Tory predictions of job growth have “no hope in hell”


9:01 am - July 1st 2010

by Sunny Hundal    


      Share on Tumblr

After yesterday’s Guardian front-page of massive job losses, the government treasury team spent the whole day furiously spinning that under their plans nearly 2 million jobs would be created as this austerity reinvigorated the private sector.

And what are those predictions based on what?

In fact a fact-check by Channel 4 yesterday found that the government’s projections require a “big leap of faith” – which is putting it mildly. Expect that number to be revised down drastically over the coming months and years.

To summarise, the government expects to cut 610,000 public sector jobs. It also expects that private sector employment would rise by 1.95 million jobs in 5 years time. That’s the creation of nearly 400,000 jobs every year despite the shaky economic climate.

Cathy Newman at Channel 4 points out:

According to the ONS, the private sector employee count went up by just over 1.8 million between 1999 and 2008. That’s slightly fewer extra workers than the OBR expects – and over twice as long a timescale.

Add to this the fact that the global economic conditions aren’t exactly rosy right now, and according to one leading economist, there’s not a “hope in hell” that it’s likely.

No hope in hell is exactly right because the government does not want to account for rising VAT and the impact those cuts will have on companies and workers in the private sector.

Concerns about massive unemployment is the most coherent narrative for the left and Labour right now. They should push it repeatedly.

It is the clearest message that would raise concerns with voters about the economic competence of this government, and be the best way to push the narrative that they’re making these cuts for ideological reasons.

Watch the Channel 4 report

    Share on Tumblr   submit to reddit  


About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
· Other posts by


Story Filed Under: Blog ,Economy ,Westminster

Sorry, the comment form is closed at this time.


Reader comments


The problem is that they are not ‘Tory predictions’ but OBR predictions. And the OBR has been set up to have the same authoritative and disinterested status as the ONS. Governments need forecasts to be able to plan anything, and most people would recognize that independent organizations like the OBR and ONS are better than having politically partisan forecasters. Beacause the OBR hasn’t yet got a track-record, there isn’t good reason….yet to doubt what they say.

The OBR will have it’s own institutional biases. By its very nature it’s anti-planning and will assume that the most growth happens when government gets out of the way. We’ll see whether that’s true – I doubt it.

#1

There isn’t a good enough reason to doubt what they say? Except, as Sunny’s article demonstrates, what they are saying is bullshit. That’s a good enough reason for me.

“the most growth happens when government gets out of the way”

Have you heard of a little thing called the “industrial revolution”?!

I do agree that the forecasts appear optimistic.

Though don’t forget, as Luis Enrique has pointed out on another thread, that NET job creation is the residual of two much larger numbers: gross job creation – gross job loss.

1997-2008 the private sector created 53,000 jobs per WEEK = 2.76m per year.
Of course jobs were also lost at a rate of 47,000 per week, so NET annual job creation was 312,000.

If that was maintained over the next 5 years that would result in 1.56m new jobs.

Not bad – and would offset public sector losses and then some – but well below the 2.5m OBR projection.

5. Greg Lovell

I’m sorry Lizzie, but claiming that the OBR is neutral and therefore that this somehow validates the Tory’s fantasy land economics is naive. There is absolutely no difference between the OBR and the old Treasury predictions. Except the Treasury was arguably more independent because they were sitting civil servants, not highly political government appointees (like Budd – one of Thatcher’s key advisors).

If the government genuinely wanted neutrality, then they should choose a panel of existing forecasters and publish all findings, not appoint their election advisors and call them neutral. When (and I think all reasonable people assume it’s a case of when) the OBR forecasts prove laughably ambitious, it will not be acceptable for the government to say “Oh, well it wasn’t us that got it wrong, it was the OBR”, which I am sure is precisely the intention.

6. Flowerpower

@ 3

as Sunny’s article demonstrates, what they are saying is bullshit.

Maybe so. But surely we should, before coming to a definitive conclusion, examine the relevant credentials, experience and track records of those on each side of the argument…..

