tag:blogger.com,1999:blog-41314402024-03-13T11:27:34.751+00:00The Sea That Chides the Banks Geraint Johnes weblog: comments on news stories of the dayUnknownnoreply@blogger.comBlogger386125tag:blogger.com,1999:blog-4131440.post-27928403859284662912021-10-06T14:23:00.001+00:002021-10-06T14:23:32.354+00:00The <a href="https://www.youtube.com/watch?v=IY_CYJaYhBo">prime minister’s speech</a> at the Conservative party conference today was too vacuous to merit comment, but his deputy’s <a href="https://www.bbc.co.uk/programmes/m001089t">attempt</a> at the world record number of mentions of ‘cheap labour from abroad’ does get me biting the bait.<p>
There are several ways to avoid employing cheap labour from abroad. One is to employ cheap labour from Britain - lowering wages. Not, I presume, what anyone has in mind.<p>
Another is to employ cheap labour from Britain by the back door. Simply paying higher wages would have several consequences. Businesses would have to pass on the extra costs and raise their prices, which would be bad news for British shoppers. Exporters would likely see customers, deterred by the higher prices, switch to things produced in other countries. So both inflation and unemployment could rise. Again, I suspect, not what anyone has in mind - though it is a scary consequence that could well arise if other plans fail.<p>
Raising real wages requires an increase in productivity. This is not a blinding new revelation. It’s what the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/664563/industrial-strategy-white-paper-web-ready-version.pdf">Industrial Strategy</a> of Theresa May’s government was all about. It’s what the last Labour government sought with its drive for education, education, and education (echoed today by Johnson’s skills, skills, and skills). The UK does indeed need to solve its productivity problem. Identifying the problem is one thing, but real policies to solve it are another. There’s little sign that the current government really has any fresh ideas. But come on, we’re listening.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-86748959998073872392019-04-03T15:40:00.000+00:002019-06-19T13:49:35.753+00:00The economic impact of Brexit has generated much heated debate, but there is mounting evidence that the cost has already been considerable. <p>I have sporadically posted on this blog some forecasts from a neural network model that I have devised to predict the time path of the industrial production series in the UK. (For geeks, this has 24 lags of the seasonally differenced, logged variable as inputs, two hidden layers, and is fitted using a hyperbolic tangent.) Since the beginning of this year, however, the Office for National Statistics has published <a href="https://www.ons.gov.uk/file?uri=/economy/grossdomesticproductgdp/datasets/gdpmonthlyestimateuktimeseriesdataset/current/mgdp.xlsx">monthly data on Gross Value Added</a> – a series which covers all parts of the UK economy, not just the comparatively small production sector. I’ve found it irresistible to use this series (data for which go back to 1997) to check out how, at June 2016, my neural network forecaster predicted output would evolve in the period after the 2016 Brexit referendum – and how that compares with the outturn. The graph below shows the forecast (in orange) and the outturn (in blue). The figures on the vertical axis are the annual change in logged output. <p>Beyond the first year after the referendum – when the depreciation of the exchange rate boosted exports – output growth in the UK has consistently fallen about 1.5 percentage points below the pre-referendum forecast. The <i>cumulative</i> effect of the shortfall in growth since the referendum amounts to the equivalent of around £900m per week. This finding is remarkably consistent with, and reinforces, the results from other (much less back-of-the-envelope) studies, including those by <a href="https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-economic-outlook-speech-by-gertjan-vlieghe.pdf?la=en&hash=92DDF8DB5E77A389038F3A9CA010280349C03F2A"> Gertjan Vliehge of the Bank of England</a>, by <a href="http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2017/CFMDP2017-38-Paper.pdf">Benjamin Born and co-authors</a>, and by <a href="https://blogs.lse.ac.uk/brexit/2019/03/21/economic-performance-since-the-brexit-vote-slowed-gdp-growth-lower-productivity-depreciated-pound/">Josh De Lyon and Swati Dinghra at the LSE</a>.<p><div class="separator" style="clear: both; text-align: center;"><a href="https://3.bp.blogspot.com/--ZLBP2c0418/XKTT8O6nblI/AAAAAAAAATY/AMX1Yujxu_Qo9dIw-Xd_mFhtdcVKc299gCLcBGAs/s1600/nn-special-030419.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://3.bp.blogspot.com/--ZLBP2c0418/XKTT8O6nblI/AAAAAAAAATY/AMX1Yujxu_Qo9dIw-Xd_mFhtdcVKc299gCLcBGAs/s320/nn-special-030419.jpg" width="320" height="176" data-original-width="400" data-original-height="220" /></a></div><p>
The fact that Brexit has already caused considerable economic damage seems inescapable.
