (like the Mayor of London does) Jobs may actually rise but hours and pay fall.

    Of course if you are wanting a 'watch person state' you cut jobs and hope the Big Society takes up both the services and the people :-)... an army of the middle class jobless working for their dole!

  • Comment number 88.

    My goodness,even George Osborne is beginning to sound like onward-ho..
    "Britain's economic recovery is on track '', the Chancellor told MPs."The Economy is growing, more jobs are being created and the deficit is falling.The OBR central forecast is for sustainable growth of over 2% for each of the next five years and employment rising in each and every year," he said.
    Mr Osborne also pointed to a separate forecast from the European Commission which suggested Britain would grow faster over the next two years than Germany . France. Japan. the United States of America, and the average for the Eurozone and the EU".He added: "Britain is on the mend."
    The Herald

    EvenGeorge admits Labour did well. Welcome aboard Onward Airlines.

 

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