Sir Alan Budd

Sir Alan held various academic roles before he became a senior economic adviser in HM Treasury between 1970 and 1974. During the 1980s he was professor of economics and director of the Centre for Economic Forecasting at the London Business School. Between 1991 and 1997, he was Chief Economic Adviser to the Treasury, and headed the Government Economic Service. He served as a founding member of the Monetary Policy Committee of the Bank of England. Among his activities as an economist, he is a governor of the National Institute for Economic and Social Research; a founder member of the UK-Japan 21st Century Group; an executive editor of World Economics; a member of the editorial advisory board of the Oxford Review of Economic Policy; and an adviser to the Observatory Group. He is also a senior adviser to Credit Suisse and Brevan Howard Asset Management. Ongoing appointments have been suspended for the duration of his chairmanship of the OBR.

Geoffrey Dicks

Geoffrey has held various roles in the public and private sectors, working as an economist in the Department of Employment, teaching at University College School and in various roles as a researcher and associate professor at the Centre for Economic Forecasting at London Business School. From 1993 to 2009, he was Chief UK Economist for NatWest Market/RBS Global Banking and Markets. Since then, he has been Chief Economist at Novus Capital Markets. He has appeared before Parliamentary Select Committees to provide expert evidence on the economy and written widely in the media on economics. He is on sabbatical from Novus Capital Markets for the duration of his membership of the OBR.

Graham Parker

Graham worked in a variety of civil service roles from 1972, including seven years working on manpower planning, five years advising on economic statistics, 13 years providing analysis, forecasts and policy costings for the Inland Revenue and nine years as head of the Public Sector Finances team in the Treasury, forecasting the whole of public sector expenditure, receipts and advising on the fiscal position. He was awarded a CBE in 2008 for his service to the Treasury and his work on the public finances. Following his retirement in January 2009, Graham was appointed to the IMF Fiscal Affairs Division’s panel of technical experts in July 2009.

Sunny Hundal

Has a degree in Economics from Brunel University.

Okay, fancy degrees and lifetime achievements ain’t everything. Sunny could be right. If he proves to be so, I’ll be among the first to call for him to get the Nobel Prize. ‘Til then, I’ll stick with the professionals.

yeh all because one leading economist, there’s not a “hope in hell”. Very authoritative.

8. Greg Lovell

CJCJC – look at the ONS figures in the spreadsheet downloadable from here:
http://www.statistics.gov.uk/statbase/product.asp?vlnk=8284

Between 1999 and 2008 (so avoiding the fall in 2009/10), the total net increase in private sector jobs was 1.84m (this takes into account the losses and gains).

Cameron and the OBR don’t deny losing 700,000 private sector jobs over the 5 years, but claim 2.5m will be created, so that is a net increase of 1.8m jobs. They require the same net increase in 9 years of “boom” in the next 5 years.

Therefore, in order to achieve this, in conditions of global low demand, poor consumer confidence, slack in the labour market, massively withdrawn government investment, a pound which is not going down and already low interest rates, some kind of economic miracle, not seen in modern times, is likely to be required.

9. Mike Killingworth

This will only come as a surprise to the kind of person who is in the habit of taking official pronouncements (it matters not which party is in office) at face value.

I would like to make a slightly different suggestion. Given the personnel of the OBR, let’s run a sweepstake on how long it will take for it (probably through one of its members being indiscreet to a journo) to call for the abolition of the minimum wage.

10. Greg Lovell

@Flowerpower

I imagine you could get the CVs of Krugman, Blanchflower and Stiglitz (2 Nobel prizes and a professorship rather than lots of work in the Treasury and at banks – didn’t they do well recently!) up there, ask them for forecasts and find a very very different result.

I presume the “one leading economist” is Blanchflower.

He has predicted the Coalition government will snap before 1st Jan 2011.

He also predicted that unemployment would reach 4 million in the last recession, One year later the ONS was announcing fall in unemployment to 2.46m.

Not sure I trust his crystal ball. He’s too much of a media rent-a-gob to bet the farm on what he says.

12. Matthew Stiles

Of those top economists cited, I know only of Sir Alan Budd. He has a reputation for being on the right, indeed he was a senior economics advisor to Tory Govts in the 70’s, 80’s and 90’s but not I think to Labour ones. Budd in talking about the 80’s said this:

“I was involved in making a number of proposals which were partly at least adopted by the government and put in play by the government. Now, my worry is . . . that there may have been people making the actual policy decisions . . . who never believed for a moment that this was the correct way to bring down inflation.

They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes — if you like, that what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make high profits ever since.”