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-82016643823253793662019-03-12T16:20:00.001+00:002019-03-12T16:20:39.457+00:00It's a while since I wrote about the <a href="https://www.ons.gov.uk/economy/economicoutputandproductivity/output/bulletins/indexofproduction/january2019">industrial production statistics</a>. Recent months have seen a fall in output in the production sector, and in January this year industrial output was about 0.9% down on the same month a year ago. <p><div class="separator" style="clear: both; text-align: center;"><a href="https://2.bp.blogspot.com/-X1dV5CRQqu4/XIfcPuzBajI/AAAAAAAAATM/yMTjWAh2H5Q3cXrfkx0v5wXktoYFGXMtACLcBGAs/s1600/nn120319.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://2.bp.blogspot.com/-X1dV5CRQqu4/XIfcPuzBajI/AAAAAAAAATM/yMTjWAh2H5Q3cXrfkx0v5wXktoYFGXMtACLcBGAs/s320/nn120319.jpg" width="320" height="196" data-original-width="472" data-original-height="289" /></a></div><p>The future time path of this series is especially difficult to predict given the uncertainties that still surround Brexit, but - even in the absence of further adverse shocks - my neural network forecaster suggests that the outlook over the next couple of years is subdued.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-56823177929491893692017-11-27T11:55:00.001+00:002017-11-27T12:06:01.902+00:00The government has published its long-awaited <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/662541/industrial-strategy-white-paper-print-version.pdf">Industrial Strategy</a>. It is well established that successful innovation often involves <a href="https://marianamazzucato.com/entrepreneurial-state/">collaboration between public and private sectors</a>, and the provision by government of a clear steer, with the promise of tangible support in the ‘Grand Challenge’ areas of AI, mobility, environment and ageing, is to be welcomed. There is some overlap between these areas and the launch of Sector Deals – partnerships between government and industry in the areas of AI, the automotive sector, construction, and life sciences. Future Sector Deals are heralded in the areas of creative, digital, and nuclear industries. <p>
The Strategy places considerable emphasis on ‘people’, and stresses the need ‘to create good jobs and greater earning power for all’. The commitment is that ‘as the economy adapts, we want everyone to access and enjoy <i>good work</i>’. Within government, the Business Secretary is to take on responsibility for the delivering quality jobs. Building on the <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/627671/good-work-taylor-review-modern-working-practices-rg.pdf">Taylor Report</a>, he will develop ‘a set of measures against which to assess job quality and success’ – including: ‘overall worker satisfaction; good pay; participation and progression; wellbeing; safety and security; and voice and autonomy’. Some aspects of good work, as defined in the <a href="http://isiarticles.com/bundles/Article/pre/pdf/12387.pdf">literature</a>, are notable in that they do <i>not</i> appear in this list – notably flexibility and worker co-determination. Sector Deals are proposed as one mechanism whereby job quality can be enhanced; there will need to be others. <p>
While employment in the UK has recovered well from the Great Financial Crash, it is widely recognised that the economy suffers a serious problem of mismatch in the labour market. The Industrial Strategy seeks to address one aspect of this problem – an absolute shortfall of certain skills. In particular, it identifies gaps in skills in science, technology, engineering and mathematics (STEM) and inequalities in educational achievement. The proposals in the Strategy to address these issues build upon innovations introduced in the last two Budgets – specifically in the provision of Technical level qualifications, apprenticeships, investment in mathematics education, and lifelong learning. The Strategy leaves another aspect untouched, however. <a href="https://www.ons.gov.uk/chartimage?uri=/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/graduatesintheuklabourmarket/2017/0b871b05">Overeducation</a> – or, rather, the allocation of well educated workers into jobs where they are less productive than they might otherwise be – has become an increasingly prominent issue. A part of any successful industrial strategy should therefore be to investigate how the operation of the labour market could be improved so that people can most effectively use the skills they already have. <p>
The Strategy aims to tackle regional disparities in skills by devolving responsibility and budgets to mayoral areas. This is welcome, as local conditions are best understood by people working on the ground. More generally, the migration of highly skilled young workers to London is leading to coincident overheating in the capital and stalled recovery elsewhere. Investments made as part of the Industrial Strategy all have a spatial dimension, and active government support for initiatives ought explicitly to be conditional on promoting and maintaining regional balance; the need is for something with considerably more teeth than the regional mission of the British Business Bank heralded by the Strategy document. The Northern Powerhouse and Midlands Engine may be key to this – though it is critical that these initiatives should work together and not mutually frustrate each other. (If everywhere is a powerhouse, nowhere is a powerhouse – and there is a legitimate fear that regional politics may already have kiboshed George Osborne’s great idea.)<p>
The UK has long lagged behind major competitor countries in its R&D spending, with combined public and private spending amounting to 1.7% of GDP. This compares with 2.8% in the US and 2.9% in Germany. The Strategy sets the goal of raising the proportion in the UK to 2.4% by 2027. This medium term goal appears modest, and indeed the Strategy itself sets an aspiration for a longer term target of 3%. <p>
Overall, then, there is much to welcome in the Strategy. Productivity has been an issue in the UK economy for many years, and it is good to see government make explicit its responsibilities as an agent that can set the right environmental conditions for business to innovate. It is however a pity that the positive aspects of the Strategy are at odds with other relevant developments in the policy domain. The word Brexit does not appear in the document at all, and the only serious discussion of its implications for the substance of the Industrial Strategy is in a brief paragraph on the penultimate page. That aside, there is one page (with a lot of white space) that deals with migration – in a notably coy manner. The sad reality is that Brexit will take with one hand what the Industrial Strategy gives with the other.
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-51910482154352685912017-08-21T09:26:00.001+00:002017-08-21T09:27:33.645+00:00The 'Economists for Free Trade' group has produced a <a href="https://www.economistsforfreetrade.com/publication/economy-after-brexit-publications/">document</a>, authored by Patrick Minford, suggesting that Brexit will provide considerable economic benefits to the UK. It is interesting how this group has changed its name so that it looks as though more than one group is saying the same thing as them - they were 'Economists for Brexit' a few months ago.<p>
Minford's basic argument for free trade is one that most economists would support. Trade (whether international or just me going to buy a coffee) happens because it's an exchange that makes both parties better off - and restricting that trade makes us worse off. International trade can be restricted by tariffs, but also by a whole plethora of non-tariff barriers (eg regulations of various kinds).<p>
Minford emphasises tariff barriers - and (curiously, since he reckons Brexit will ‘<a href=" https://www.thesun.co.uk/archives/politics/1086319/brexit-will-boost-our-economy-and-cut-the-cost-of-bmws-and-even-brie/">mostly eliminate</a>’ UK manufacturing) has a very manufacturing oriented view on this. But he's way out of date. The World Trade Organisation works to reduce tariff barriers worldwide - and we <i>already</i> benefit from that. There are still some tariffs, sure, but this really isn't the main thing that impedes trade.<p>
That impediment comes from regulations - and the single market has done more than anything to remove it. Leaving the single market would put a whole lot of new barriers in place.<p>
We don't know exactly where Minford's latest figures come from – his group is reporting the research bit by bit to try to get more publicity. But he undertook a <a href="https://issuu.com/efbkl/docs/economists_for_brexit_-_the_economy">similar exercise</a> before the referendum, and it was clear from that that his model was ill-equipped to do the analysis. Indeed that exercise was <a href="http://cep.lse.ac.uk/pubs/download/brexit06.pdf">widely panned</a>. The model they use assumes a reduction in VAT instead of a tariff cut. It also assumes that the burden of regulations will decrease (and rather curiously models that by assuming a fall in the employer's rate of national insurance). Now if the EU regulations that our exporters face when they sell to the EU could be magicked away just by us leaving the EU, there might be some case for doing that, but otherwise it's bonkers. No, let's just tell it like it is... it is just plain bonkers.<p>
Here's a picture that the Resolution Foundation produced, showing the 'before the referendum' and 'after the referendum' forecasts of economic growth made by every forecaster surveyed by the Treasury in its regular compilation of UK forecasts. The red dot is the forecast in July 2016 (after the referendum), the blue dot in June (before). In all cases but one, the expected impact of Brexit is clearly negative. The one exception is Patrick Minford.<p> <img src="https://www.lancs.ac.uk/people/ecagj/Picture1.jpg"><p>
The BBC – which, during this August silly season has given much prominence to the Economists for Free Trade report – needs to take a long, hard look at itself. By following a remit on 'balance' that is designed for political balance during general elections, not referenda, it has provided a completely unrepresentative view of the technical aspects of Brexit. (Bizarrely, it does the same thing with climate change when it gives the likes of Nigel Lawson a platform.) Balance should apply when there is a discussion about values - and of course there <i>are</i> some values-based arguments surrounding Brexit, and that is perhaps where the confusion comes in. But on a technical issue, where the science is clear, cranks should be treated as cranks. This really is flat earth stuff.
