Wednesday, May 26, 2010

Stimulus from Across the Pond

My attention has been drawn (thanks to James at Baseline Scenario) to some of the first estimates of the effect of the American Recovery and Reinvestment Act of 2009 (a $787 stimulus bill) on the US economy. I thought I'd repeat a few of the major achievements of the act:
  •  Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,
  •  Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,
  •  Increased the number of people employed by between 1.2 million and 2.8 million, and
  •  Increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise.
Seems to emphasise the point that in times of trouble, stimulus is the way to go.

Monday, May 24, 2010

Public Sector Cuts and the 1990's

This post is a response to Sunny after a brief exchange on Twitter today on exactly how the left needs to deal with the new government's plans for cuts. For my part I disagree with Sunny's analysis that we should accept the need for cuts, I'm also not sure if it's a particularly good move politically since it plays right into the whole "Labour's Terrible Economic Inheritance" narrative the the new government is trying to spin to the media (I had a bit of a rant about this in my last post).

To see why, we need to take a look at the last recession in 1990 and how the deficit was resolved in that situation. To do this I'm using my favourite methof of late, a graph. The graph below show's the inflation adjusted change in public sector spending alongside the public sector net borrowing:

As you can see, the deficit shot up after the recession evenutally reaching a figure of just under 8%, this is an important point to start with because although it's smaller than the current deficit the two figures are not a million miles apart. The second point is that the Conservative government of the day dis not make cut's, in fact, they actually increased public spending as the recession went on.Further to this, we can see that the recovery in the deficit properly begins shortly after the largest increase in public spending.

My view is that the majority of the reduction in deficit will not come from public service cut's but from economic recovery, that certainly seems to have been the case in the 1990's (as the IMF says: Automatic Stabiliser's Work, Always and Everywhere). When the economy get's into difficulty, it is always tax revenues that take the largest hit, far larger than the actual dip in economic activity, when the economy recovers tax revenues also jump back up far faster. I believe this is the effect we are seeing at the moment as the recent deficit undershoot was nearly four times the size of this year's cuts.

There may be a need to hold back on spending in a few years time, but right now I don't think the left should be falling for this cuts argument.

Rewriting Economic History

I'm really getting pissed off at the Tories endless annoncements that seem to be rewriting recent economic history. As well as spouting all kinds of silly press releases about "Labour's scorched earth tactics" and highlighting the fact that minister's went against the recommendations of their civil servants. They aslo seem to be having a right old go at recent spending plans, and patronisingly lecturing us on how you should run a surplus in a good years (funny how all of a sudden everyone has suddenly picked up the ability to perfectly predict economic cycles and pinpoint exactly the next crash is going to occur).

Let me show you a graph:

See the way those dips in the deficit follow the dips in the economy? That shows what happens in recessions, the deficit increases. What about that tuny little dip that appears just before the almighty one for the recent recession? That would be what the Tories are now deeming LABOUR'S MASSIVE AND WHOLLY IRRESPONSIBLE SPENDING!

That's it, that tiny little bump there is the supposed irresponsible legacy that we have left the new government, for got's sake, you can even see how we were moving to bring it under control. So, coalition people, if you really must make awful accusations about us, at least do the sums first.

Thursday, May 20, 2010

UK Trade in Charts and Graphs

I've put together a few graphs on UK trade, I'm not really going to draw any conclusions from them just yet but I thought I'd put them up for all to see.
First, a breakdown of the split between goods and services in the UK economy, as you can see dominated by goods but with services growing as a share since around 1995.

Next, the UK Balance of trade, very much positive in services, negative or close to zero in goods and mostly negative in total.

And now for the value of British exports and imports.

Monday, May 17, 2010

That 55% Rule

So, after a little confusion about whether this was a change to confidence motions or not. It came to light that this was all part of a plan for fixed term parliaments and the 55% figure was part of an arrangement to prevent the
governing party from calling an election. I still don't like it.

Ultimately, it's not the rule itself that's the problem it's the context. David Cameron's Conservatives do not have a majority, they are part of a coalition that will have difficulty getting it's legislation through parliament. Given the
nature of the coalition there are a couple of questions in need of an answer:

First: Given the weakness of the new government's mandate, should one of the coalition's first moves really be to embark upon radical constitutional reform?