I am trying to work out what is the distinction here between public and private workers in terms of total jobs, and why this does not seem artificial. Whilst private employment increased in amounts that were not sufficient to meet the Conservative targets between 1999 and 2008 public employment also increased (by 819 000 according to the ONS link above, with a further 30 000 added in 2009!). Therefore, it appears that there was the capacity for the total number in jobs to increase greatly (2 401 000, total from the same source), and the state took a large chunk (over a third) of that increase.

So if the state is not taking a chunk of the capacity, the potential for private employment increases. For this not to be the case, then there has to be some qualatiative difference between public and private employment, effectively meaning people are limited to one or the other, so the potential number of public employees will stay constant, being either employed by the state or unemployed. I do not believe this is the case, not having a caste system locally, so we have to consider the jobs created not as seperate components but as a whole.

This may explain the OBR logic, in that they are not artificially seperating figures, but looking at the economy as a whole (although there figure still requires remarkable growth). Oh, and I know this is a partisan analysis – it refuses to admit state intervention may have created jobs which otherwise would not exist (to be fair, it does, but I believe it then takes away other jobs through taxation, worry about debt and potentially inflation); I still think the question of why analysis job figures seperately and not as a whole needs to be sorted.

14. astateofdenmark

As I pointed out yesterday, it is a 6 year prediction, which can be checked by going and downloading the document:

http://budgetresponsibility.independent.gov.uk/d/employment_forecast_300610.pdf

As I also pointed out yesterday, this means net job growth in the Private Sector of just over 300k per year.

Now, this is 50-60k more than the 98-08 trend, which was a time of massive growth in the Public Sector.

So lets say they only achieve trend in the Private Sector. That’s 3-400k fewer jobs over the 6 years, or total employment growth of 900k-1 million rather than 1.3 million.

For unemployment to remain flat at its forecast peak, net jobs growth in the private sector would have to be a measley 100k. For Unemployment to climb to heights predicted by the ever more shrill Blanchflower, the private sector would have to lose (net) 200k+ jobs per year in addition to the public sector losses.

But let’s not ruin a good story.

15. Charlie 2

Even in a recession companies are having a problem recruiting British people with the required technical skills and motivation. A major reason for immigration is that a significant number of British people do not have the skills and aptitude for work. A combination of poor education and training; too high income tax for those on low incomes; too rigid welfare rules( people should not lose welfare as soon as they start to work) and an acceptance by some that life on welfare is preferable to work, has produced hundreds of thousands of economically inactive people.

16. Greg Lovell

Watchman

Quite simply, public sector employees are employed by the government, the government is expressly planning to cut expenditure by 25% in depts outside the NHS and so they will not be hiring people to do the jobs that make up the 800,000 positions you talk about. Quite simply, this section of the labour market will not exist. It is not a case of the private sector “filling the gap”, unless public services are somehow wholesale privatised and we, the public, become the direct consumers of them.

This doesn’t even begin to address the overlap between the private sector which supplied goods and services to the public sector and the inevitable job losses in these businesses on account of the cuts.

CJ @ 4

1997-2008 the private sector created 53,000 jobs per WEEK = 2.76m per year.
Of course jobs were also lost at a rate of 47,000 per week, so NET annual job creation was 312,000.

That was at a time when the the public sector was growing too. Surely we should be allow that ‘some’ of those jobs where created by public spending? As we start to cut public sector jobs, we are going to see less economic activity, especaily in areas that rely in public sector jobs. Next time you go to Tescos, try and see if you can guess who work in the public/private sector. They don’t spend different notes, use different checkouts or even buy different brands of tea. Tescos, 20 quid from a public sector employee is exactly the same as 20 quid from a private sector employee. That is the same across the board.

Cut (say) ten percent from that local economy and the private sector will stop creating as many jobs as they where.

Greg,

The problem with your analysis is the quite simple. Money not spent by government does not cease to exist – it is either money then spent by taxpayers, or loans which may then be made available to others (I know this money need not be spent in this country, but the money is still there). Unless you want to claim the government can make money out of nothing? That would be a good line to take to the electorate – don’t worry, we’ll magic money up to employ you. No-one would see through that…

So, back to the sensible point of view, at least some of the money not spent by government will be spent anyway, and this tends to lead to jobs being created. In fact, since free markets are more efficient than governments (by the nature of systems versus human decisions), I would guess the money would make more jobs than if spent by government.