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-87643571113707485712017-08-15T13:02:00.001+00:002017-08-15T13:02:47.745+00:00The UK government has published a document on <a href=”https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf”>future customs arrangements</a> with the EU, in which two possible models are floated. The <b>first</b> of these involves a ‘highly streamlined’ system in which existing procedures are largely maintained alongside ‘technology-based solutions to make it easier to comply with customs procedures’. <p>The <b>second</b> involves the UK mirroring EU procedures when imports that will subsequently be exported to the EU enter the UK – thus allowing seamless movement of products between the UK and EU. Just how anybody will know which imports will later be exported is anyone’s guess. The government’s document refers to ‘simplifications for business, such as self-assessment’… which sounds a lot like complications for business.
<p>The opportunities that will exist to strike trade deals with third party countries undoubtedly offer the UK some potential to benefit. This comes, however, at a cost – most notably bureaucracy. Clearly the UK should not be able to import products from a third country with a tariff that is lower than that applied by the EU, simply to export them to the EU without tariff. But it might be possible for UK businesses to <i>process</i> these products and sell their output to the EU at zero tariff. A call must then be made in determining how much processing or modification is needed in order to qualify a product for tariff-free export to the EU. Hence the need for <i>rules of origin</i>. Devising and subsequently implementing these rules is a huge undertaking – though technology (elsewhere in the document described as involving a ‘risk-based and intelligence-led’ approach) can certainly, albeit with imperfection, help.
<p>The first option presented by the government’s document could be highly streamlined indeed if the UK were to be free to strike its own trade deals but did not take advantage of that freedom, and if it inherited all the trade arrangements already made by the EU (unlikely though this scenario might be). The existing customs union would then remain in all but name. A somewhat less streamlined mechanism would allow exceptions, albeit at cost that would need to be balanced against the benefits.
<p>Whatever final arrangements are agreed, the UK government is proposing a transitional period. And – noting the British penchant for solving problems by changing the name – whatever it is called, at least the transitional arrangements should look very much like the customs union that currently exists.
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-64750039758047055392017-01-06T10:40:00.002+00:002017-01-06T10:44:08.736+00:00Comments by Andy Haldane, chief economist at the Bank of England, comparing economic forecasts to the famous failure of <a href="https://www.youtube.com/watch?v=NnxjZ-aFkjs">Michael Fish</a> to predict the October 1987 hurricane have been seized upon by the <a href="http://www.bbc.co.uk/news/uk-politics-38525924">media</a>. The relevant part of Haldane's commentary comes in the 5 minutes from 15m30s in <a href="https://livestream.com/accounts/5208398/events/6729795/videos/145963063">this video</a>.<p>A number of points are worth making about this. First, the specific forecasting failure that Haldane compares to Fish is that of the financial crash leading to the Great Recession. <a href="http://www.telegraph.co.uk/news/2017/01/05/bank-england-admits-michael-fish-moment-dire-brexit-predictions/">Some media outlets</a> have suggested otherwise. Haldane does comment on the Bank's forecasts for the post-referendum period and notes that the economy has been more resilient so far than had been expected, but he continues to expect a relatively tough year in 2017.<p>Focusing then on the major forecasting failure in 2008, he identifies two contributory factors. The first (extending the analogy with meteorology) is a lack of data. With better data, better forecasts can be produced. The second is arguably more fundamental. As Haldane notes, the forecasting models tend to work well when the economy is close to equilibrium, but perform badly during the (more interesting) periods following a shock. They clearly need to be redesigned, <i>and indeed <b>are</b> being redesigned</i>, better to accommodate such extreme events. Much effort since the crisis has gone into <a href="http://www.dynare.org/wp-repo/dynarewp040.pdf">developing macroeconomic models to include imperfectly operating housing markets</a>, and it is likely that this effort will contribute to more successful forecasting in future. <p>That said, economies are made up of people with free wills, and forecasting in this context can never become an exact science. The forecaster's tools - be they <a href="https://en.wikipedia.org/wiki/Vector_autoregression">VAR</a> models, <a href="https://en.wikipedia.org/wiki/Artificial_neural_network">neural networks</a>, <a href="https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium">DSGE</a> models or whatever - allow the evidence to be marshalled systematically in order to produce informed estimates of the likely time paths of key economic variables. But they are informed only by what is known at the time of the forecast, not magically informed by data that are unavailable. That said, data on the vulnerability of the sub-prime sector <a href="http://www.economist.com/node/8424086"><i>were</i> available in 2007</a>, and it is certainly fair to say that these should have been given greater heed in forecasts.<p>However, while many laypeople consider forecasting to be a major part of what economics is all about, that perception is misleading. Most economics is based on generating hypotheses that are then tested on historical data. This allows some stylised facts to be determined, and helps us understand a complex world - for instance: production quotas raise the price of oil; or restricting trade is harmful to growth. The body of economic understanding that has developed in this way over many years is in no way challenged by the fact that (in common with everybody else) economists lack perfect crystal balls. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-72658623641560231842016-12-02T09:02:00.001+00:002016-12-02T09:02:44.284+00:00The government's approach to Brexit negotiation has been rather difficult to fathom - partly because the undertaking not to give a 'running commentary' has made pregnant every least significant ministerial utterance. But, insofar as one can make sense of the government's position at this stage, it is this: the government wishes to negotiate a relationship with the EU that is outside the EU and outside the EEA, but which is at least as advantageous to the UK as EEA membership would be. Specifically, it is looking to remove the UK from the plethora of regulations that essentially define the EEA - the non-tariff barriers that define standards for goods and services - and wants to replace this with a system of mutual regognition (MR). So, instead of accepting a single set of European standards, the UK would be allowed to define its own standards, but trade between the EU and UK would remain unhindered because each of the UK and EU would accept the other's standards. At the same time, being outside the EU and the EEA might unambiguously allow the UK to impose restrictions on the movement of labour. This adoption of MR might be what 'sovereignty' looks like. <p> For both sides to the negotiation to accept MR would require it to be understood that there are limits to the extent to which standards can diverge. The EU is unlikely to accept MR as a principle without restricting the UK's ability to define standards that, in effect, produce serious non-tariff barriers - and the same goes the other way. Sovereignty is diluted by this. Moreover, the definition of a whole bunch of new standards for the UK implies the creation of a huge bureaucracy. 