..and second: Should the coaliton's constitutional reform really be made up of policies that seem quite blatantly designed to strengthen it's shaky grip on power?

It's the context of this policy that matters, it looks like the policy is being introduced to get around the problems of a hung parliament. If Cameron's government had a majority then it would be giving up power, as it is it looks more like they're desperately trying to hang on to it and that is something that you know us Labour types are just not going to shut up about.

Scorched Earth?

Apparently, in their last days of office, the government was following a "scorched earth" policy aiming to sign off spending on anything and everything it could. That is the story, at least according to the Times and others, natually I'm a little bit more suspicious.

One of the items is in question as part of this article is:
A series of defence contracts signed shortly before the election, including a £13 billion tanker aircraft programme whose cost has “astonished and baffled” ministers.

This programme appears to be designed to find a replacement for the UK's existing tanker fleet of Vickers VC10s (Introduced in 1964) and Lockheed Tristars (Introduced in 1972). So that's a 46 year old and a 38 year old aircraft design.

Now, I'm no expert on aviation, but it does seem to me that those aircraft designs seem a bit erm...old, and perhaps they might need replacement. That and the fact that the first bids for this project were recieved in 2001 makes me smell a rat.

The whole project has the whiff of a project that was planned very carfully over a number of years with a very sensible aim. Would the new government really have abandoned this project leaving the RAF with it's ancient refuelling craft? That to me just doesn't sound sensible and that's why I'm certainly thinking that this whole "scorched earth" thing is little more than a concoction by our new government's spin doctors.

Sunday, May 16, 2010

A few Thoughts on the Election

Before I get to work on out new LibCon overlords I just thouhgt I'd string together a few thoughts on the election.

I wasn't particularly optimistic about the result, so overall, I'm not that upset about the hung parliament result. Less cheerful for me were the results in East Anglia, my MP Charles Clarke lost his Norwich South seat to the Lib Dems by around 300 votes, we failed to take Norwich North back from the Tories and we lost seats in my hometown of Great Yarmouth and also in Ipswich.

The result in the Eastern region has me seriously worrying about what went wrong and why we suffered quite so badly in the East of England, one thing I intend to do off the back of results is to do some digging and see if I can find any clues to Labour's demise in this bit of the country.

On the subject of coalitions, I'm disappointed that Labour were unable (or possibly unwilling) to form a rainbow coalition, I know it would have been difficult but I don't believe for a second that a Tory government is ever "in the national interest". We can hope that the Lib Dems exert a moderating influence on their Tory coalition partners, but so far this seems to be in vain.

A silver lining in all this is despite all that's happened, the mood of Labour party members is surprisingly upbeat, the talk is about getting back out there and fighting to win back power. That's an incredibly refreshing thing to hear after an election defeat.

Wednesday, May 05, 2010

Has anyone else noticed the housing market?

With the upcoming election, as well as the crisis in Greece it seems like every single ounce of economic punditry has been devoted to discussing the deficit. The housing market has been virtually ignored, I'm thinking this might be a mistake.

Over the last year house prices rose by 10.5%, this leaves them aboout 10% short of the previous high in October 2007 and this has set me thinking. The credit crunch was an American thing, US has prices fell and the whole thing undermined the securitised house of cards that was propping up the whole thing. In Britain we suffered the side effects of this with a fall in house prices, but our house of cards remained intact and prices soon recovered.

I suppose my question is: Were house prices overvalued in 2007? If not then I suppose we can rest easy and be thankful for the recovery. If they were, then we really have to question whether there is some undiscovered point at which our own housing market will suffer a US style collapse.

It may just be me here, a 10.5% growth in house prices in the tail end of a recession just seems over the top. It has me really worried about the state of the housing market. Even if we ignore the social consequences of overpriced housing we still have the question of whether the economic recovery is based on little more than a new bubble in the housing market. If that's the case this elections obsession with the budget deficit will all seem like a lot of wasted energy.