19. Greg Lovell

@astateofdenmark

However you look at it, the OBR projections look wildly optimistic. I don’t see how, given the global economic situation, that you can think that hitting the 98-08 trend is even close to likely. Even this wouldn’t be close to enough to meet the OBR projection. Bear in mind that this growth in 98-08 didn’t come immediately after a massive global recession – as Tories are so keen to say, economic growth was not in such bad shape coming into 97.

And if we don’t hit those employment growth figures, then the impact on the deficit is potentially huge (less tax take and higher benefit costs).

Where I agree with Blanchflower over the likelihood of the coalition pushing through the cuts stated if the numbers don’t look positive. They simply won’t be able to.

20. Greg Lovell

@Watchman

But isn’t the whole argument over deficit reduction that this money being spent is not ours and we need to stop spending it? You could argue that somehow the money being raised through bond issues will filter back into the economy in a less direct way, but where investors are obligated to hold government debt, surely they will simply look elsewhere. They certainly won’t be risking money on new small businesses, or building hospitals.

I would also take issue with your claim that free markets are more efficient than governments (see CDOs), but perhaps not here and now.

21. Ken McKenzie

@LizzieG

Actually, what Blanchflower really has is a long and distinguised record of research into unemployment and the effects of recession on the labour market.

You can’t ignore why he’s qualified to speak without looking like someone keen to shut up people with expertise who are critical of Government policy.

The OBR badly damaged their credibility by rushing to the PM’s defense yesterday. They don’t look like an independent organisation by doing that – they look like a tame quango of economic spin doctors.

Anyone here think Cameron actually wrote Labour’s next general election campaign yesterday? A nice big poster saying “Unemployment will be falling during this Parliament”.

You can print them now, because it won’t be falling.

22. astateofdenmark

315k net growth isn’t wildly optimistic.

After the self inflicted ERM disaster unemployment peaked at 10.4% in 1993. (The deficit got to 8% as well). Despite Ken Clarke then slashing the public sector workforce in the following years by hundreds of thousands, by 1997, the unemployment rate was down to 7.1%. How did this happen? Surely by ‘taking the money out of the economy’ a double dip should have ensued?

Even if the forecast is missed by tens of thousands, the number in employment will be substantially higher than it is now. Even if it is missed by a 100k, employment will be higher.

It should also be noted that the time from the early 90s recession to the dot com bust was 8-9 years. Dot com bust to credit crunch, 8-9 years. Boom and bust hasn’t been ended.

That gives us to 2016-18 to get our house in order. Do we really want to go into the next recession, not with a balanced budget, or a 3% deficit, but a 6% defict and debt approaching 100% of GDP? The long term consequences of such a foolish approach would be incalcuable.

Ken Mckenzie:

Actually, what Blanchflower really has is a long and distinguised record of research into unemployment and the effects of recession on the labour market.

You can’t ignore why he’s qualified to speak without looking like someone keen to shut up people with expertise who are critical of Government policy.

Well that was pretty much Justine Greening’s line of attack on Newsnight last night – why bother with a counter-argument when you can slur the political allegiances of your critics, and hide behind the ‘independence’ of the OBR? (It’s all a bit too reminiscent of ‘Team Bush’ and Rumsfeld’s ‘Office of Special Plans’ for my liking)

PS: The other key problem with the Tories’ forecasts is the idea that – next time round – the jobs won’t come from finance, services and property-related markets: that’s a big ask, given the nature of the British economy.

24. Stuart White

Sunny: would be good to have Lib Con take a close look at the ‘impartiality’ of OBR.

Economics is an interesting discipline because while it operates with scientific methods, economists can also have strong ideological predispositions which affect their judgment.

Just what are the ideological predispositions of the people in OBR?

Do these parallel the ideological stance of the government from which the OBR is formally independent?

Of course, all governments take advice from ideologically-sympathetic economists. But the point here is that the government is projecting an image of OBR as ‘independent’, and that claim is exaggerated if OBR is peopled with economists who have a similar ideological orientation to the government.

25. Ken McKenzie

@24

Alan Budd’s links with previous Tory administrations are well documented.