'Leave' voters who were concerned by the Eurocracy would not likely be impressed. And both the UK and the EU will have red line conditions attached to any MR agreement - it is unlikely that the UK would manage to secure an agreement of this kind without both continued payments to the EU and conditions being met on the mobility of labour. <p> If this is indeed the way the government is thinking, it is not the worst of all possible worlds. But, once it has been negotiated through, the merits of such a proposal, relative to those of simply remaining within the EEA, are not at all clear. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-85965526575926912452016-10-28T14:03:00.001+00:002016-10-28T14:03:43.733+00:00The <a href="http://www.bbc.co.uk/news/business-37802386">employment tribunal ruling</a> that Uber drivers are employees rather than being self-employed sub-contractors has major implications for the development of the labour market. Much evidence suggests that there has been a large growth of employment in the-so-called 'gig economy', where a firm puts workers in direct contact with clients to undertake specific one-off tasks (or 'gigs'). The firm acting as co-ordinator between workers and clients arranges the gig - and is often assisted by technology in doing this - and takes a commission for doing so. Hence, in the case of Uber, a passenger uses her digital device to arrange a journey, and Uber's software is used to find a possible driver. Till now, the drivers have been considered to be self-employed. <p>Working in the gig economy offers advantages and disadvantages. Work arrangements can be very flexible. But as self-employed workers, many of the protections available to employees have been absent. So, for example, gig economy workers cannot access sick pay unless they make insurance arrangements themselves - and there are moral hazard reasons why this might be difficult. Likewise they are likely to have to make their own pension arrangements. If they are available for work at a time when no work is offered, they may in effect be paid below the minimum wage. For some workers, involvement in the gig economy supplements a more regular job. For others, the main source of income is the gig economy. And for this latter group, the lack of job security can be a problem. <p>It is, however, a problem not only for the individual worker, but for the economy more generally. If workers do not have a long term engagement with an employer, they are likely to lack the structures that have conventionally accompanied a job - in particular training, development and progression. While some parts of the gig economy involve highly skilled work - freelance journalism, or business consultancy, for example - others less so - and here driving is a classic example. In the absence of a career structure, workers will lack the opportunity to develop to their full potential, and, for the economy as a whole, this creates a productivity gap. If the future of work is increasingly characterised by a looser set of ties between employers and employees, institutions other than the employer will be needed to provide the mechanisms that ensure development, progression and productivity enhancement. Membership organisations may be one way in which this role can be fulfilled. Unions are one example, accreditation bodies are another.<p>The finding of the employment tribunal will raise Uber's costs and this in turn will diminish its competitive advantage. If Uber can survive this, then its employees will benefit from the new employment security that they will enjoy. Otherwise, Uber may not be able to operate in the UK. <p>In this digital age, however, solutions similar to Uber, possibly operated from other legal jurisdictions, would be sure to emerge to fill the gap. While the tribunal ruling shifts the responsibility for employment security onto the employer in this case - and while many other gig economy businesses will need to consider the ruling carefully - a more comprehensive solution may be to look to other institutions than the employer to provide workers with security, development, progression and productivity enhancement. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-55447688427310141002016-10-07T08:56:00.001+00:002016-10-07T08:56:27.527+00:00Following an encouraging showing in July, the latest <a href="http://www.ons.gov.uk/economy/economicoutputandproductivity/output/bulletins/indexofproduction/aug2016">industrial production figures</a>, up to August of this year, indicate a fall in production over the month. Year-on-year, the data show an increase of some 0.8%. Nevertheless, analysing these data using my neural network forecaster continues to show that a dip in the data is likely over the coming months. <p><img src="https://www.lancs.ac.uk/people/ecagj/nn071016.jpg"><p>The outcome of Brexit negotiations is, of course, as yet unknown, and the reliability of any forecast of industrial production in this context is likely to be unusually limited.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-41223018945913332002016-06-24T10:11:00.000+00:002016-06-24T10:11:09.017+00:00The months of campaigning are over, and the majority of those voting in the Brexit referendum have determined that the UK should leave the EU. The campaigning period was seen by many to be frustrating, not least because neither side succeeded in engaging fully with the concerns of the other - it became less of a debate than a shouting match.<p> On the Remain side, the economic costs of Brexit were emphasised. It will now be necessary to ensure that these costs are kept to a minimum. The resignation of David Cameron as prime minister will serve to prolong the period of uncertainty following the referendum, and does not help in this respect. Still, the new government will need to decide what model of trade the UK should pursue in the future. There are three main options. First, we could join the European Economic Area (the 'Norway' option). This is attractive in that it would provide least turbulence. Businesses could quickly return to a relatively risk-free environment, and we could expect investment, and hence the economy, to recover fairly quickly from the shock. Secondly, we could negotiate a free trade agreement (similar to that which Canada is close to completing with the EU - the 'Canada' option). This would be more limited in scope than the Norway option, and probably would not greatly help our service industries. It would also take many years to negotiate. Thirdly, we could simply trade under WTO rules. This would mean that our exports to the EU would be subject to the common external tariff unless special arrangements can be made. It would therefore be the most damaging option.<p>While the Norway option has some appeal, it also suffers a major drawback. The campaign to leave brought to the fore some major concerns that the public has about immigration. The Norway option would require the UK to continue to allow the free movement of labour between EU member states and itself. Here, however, a possibility suggests itself. The deal negotiated by David Cameron earlier this year allowed, within the rules of the single market, a temporary brake to be applied to benefit payments to EU migrants entering the UK. Such a temporary brake could, in principle, be applied also directly to migration without breaching any new principle. This would allow migration from the EU to the UK to continue (over the brake period) <i>only subject to</i> a points mechanism. Hence control over borders could be enhanced. The duration of the brake period would need to be subject to negotiation, but a lengthy brake should serve to reduce concerns about immigration, while not breaching any principle of the single market. It is likely that, even in the politically sensitive environment that we have now entered, the UK could find allies in the EU in the context of this cause.