However, this is not the right line of attack. Budd may well lean Tory because he genuinely thinks that they have the correct approach based on his reading of the situation – a perfectly honest and reasonable belief for him to hold.

Just as Blanchflower clearly holds no brief for the Tories at the moment because he thinks unemployment is the monster that needs to be slain and he feels the Tories will make things worse.

Once we take the cynical Greening route that Blanchflower can be ignored because he doesn’t agree with her, we have lost immediately. It might make it easy to ignore Blanchflower, but if we ignore intelligent principled people (and nobody who spends as much time as Blanchflower worrying about the jobless can be thought of as lacking moral fibre) we merely make it harder to get better ideas.

So, we attack Budd’s conclusions, not Budd’s team. It is the better way of doing things.

@1: ” Beacause the OBR hasn’t yet got a track-record, there isn’t good reason….yet to doubt what they say.”

Ok – and Alan Budd was a widely respected chief economic adviser in the Treasury during the 1990s until New Labour was elected to power in 1997 and Gordon Brown, as incoming Chancellor, simply sidelined him and then installed Ed Balls in his place after Alan Budd resigned.

However, HMT used to regularly survey about two dozen independent forecasts, mainly from economists working for financial institutions, and we have the respected commentary of the Institute of Fiscal Studies (IFS) and the NIESR. The OBR doesn’t have a monopoly of wisdom on economics.

It’s the OBR forecast of private sector job creation that stretch credibility in the context of: (a) business investment in 2010Q1 running at 7.7% down on the same period a year earlier; (b) the fragile Eurozone economy which usually takes over half of UK exports; (c) the appreciation of the Pound against the Euro – since March the cost of a Euro has dropped from 91 pence to 82 pence; (d) British consumers who are urged to pay down debt and save more; (e) the unsettled state of the housing market in Britain where house ownership comprises the largest part of personal wealth for most.

The outstanding question is whether additional private sector spending will make up for cuts in public spending. The fundamentals matter.

Try John Kay in Wednesday’s FT on: A chance to restore confidence in Britain’s official data
http://www.ft.com/cms/s/0/396c3f48-83af-11df-b6d5-00144feabdc0.html

Economic news update from Reuters:

“Economists were not sounding alarm bells about risks of a hard landing in Europe either, although it appears clear that growth likely peaked in the quarter just ended and that interest rates will remain on hold well into next year.

“‘In a lot of Western economies you’re going to see the pace of economic growth come off in the second half of the year. That’s the way we’re headed,’ said Mark Miller, international economist at Lloyds TSB Corporate Markets.

“‘For continental Europe, exports are still a driver of growth and and I don’t know how much longer that can continue.’

“In Britain, manufacturing output appeared in slightly better health than the rest of Europe, although it too slowed from a 15-year high clocked in May. Export orders growth dropped sharply, reflecting continental Europe’s malaise.”
http://www.reuters.com/article/idUSSGE66002D20100701

28. Matthew Stiles

The wonderful William Keegan had another great article in The Observer at the weekend summing up:
“The job of economic policy is not to lie back and wait for recovery but to steer the economy back to pre-recession levels of output and employment. Cutting spending and raising taxes is a funny way of going about it. And encouraging policymakers in your leading export markets to do the same is, well, surreal.”

Matthew,

I think this quote may sum up the problem:

““The job of economic policy is not to lie back and wait for recovery but to steer the economy back to pre-recession levels of output and employment. Cutting spending and raising taxes is a funny way of going about it. And encouraging policymakers in your leading export markets to do the same is, well, surreal.”

Because surely a recession came about because pre-recession levels of output and employment were not enough to sustain the growth that was then going on, and therefore this is nonsense. Economic policy is there to try and ensure the best possible economy, not to achieve particular arbitrary targets. And the best possible economy is not one that is based on credit and too-high government spending, as ours was prior to the recession.

Greg @ 20,

I guessed you were not likely to agree with the free market point (although compare a consistently free market with minimal regulation (say the US) with countries with no free markets (North Korea, to some extent Cuba) and say there is not an a priori case to answer here).

But even without that, for Sunny’s figures to be right you need to argue that there will be no uptake in the slack from public employment by private employment. Now, since some of the cutting was reducing corportation tax, and since over regulation is meant to go the same way (I live more in hope than expectation here though), these should at least free up money otherwise spent in government/directed towards government to take up slack.