<p>This is important, not least because the time that it would take to negotiate a Canada option means that the Norway option is a likely outcome, at minimum as a staging post. Yet it is an option that would, as things stand, leave many voters feeling that they have been cheated - unless a migration brake, or something similar, could be negotiated. In an ideal world our government would already be discussing options with Brussels - though the reality that we are in a period of leadership transition may make that difficult.<p>And yet, while immigration turned out to be a key issue, we should not lose sight of the fact that areas of the country with most EU migration are amongst those where the remain sentiment is strongest. Concerns about immigration are really just a reflection of a much deeper concern - about the distance that has grown between the political establishment and the people. We have woken today to a fractured Britain. Healing that break requires a reinvention of our political structures. Genuine devolution of powers might help. A reassessment, within the major political parties, of how they should connect with their natural constituencies, may help more - but whether they can rise to that challenge remains to be seen. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-46396260116402169552016-05-11T16:06:00.002+00:002016-05-11T16:07:40.871+00:00<a href="http://www.ons.gov.uk/economy/economicoutputandproductivity/output/bulletins/ukindexofproduction/mar2016/pdf">Industrial production</a> rose slightly from February to March, but the higher baseline figure from a year ago means that output in this sector has nevertheless fallen over the past year, by some 0.3%. The March data confirm that, for the second successive quarter, production has declined. This means, in effect, that the industrial sector is in recession. My forecasting model (see graph below) suggests that the slowdown is likely to continue for some time.<p>Manufacturing comprises most of the output in the production industries, and has been in the doldrums for some considerable time. Output in this sector is now some 2.2% below the level achieved at its post-recession peak at the beginning of 2012 - and is indeed no higher than was achieved in April 1989. The recovery remains dangerously unbalanced. <p>
<img src="https://www.lancs.ac.uk/people/ecagj/nn110516.jpg"> Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-7201949453137643512016-04-25T14:51:00.001+00:002016-04-25T14:51:45.793+00:00The rapid increase in life expectancy has led to ageing being regarded as one of the major policy <a href="http://www.theworkfoundation.com/blog/1958/August-Directors-Report">challenges</a> facing governments. Policies to encourage savings include Individual Savings Accounts (<a href="https://www.gov.uk/individual-savings-accounts/overview">ISAs</a>), and the new <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf">Lifetime ISA</a> and <a href="https://www.gov.uk/government/news/pm-announces-new-support-to-improve-the-life-chances-of-millions">Help to Save</a> initiatives. At the same time, <a href="http://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment">auto-enrollment</a> in pensions schemes is being rolled out so that, by 2019, pension contributions amounting to 8% of salary will be made on behalf of all employees (unless they opt out). This 8% is widely believed to be too low a figure.<p>As well as providing incentives to save more, policy has been aimed at lengthening working lives. The age at which workers qualify for the state pension is being <a href="https://www.gov.uk/state-pension-age">raised</a> gradually, and in 2011 the concept of a default <a href="https://www.gov.uk/retirement-age">retirement age</a> was scrapped. <p> These two solutions - saving more and working longer - are often seen as the only two options available in paying for the increased burden of an ageing population. But there may be a third.<p>If productivity were to rise, the additional output produced by those in work could be used to pay for some of the extra cost burden - in terms of both care and pensions - implied by ageing. In the long run, this could be done through private savings and insurance. In the short and medium term, however, it would involve some redistribution from the generation of working age people to that of retirees. That would need to be done through the tax system. (That is a transitory and technical requirement, not an expression of a preference for solutions from the political left.) <p>Suggesting increased productivity as a solution may appear curious at a time when the economy is still suffering from a stagnation in productivity - the so-called <a href="http://www.theguardian.com/commentisfree/2016/apr/25/growth-uk-productivity-crisis">productivity puzzle</a>. But there is reason to believe that productivity growth might come back.<p> If ageing is one challenge that society has to learn to face, another is the rapid advance of technology. Some researchers predict that almost a half of all jobs are at risk of becoming defunct owing to the <a href="http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf">steady march of the robots</a>. If true, adapting to that is certainly a challenge - though past experience suggests that jobs morph as technology advances. What is certain is that rapid technological advance should bring about massive changes in productivity - why else would the technology be adopted? <p>We certainly need to plan for longer lives through saving more and working longer. But, faced by the two challenges of ageing and rapid technological change, we might just find that one can become a solution to the other. And - to reiterate - fully to take advantage of this opportunity when it comes, we must be lithe in our thinking around what is acceptable in the arena of taxation and redistribution.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-72523749329300589472016-04-18T10:29:00.001+00:002016-04-18T11:00:01.325+00:00The Treasury has published an <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517155/treasury_analysis_economic_impact_of_eu_membership_web.pdf">analysis of the economic costs associated with Brexit</a>. A range of estimates is given, with different values attached to different assumptions about the nature of trading arrangements made with other countries after the United Kingdom leaves the European Union. The central estimate that has attracted most media interest is a prediction that the costs will amount to 6.2% of Gross Domestic Product. This is a substantial figure - huge in relation to other analyses such as those undertaken by <a href="http://2ihmoy1d3v7630ar9h2rsglp.wpengine.netdna-cdn.com/wp-content/uploads/2015/03/150507-Open-Europe-What-If-Report-Final-Digital-Copy.pdf">Open Europe</a> which estimated a los of 0.8% of GDP on the most plausible scenario. This warrants further interrogation. <p>
The Treasury investigates three options for the post-Brexit world. One is for the UK to negotiate a Norway-style arrangment whereby free trade with the EU is maintained but, while no longer being a member state, the UK continues to make payments to the EU. The second is the the UK to negotiate a Canada-style Comprehensive Economic and Trade Agreement with the EU. This does not cover services - which represent some 80% of UK output - and would not allow the benefits of free movement of labour. The third option considered is a 'clean break' where no special arrangement is made between the UK and EU, but trade continues under World Trade Organisation rules. The estimated loss, as a percentage of GDP, for each of these options is 3.8%, 6.2% and 7.5%. It is the 3.8% estimate that most closely corresponds to Open Economy's 0.8% figure - and clearly the gap between the two is large.<p>