So we all know the Keynsian theory (even if its not that well followed in the good times). When has it actually worked in practice? Spending more to get out of a recession?

Look, Ireland is out of recession “despite” it taking massive fiscal austerity: http://www.ft.com/cms/s/0/9e079c4c-8439-11df-b9f8-00144feabdc0.html

Perhaps the supply-siders just have it right, and the Keynsian modellers are wrong.

@31

It’s a very shaky kind of growth though, and a tiny fraction to make up what they lost in the slump. Also, the primary beneficiaries of the “growth” have been owners of large multinationals – on the ground however, it’s still looking grim.

From the WaPo article on the subject:
“Domestically, the evidence of recovery is less clear: Consumer spending is stabilizing; shops report higher sales; and companies shifting cash between bank branches report increased volumes, according to officials. But many parts of the economy are still shaking off the effects of the property crash, with unemployment-benefits lines growing — a problem only exacerbated by the reemergence of emigration, a highly emotional issue in Ireland.”

As always, the supply-siders only concentrate on the narrowly-defined, short-term narrative. The Keynesians tend to think in wider terms and longer periods of time.

33. Matthew Stiles

no 29 “surely a recession came about because pre-recession levels of output and employment were not enough to sustain the growth that was then going on”

This comment is unintelligible. It takes some cheek to claim that Keegan is talking nonsense when you come out with stuff like that.

34. Watchman

Matthew.

So there was no recession? Because we had a recession, and it happened at a point where pre-recession levels of output and employment were current. So, all else being equal, if we had those levels of output and employment again, we would have the same levels of falling growth and then a recession again. Simple enough.

My point is that economic policy is not to take us back anywhere (that normally requires a time machine), but to drive the economy forward. Hence the original comment. By assuming we have a target which equates to something in the past, you and/or Mr Keegan have assumed an objective which does not exist, and created an artificial measure of success.

35. Greg Lovell

Watchman @30

There was a superb headline in the Onion a few years ago “Reaganomics Finally Trickles Down to Area Man”. Worth a read in this context:

http://www.theonion.com/articles/reaganomics-finally-trickles-down-to-area-man,2302/

Also, the US benefits massively from effectively price manipulation and protectionism plus government subsidy for major industry. It’s a lot less “free” than it likes to think.

36. Watchman

Greg,

It’s a lot more free than any communist-socialist country however (I exclude democracies as they are primarily democratic regardless of composition of government). And I haven’t seen any of those do well – look at the nice mess Signor Chavez is making in Venezula for example.

I do not deny any role for the state. But to explicitly say the state has certain targets is kind of like the five-year plans of the old Soviet Union.

@31 Nick

You missed this bit in the FT report:

Ireland climbed out of recession on Wednesday with the economy returning to growth in the first quarter, after suffering one of the deepest downturns of any advanced industrialised economy.

It was that deep because they took those austerity measures.

Before anyone jumps to a premature conclusion that keynesian economics is bound to be rubbish because (the Republic of) Ireland’s economy has emerged from recession, it’s at least prudent to investigate the sources of additional demand which boosted that economy out of recession and consider the particular characteristics of Ireland’s economy.

As I personally expected, the boost came from exports:

“Ireland’s economy bounced back from recession in the first quarter, with a 2.7 per cent expansion compared with the final three months of last year. Exports led the charge, boosting hopes that cuts in public spending may not damage her economy as badly as feared.”
http://www.independent.co.uk/news/business/news/ireland-out-of-recession-as-exports-jump-2015128.html

Relative to the UK, the Republic of Ireland has a small economy with a population of only 4½ people. Several large multinational companies have substantial operations there:

“Ireland hosts one of the largest Intel manufacturing site outside of the United States. It’s also a hub for some of the most exciting technology and manufacturing research currently taking place in Europe.”
http://www.intel.com/corporate/europe/emea/irl/intel/index.htm

Whenever I phone the amazon.co.uk inquiry line, the response comes from a callcentre in Ireland. Microsoft distributes software products from a base in Ireland to European markets.