The key question that emerges from consideration of these figures, then, is this: why are the figures, particularly those for the first option in which free trade with the EU in both goods and services is maintained, so much larger than other estimates in the literature? The Open Europe analysis is based on a Computable General Equilibrium (CGE) model. This type of modelling approach examines comparative statics - in essence it compares an equilibrium position 'before' and 'after' a change - and is calibrated using estimates of key parameters that the received literature suggests are plausible. This is good for providing a long run comparison, but it is likely to understate costs that are due to adjustment between the 'before' and 'after' positions. By way of contrast, the Treasury approach employs a statistical analysis based on a gravity model. In this framework, pairs of countries that are both members of a trading partnership such as the EU can be identified using dummy variables, and the importance of such joint membership vis-a-vis, say European Economic Area (EEA) membership, can be assessed. Since there are few observations for countries that are in EEA but not in the EU, there is likely to be some imprecision in the estimates of the costs associated with the 'Norway option'. <p>
The uncertainties surrounding any predictions of this kind are substantial. But the main message to come out of the various exercises should not be minimised. The long run costs of Brexit, even under the kindest assumptions about what regime will follow, are large albeit not prohibitive. The costs of getting from here to there are larger. Those advocating that the UK should leave the EU need to be aware that the years following Brexit would be a bumpy ride, that even in the long term there are non-negligible costs, and that they therefore expect people to value really highly whatever gains they are seeking - just how highly, they need to spell out. At this stage, it is not clear that the Leave camp is offering much beyond bluster. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-43491218517201997152016-04-08T08:52:00.000+00:002016-04-08T08:52:05.609+00:00The latest <a href="https://t.co/EOJ1XrwAAs">data</a> on industrial production show a drop of 0.5% over the year to February. This is further evidence of an economic slowdown. While overall growth is still positive, this is entirely due to expansion in the services sector - and we know that <a href="http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/2016/esi_2016_03_en.pdf">confidence</a> in that sector too has fallen sharply in recent months. <p>I have, for several years, used the industrial production data in a neural network forecasting model. The latest forecasts of this model, updated to include the data released today, appear below. They continue to indicate that the next year will be challenging for the production sector, with continued falls in output.<p><img src="http://www.lancs.ac.uk/people/ecagj/nn080416.jpg">Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-47435105985793517532016-04-07T15:34:00.001+00:002016-04-07T15:34:25.491+00:00<a href="http://www.bbc.co.uk/news/business-35984360">Two news stories</a> have made reference to a trend for people increasingly to shop 'little and often'. One is the rising sales figures of the Co-op supermarkets, and the other is the decision by Sainsbury's to scrap its brand match scheme (which requires customers to purchase at least 10 items in order to claim the refund).<p>
The 'little and often' trend is evidenced by the rapid growth of <a href="http://www.ibisworld.co.uk/market-research/convenience-stores.html">convenience</a> stores vis-a-vis larger <a href="http://www.ibisworld.co.uk/market-research/supermarkets.html">supermarkets</a> in recent years. This may be partly demand led, following changes in consumer habits during and after the recession, but issues on the supply side are likely to have played a part too. Smaller convenience stores with less than 280m<sup>2</sup> of floorspace face less stringent Sunday trading restrictions, for example, and the proliferation of such stores has much to do with legal considerations of this kind.<p>
Whether the demand for 'little and often' reflects a permanent shift in customer behaviour remains to be seen. If new technology lowers further the fixed costs of shopping (with automated tills reducing queueing time, for example), 'little and often' becomes more appealing. Likewise, the squeeze on space imposed by high property prices in London (especially) makes 'little and often' an appealing strategy, particularly in connection with bulky low-value items (such as toilet rolls, for example). <p>
Is there, then, a future for the larger stores? Certainly if trading restrictions were eventually to be lifted, they would be able to compete on a more level playing field. And, particularly in parts of the country where space is less of a consideration for consumers, they should remain well placed. The 'little and often' trend is not necessarily a permanent feature - and, like so much of what we see around us, it has its underpinnings in the economic forces of supply and demand.
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-88491665560515818092016-03-18T13:42:00.004+00:002016-03-18T13:48:06.242+00:00The <a href=”http://www.bostonfed.org/economic/conf/conf19/conf19.pdf”>June 1978 conference at the Federal Reserve Bank of Boston</a> has attained legendary status in the economic profession. The revolution that has transformed macroeconomics into an area of research that is solidly built on microeconomic foundations – with optimising agents making decisions that are consistent in the context of an intertemporal setting – is said to have taken place then. Certainly, the language in the paper presented by Robert Lucas and Thomas Sargent, and in the response by Robert Solow, brings to mind a coup.<p>
While Lucas and Sargent represented a new broom, the revolution turned out to be a slow burner. <a href=”http://www.fep.up.pt/docentes/pcosme/S-E-1/kP-Econ.pdf”>Finn Kydland and Edward Prescott</a> published their seminal work on aggregate fluctuations in 1982. This built on earlier work by <a href=”http://www.fep.up.pt/docentes/pcosme/S-E-1/4-JPE-83-6-1113.pdf”>Lucas</a> in its emphasis on microfoundations, but introduced for the first time a method – calibration – whereby empirical flesh could be built upon the theoretical bones. Calibration met with some initial scepticism within the profession. In its crudest forms, it has a back-of-the-envelope quality about it. But, as a slow burner, the methods became increasingly refined over time. The early real business cycle models developed into modern dynamic stochastic general equilibrium (DSGE) models. <p>
These models initially had a market clearing orientation – economic theories often do because it’s easier to model things that way. Inevitably, however, as the research agenda matured, mechanisms were found to incorporate more realistic scenarios. One of these, due to <a href=”http://crei.cat/people/gali/monopol%20comp%20business.pdf”>Jordi Gali</a>, is an imperfectly competitive setting in which endogenous fluctuations in market power lead to sustained variation in prices and output over time. Other models have built upon developments in the theory of pricing by <a href=”http://isites.harvard.edu/fs/docs/icb.topic500592.files/calvo.pdf”>Guillermo Calvo</a> and <a href=”http://www.people.hbs.edu/jrotemberg/PublishedArticles/MonopolisticPriceAdjust_10_82.pdf”>Julio Rotemberg</a> . An example is provided by <a href=”http://down.cenet.org.cn/upfile/8/2009531171659108.pdf”>Michael Woodford (in chapter 3 of his classic book)</a>. The variety of DSGE models that incorporate rigidities and other market imperfections provide a suite of New Keynesian (NK) approaches to modern macroeconomic modelling.<p>
These models are at the ‘rocket science’ end of economics. Consumers (who are also workers) and firms are modelled in as simple a way as possible by focusing on ‘representative agents’ – the optimising behaviour of one typical consumer and one typical firm is modelled rather than taking into account the heterogeneity that we see around us in the world. Nevertheless the optimising problems that the analyst needs to solve on behalf of these agents are complex – they must choose the actions that maximise their dynamic returns over a time horizon, rationally forming their expectations of future prices and outcomes, where these are determined both by their own time paths of decisions and those of the other actors in the model. <p>
These theories have emerged alongside massive improvements in computational capacity. The development of open source software - <a href=” http://www.dynare.org/”>Dynare</a> - has helped make DSGE models accessible to large numbers of macroeconomists, allowing standard models to be tweaked and also allowing empirical evaluation, and surely accounting in large measure for the popularity of the new techniques. DSGE models came to be widely used in <a href=” http://www.bis.org/publ/work258.pdf”>central banks</a> during the late 1990s, initially alongside traditional macroeconomic forecasting models, and arguably before the models were sufficiently mature to be used in a policy-making context. Indeed, it was only in the early part of the last decade that it became clear amongst academic economists that the methods introduced by the revolution had indeed become the new core of macroeconomics.<p>
While their use has become the norm in the context of macroeconomic analysis, DSGE models are not very useful in other settings. As a labour economist, I am interested in unemployment, discrimination and inequality. Representative agent models are not equipped for analysing any of these, since they assume all workers to be identical. So ‘unemployment’ in these models takes the form of (all) workers voluntarily choosing to work fewer hours in some periods rather than others as they substitute effort intertemporally in order to take advantage of changing incentives. As a definition of unemployment, that is, frankly and obviously, ridiculous. Indeed, the representative agent model has been <a href=”http://www.palgrave-journals.com/eej/journal/v37/n1/pdf/eej201033a.pdf”>widely criticised</a> for this. Recent developments with <a href=”https://kar.kent.ac.uk/24098/1/AgentBasedOkasha.pdf”>heterogeneous agents</a> might help, but DSGE still looks far from being the tool of choice to analyse labour markets. <p>
As they have grown in sophistication, it has become clear that confronting these models with the empirics is essential. Complicated models may have the advantage of taking more of the features of the world in which we live into account, but they tend to lead to no conclusion without empirics – anything goes, and there are circumstances where counterintuitive results are possible. At some point, indeed, these models lose sight of what it is to be a model – a model should be simple, it should be unrealistic, it should exist to help us understand, not to obfuscate.<p>
Given these changes in how we <i>do</i> economics, teaching beginning students of macroeconomics has become a considerable challenge. Modern macroeconomic models are not things that beginning students are equipped to face – they draw on difficult concepts of dynamic optimisation and expectations formation, where these are exercised by numerous agents simultaneously. While they can be expressed in the form of a ‘dynamic IS curve’ and a ‘Phillips curve’, it is only with some hesitation and reservation that one would draw an analogy between these and the IS curves and Phillips curves of the theory pre-revolution. Perhaps an understanding of the old approaches to macroeconomics are a prerequisite for understanding the new. But it seems perverse, and potentially confusing to students, to teach economics using methods that, later in the curriculum, we then criticise – yet build the new on what might be the shaky foundations of the old. On the other hand, beginning with the traditional models of ISLM and aggregate supply / aggregate demand would have the advantage of offering a ready reckoner – one that, for all the arguments of the revolutionaries, still has considerable merit.<p>
I have as yet no answers to this dilemma, and, from my examination of new initiatives in economic pedagogy (such as <a href=”http://www.core-econ.org/”>CORE</a>) I’m not persuaded that anyone else does either. Here is a space to be filled.
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-81515382274466626342016-03-09T09:59:00.003+00:002016-03-09T09:59:50.350+00:00Output in the production industries <a href="http://www.ons.gov.uk/economy/economicoutputandproductivity/output/bulletins/indexofproduction/january2016">bounced back</a> in January, growing by 0.2% over its level a year earlier. This follows a 0.1% fall a month earlier. The forecast shown below suggests that the series is likely to return to negative territory soon, however. <p><img src="http://www.lancs.ac.uk/people/ecagj/nn090316.jpg"><p>Further evidence that the production sector has entered, and is likely to remain in, a period of slowdown comes from examination of the baseline data - in 2015, the value of the production index for most months over the spring and early summer was somewhat higher than in January of that year, and this means that it will be difficult for industrial production in the first half of 2016 to match that observed in 2015. <p>While the performance of the production industries - and in particular manufacturing - has been muted over recent months, the service sector - which of course accounts for around 80% of the UK's Gross Domestic Product - has been growing at a reasonably healthy pace. We are nevertheless likely to be nearer the next recession than the last one, and sustaining the current rate of growth into 2017 and beyond is a challenge. The Chancellor of the Exchequer should give this serious consideration in framing the fiscal stance for next week's Budget. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-50678931434496958532016-02-10T09:50:00.002+00:002016-02-10T09:50:17.003+00:00The latest data on <a href="http://www.ons.gov.uk/ons/dcp171778_432824.pdf">industrial production</a> show a dip, year on year, in output to December 2015. This amounts to -0.3% across all production industries, but the fall is particularly pronounced in manufacturing - at 1.8%. As observers of my forecaster of this series will know, this downturn has been on the cards for some time. <p>The latest forecast is reproduced below. It looks ahead 24 months, and suggests that the production industries will not recover quickly. <img src="http://www.lancs.ac.uk/people/ecagj/nn100216.jpg"><p>There are clearly many uncertainties facing the economy at present - these include the prospect of Brexit raised by the upcoming referendum on EU membership, but also weaknesses in the global economy with China, in particular, facing an unfamiliar problem of sluggish growth. In the UK, the (dominant) services sector has been growing at a steady pace for some time, but <a href="http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/2016/esi_2016_01_en.pdf">confidence</a> there is showing some signs of fragility. While many will be hoping for a soft landing rather than a return to full blown recession, the signs are that a significant slowdown has already begun. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-68681592770665108232016-01-12T09:48:00.002+00:002016-01-12T09:48:58.983+00:00The latest <a href="http://www.ons.gov.uk/ons/dcp171778_430068.pdf">industrial production statistics</a> indicate continued growth in production. Compared with a year earlier, production in November 2015 was a little under 1% higher. This is, however, in spite of a large fall of 1.3% in manufacturing - the largest component of industrial production. This fall was compensated for by a substantial increase in other sectors, notably including oil and gas extraction. <p>I have regularly used these statistics to provide forecasts using a simple neural network programme. The latest forecasts, with the red line looking ahead 24 months, appear below. They continue to evidence some fragility in the production sector, with a dip in overall output over the coming period looking increasingly likely. <p><img src="http://www.lancs.ac.uk/people/ecagj/nn120116.jpg">Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-80864303258110115602015-12-16T09:45:00.000+00:002016-10-28T14:15:51.311+00:00The <a href="http://www.ons.gov.uk/ons/dcp171778_424920.pdf">labour market statistics</a> released today present a very rosy picture of the continuing recovery. Unemployment is down sharply, by 110000, to 5.2%. The gains in employment have been spread across various groups - with marked increase in the numbers of full-time employees (up 80000), part-time employees (up 66000) and full-time self-employed workers (up 75000). The largest gains have been in construction (up 77000 over the three months to September), but there have also been large gains in professional, scientific and technical services, and in administrative services. <p>After a subdued period earlier in the year, vacancies are now once again on the rise. This provides further evidence of a reinvigorated labour market.<p>On pay, the story remains subdued, however - indeed, increasingly so. Total pay in October averaged just 1.9% higher than a year earlier, this figure being down from 2.1% in September. In construction, however, reflecting the recent rapid expansion of the sector, pay has continued to steam ahead - at a remarkable 6.6%. <p>The overall picture, then, indicates healthy development. The main question mark surrounds how pay can be nudged up so that workers feel the benefit of recovery. The hike in the minimum wage will, at least in a mechanical way, help, but the real issue remains one of improving productivity. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-54132466702259960492015-12-03T13:05:00.001+00:002015-12-03T13:05:13.246+00:00Recent debate surrounding the UK's participation in the Syrian conflict has brought to the surface some interesting views about the motives of politicians making key decisions. <a href="http://www.informationclearinghouse.info/article5801.htm">Some</a> argue that politicians have a vested interest in fostering conflict and hence boosting the defence related industries. 'Follow the money' has become a favourite phrase of the cynics. <p>Serious <a href="https://mpra.ub.uni-muenchen.de/45640/1/MPRA_paper_45640.pdf">literature</a> of relevance to this has produced ambiguous findings, but most reliable estimates range from a negative through a negligible effect of military spending on economic growth. So the view that, as a general rule, a politician might vote for war if standing to benefit from ownership of defence related companies ignores the fact that the same politician would be better off owning a broad portfolio and voting <i>against</i> conflict. <p>There has doubtless been much wrong about the way in which the West has dealt with the situation in the Middle East. For sure, the web of alliances that has been woven is tangled indeed. But some of the wilder and more cynical views currently doing the rounds belong in the world of conspiracy theories - and as such are much less convincing than cock-up as explanations of what we observe.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-76343118195718221462015-11-26T08:31:00.001+00:002015-11-26T08:39:09.889+00:00The Chancellor of the Exchequer has been widely lauded for pulling rabbits out of a hat in his <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/479749/52229_Blue_Book_PU1865_Web_Accessible.pdf">Autumn Statement</a>. For sure, the familiar conjuring trick requires admirable sleight of hand, and the Statement has evidence aplenty of that. <p>The headlines in today's newspapers suggest that austerity has ended. The figures do not quite align with that view, but the extent of cutbacks at least appears to have moderated somewhat. The Chancellor's largesse, or what some have termed 'less awfulness', has been enabled by four things.<p>First, he has been helped by a forecast boost to the public finances. The £27 billion windfall is spread over a 5 year period and therefore represents a relatively small proportion of the gap that the Chancellor wishes to close. In any event, economic developments over the coming period may make the saving somewhat softer than it at first appears. <p>Secondly, the implementation of the welfare cap - part of the Chancellor's famous and ill-conceived fiscal charter - has been delayed in order to reverse the decision to cut tax credits.<p>Thirdly, several charges best interpreted as stealth taxes have been introduced. This includes a levy on businesses to pay for apprenticeships and the introduction of a scheme that will allow local councils to raise their taxes by 2% to pay for costs of social care. These things are certainly desirable, and the changes are welcome inasmuch as they secure continued services - but the Chancellor has nonetheless shifted the cost from central government to other payers. As far as the public is concerned, this takes with one hand what is given with the other. <p>Fourthly, the Chancellor has coonverted several grants schemes - in the areas of business support, health training, and further and higher education - into loans schemes. Again this may allow central government taxes to stay low, but the costs must nevertheless be paid.<p>In sum, therefore, this was a very clever Autumn Statment. The Chancellor certainly did succeed in pulling rabbits out of hats. But a wise audience knows that - just as is typically the case with magicians - he has made liberal use of smoke and mirrors. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-37013761241813478812015-11-11T09:46:00.001+00:002015-11-11T09:46:38.303+00:00The latest <a href="http://www.ons.gov.uk/ons/dcp171778_421089.pdf">labour market statisitcs</a> paint something of a puzzling picture. There has, over the last quarter, been a substantial fall in unemployment - the figure for July through September is 103000 lower than in the previous three months. That is clearly good news. <p>But when we come to look at where the gains have come, the picture is distinctly mixed. There has been a huge increase of 177000 in employment. Most of this, however, some 145000, is in part-time jobs. The age distribution of the gains in employment is also a feature of the data - all the gain is observed in the older age group, 50 years of age and above. Consistent with the employment gains being concentrated in part-time work, average hours worked have continued to fall.<p>The news on pay is also indicative of a market that has started to slow. Comparing weekly earnings in September 2015 with those a year earlier, pay growth slowed to 2.0% (from 3.2% last month). It is difficult to attribute this to any sector-specific factors - the slowdown appears to be fairly even across industries.<p>In sum, the news on the unemployment rate is, at first blush, something that should offer good cheer, but the underlying figures offer very little comfort. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-4131440.post-61578152194009206222015-11-06T12:21:00.001+00:002015-11-06T12:22:43.277+00:00The <a href="http://www.ons.gov.uk/ons/dcp171778_422554.pdf">latest statistics on industrial production</a> have been released, and confirm that output in the production industries has continued to grow in the year to September. The forecasts of my neural network model for this series continues, however, to suggest that caution is warranted in interpreting recent growth as a harbinger of continued expansion. A dip is due. That may not carry over into the (much larger) part of the economy that is based in services, but, particularly at a time when global demand appears to be weakening, we should be wary of overoptimism.<p><img src="http://www.lancs.ac.uk/people/ecagj/nn061115.jpg">Unknownnoreply@blogger.com