According to this source, of Ireland’s GDP of €181.8 bn (2008 est.), exports generate as much as $102 billion f.o.b. (2005 est.)
http://en.wikipedia.org/wiki/Economy_of_the_Republic_of_Ireland

For comparison, the UK “is the third largest economy in Europe after Germany’s and France’s in nominal terms and the second largest after Germany’s in terms of purchasing power parity. Its PPP per capita is ranked the 19th in the world and nominally ranked 22nd.”
http://en.wikipedia.org/wiki/Economy_of_the_United_Kingdom

Of the UK’s GDP of $2.007 trillion (2009), exports generate (only) $351.3 billion (2009 est.).

Evidently, exports are much less important as a source of GDP demand in the UK than for Ireland’s economy. Internal demand in the UK is far more important as a source of total final demand compared with Ireland.

Correction:

“Relative to the UK, the Republic of Ireland has a small economy with a population of only 4½ million people.”

40. Sevillista

Isn’t one of the benefits of the OBR (aside from allowing Tory ministers to evade responsibility for ridiculously over-optimisic economic forecasts going pear-shaped) that they are meant to very transparent.

And yet there has been no publication of either the economic model that
the OBR are using nor the parameters of the model.

This would allow people to hold them to account through scrutiny of their assumptions and sensitivity tests over what happens if their assumptions are incorrect. And I would have thought the current secrecy is inconsistent with the Conservative transparency commitment (though I suspect the need to avoid challenge of the seemingly pessimistic assumptions OBR make re output gap and structural deficit, and the seemingly optimistic assumptions re GDP growth and unemployment trumps this)

I don’t know what methods the OBR used for their Budget forecasts but the chances are that they used the Treasury’s own econometric model or some variation of it. See this statement of the National Audit Office on underlying assumptions of the OBR forecast:
http://www.hm-treasury.gov.uk/d/junebudget_nao_assumptions.pdf

It seems not to be widely appreciated that HM Treasury’s econometric model is in the public domain and is regularly used by at least one forecasting group to make forecasts – the so-called: Item Club. However, forecasts of the Item Club are not made with any prior knowledge of Treasury policy decisions so the Club’s forecasts may diverge from those of the Treasury. Alan Budd, as head of the OBR and a previous chief economic adviser in the Treasury, will be familiar with the Treasury model. During the 1980s he was professor of economics and director of the Centre for Economic Forecasting at the London Business School.

Btw every so often the NIESR makes a retrospective assessment of the accuracy of a selection of forecasting models, usually including its own and the Treasury’s. The Treasury’s model usually comes out well from these assessments.

This is the Treasury’s most recent survey of independent forecasts (dated June 2010):
http://www.hm-treasury.gov.uk/d/201006forecomp.pdf

42. Sevillista

@Bob B

Unfortunately the NAO did not audit the assumptions – they just made a few comments re independence (and not necessarily positive ones).

Seriously – if they published the model, we can see what a different set of assumptions would throw up for the economy – I suspect an OBR led by monetarist Budd would take a very different view to one led by Keynesian Blanchflower. But we are unable to judge how much of a difference different assumptions would make.

Current news reports are hardly reassuring about buoyant prospects for early employment growth:

“Figures from the Bank of England today, which show banks predict only modest rises in corporate lending for the rest of the year, will add to concerns that corporate Britain is an unlikely wellspring of jobs. Bank of England monthly lending figures also showed that mortgage lending is expected to fall over the coming months. Many economists believe the slowdown will follow belt-tightening by households.

“Martin Weale, chief economist at the National Institute for Economic and Social Research, said stagnant demand on the continent and a rise in sterling would stifle the prospects for export-led growth, while the slump in the stock market would hit domestic consumption.”
http://www.guardian.co.uk/business/2010/jul/01/obr-2m-job-forecast-questioned

“Global equity and commodity markets began the second half of the year on a sour note on Thursday, as data from China and the US fanned fears of slowing economic activity and sent benchmark Treasury yields to a fresh 14-month low.”
http://www.ft.com/cms/s/0/eb3c2d48-8556-11df-aa2e-00144feabdc0.html

“Bulls have started the third quarter as they finished the second: with a trip to the slaughterhouse. Oil was at one point almost 5 per cent lower, and stocks were down across the board, as investors expressed serious concern about the prospects for global economic growth following a drumbeat of negative news.”
http://www.ft.com/cms/s/0/bca9cc0e-84cc-11df-adfa-00144feabdc0.html?ftcamp=rss

“July 1 (Reuters) – Britain’s top share index is seen opening sharply lower on Thursday, starting the third-quarter in the same drab fashion it left the second, tracking big falls overnight on Wall Street and in Asia after Chinese manufacturing data disappointed.”
http://www.reuters.com/article/idUSLDE6231IB20100701

Where is the growth in demand to come from to fill the gap from the public spending cuts announced in the Budget?

CJ –

Have you heard of a little thing called the “industrial revolution”?!

The industrial revolution started around 1565(ish) to and including Ford’s all black car, 1908, so that’s over 300 years!?!?!

Embarrassing reports in the news! From this in Friday’s FT and others in a similar vein, it looks like those Obama administration economists were correct after all about recovery of the global economy being insecure:

“Fears grew yesterday that the global recovery is faltering after a slew of data showed manufacturing output slowing across large parts of the world led by weaker growth in China.

“Statistics suggested global demand is slackening, posing further challenges to leading economies as they attempt to shore up shaky fiscal positions without falling back into recession. In Asia – the world’s production powerhouse whose economies are still largely dependent on export demand – manufacturing activity indices for China, South Korea, Taiwan, India and Australia all showed weaker activity for June.”
http://www.ft.com/cms/s/0/62bb8dcc-8571-11df-aa2e-00144feabdc0.html

If you don’t think the private sector can grow fast enough to mop up those extra workers, what makes you think that it can grow fast enough to pay for them if they stay on the governments payroll?

And frankly, I would find it easier to trust a “leading economist” if said economist was willing to give his or her name when being quoted.

@46: “If you don’t think the private sector can grow fast enough to mop up those extra workers, what makes you think that it can grow fast enough to pay for them if they stay on the governments payroll?”

A comparison between Alistair Darling’s and George Osborne’s respective prescriptions for paying down the budgetary deficit are set out fairly clearly in this presentation on the BBC website:
http://news.bbc.co.uk/1/hi/business/10390823.stm

Darling’s prescription would have entailed the government borrowing more initially and for longer because the pace of cutting public spending would have been somewhat slower.

Whatever else about the incidence of the spending cuts on poorer v well-off households or the regional impact of Osborne’s budget, the potential risk of the steep, early public spending cuts is that the economy will sink back into recession or stagnate if private sector spending and net exports don’t increase to make up for the cuts.

I’m not making some extraordinary, eccentric point here as it has been made with greater congency and at greater length by FT writers:

Martin Wolf: Two brave gambles in a huge fiscal tightening:
http://www.ft.com/cms/s/0/c4c18be4-7e5e-11df-94a8-00144feabdc0.html

Chris Giles: Osborne delivers kill or cure Budget
http://www.ft.com/cms/s/0/de6ba960-7dde-11df-b357-00144feabdc0,dwp_uuid=ec12e25a-624a-11de-b1c9-00144feabdc0.html

In essentials, this is the same point that Martin Weale of the NIESR is quoted as making @43 above. And The Economist also warns of the downside risks as well as provides an illuminating comparison between the Darling and Osborne prescriptions:
http://www.economist.com/node/16439052

@46: “And frankly, I would find it easier to trust a ‘leading economist’ if said economist was willing to give his or her name when being quoted.”

The names here of “leading economists” are transparent but what really matters is the quality of the analysis, not who said it.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Tory predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  2. Mr Omneo

    RT @libcon: Tory predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  3. Simon HB

    RT @libcon Tory predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  4. Jack

    RT @libcon: Tory predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  5. Rick

    RT @libcon: Tory predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  6. sunny hundal

    Conservative predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  7. House Of Twits

    RT @sunny_hundal Conservative predictions of job growth have "no hope in hell" http://bit.ly/bV2mas

  8. MyDavidCameron

    RT @OtherTPA RT @sunny_hundal Tory prediction of job growth has "no hope in hell" http://bit.ly/bV2mas <- yes! The right's cupboard is bare

  9. Md.Sumon

    Tory predictions of job growth have “no hope in hell” | Liberal …: After yesterday's Guardian front-page of mass… http://bit.ly/9C4TP6

  10. Tory predictions of job growth have “no hope in hell” | Liberal … « Harrington Fundraising

    [...] Follow this link: Tory predictions of job growth have “no hope in hell” | Liberal … [...]





Sorry, the comment form is closed at this time.