Wednesday, 31 October 2012

Self-defeating austerity?

Is austerity – particularly the fiscal consolidation programmes currently under way in most European Union countries - self-defeating?  This question has been thrown into sharp focus by the IMF’s belated reassessment of the magnitude of the “fiscal multiplier” in major industrialised countries during the Great Recession.   New research from NIESR, published in the National Institute Economic Review (£), makes the first attempt – to our knowledge – to model the quantitative impact of coordinated fiscal consolidation across the EU, using the National Institute Global Econometric Model.

Wednesday, 24 October 2012

Tomorrow's growth statistics today?

Did David Cameron's comments at Prime Minister's Questions - "the good news will keep on coming" -  today move the sterling exchange rate?   The first estimate of UK GDP in the third quarter of 2012 will be released tomorrow, and he will have seen it this morning; not surprisingly, his remarks have therefore been interpreted as signalling that the numbers will be good. For example, Nick Robinson said:  "The PM was giving a strong hint that tomorrow's GDP figures will be positive".

How did we get into this mess and what can we do about it?

The Department for Business, Innovation and Skills (BIS) asked me (as well as others) to record a brief video on the origins of, and potential policy responses to, the UK's current economic problems.  The video, which lasts about 7 minutes, can be seen here.   Obviously, the views expressed are my responsibility and mine alone, not that of the Department or government. 

Tuesday, 23 October 2012

Talking tough (but intelligent) on crime

New research, undertaken for the Ministry of Justice by Helen Bewley at NIESR, shows that increasing the punitive element of community orders, as proposed yesterday by the Prime Minister, has the potential to reduce re-offending. But there are potential pitfalls: reform needs to be cautious and based on the evidence of what works in reducing re-offending.  

[Helen is one of the leading experts in the complex statistical techniques required to establish the causal connection between particular policy interventions (like community orders) and economic and social outcomes (like reoffending). This post describes the research and its implications for policy, but he techniques and data used here have implications for policy analysis going well beyond this particular topic] 

Monday, 22 October 2012

If the confidence fairy ever existed, austerity has frightened her away

Yet more on multipliers; a reply to Chris Giles. Professor Richard Portes (President, Centre for Economic Policy Research) and me in the Financial Times.  NIESR will shortly be publishing detailed research on this issue, estimating multipliers and looking at the impact of coordinated fiscal consolidation in the EU (both the eurozone and the UK): watch this space.  Meanwhile, here's our letter: 

Friday, 19 October 2012

"We've got the deficit down by a quarter": an update

Figures for the public finances vary a lot from month to month, partly predictably, partly not; and they're invariably revised, often by quite large amounts. Hence, I've resisted updating this July post, which explains that while the government's repeated claims that "we've got the deficit down by a quarter" are true if you compare 2011-12 with 2009-10, this was mostly achieved simply by cutting public investment. But now seems a good time to do so, since today's public finance figures mark the half way point of the financial year, and - in contrast to recent months - the figures are not nearly as bad as expected, with revisions meaning that the first half  of the year now looks significantly better.

Nevertheless, there still isn't really much point in looking at month to month numbers; but the big picture is clear. Here's the total deficit (public sector net borrowing, excluding the purely financial transactions that distorted public investment in April 2012) and the deficit on the current budget, calculated on a rolling 12-month basis to eliminate seasonality as far as possible. 

Tuesday, 16 October 2012

The austerity debate: Paul Krugman and me vs. Bridget Rosewell and Stephen King

On October 15, I spoke in a debate at the Houses of Parliament entitled:  "Time for a radical rethink? The economics of deficit reduction". 

The debate was organised by Professor Lord Richard Layard, by kind permission of the Speaker and Lord Speaker (who introduced the debate).  It was chaired by Evan Davis.  I joined Professor Paul Krugman of Princeton University, and Nobel Laureate in Economics, in arguing that premature fiscal consolidation in the UK had been based two key misconceptions: that in the absence of accelerated deficit reduction, bond markets would panic; and that fiscal consolidation would have little or no negative impact on growth.   Bridget Rosewell, of Volterra Partners, and Stephen King, Group Chief Economist of HSBC, argued in contrast that austerity was a necessary corrective to the large debt overhang, both public and private, resulting from a financial bubble in the late 2000s and the resulting crisis.  

A summary of my argument appears in the Spectator here.  Excerpts of the debate, and a follow up discussion between me and Bridget Rosewell, featured on the Today programme [about 15 minutes in] on the morning of 16th October. Here is a nice narrative piece by Russell Lynch in the Evening Standard. 

Here is the full recording (audio only) of the debate (it is about 1 hour 45 minutes). 

Saturday, 13 October 2012

More on multipliers: why does it matter?

The IMF's reassessment of the "fiscal multiplier" has sparked off multiple reactions in the economics blogosphere both in the US and UK. My initial reaction is here. Meanwhile, Chris Giles at the FT has weighed in, attempting to demonstrate that the IMF's analysis is not robust. I'd like to step back a bit now from the IMF piece (I'll return to it later) and explain why this matters.

Tuesday, 9 October 2012

What explains poor growth in the UK? The IMF thinks it's fiscal policy

For the UK, and indeed other advanced economies, the most important point in today's IMF World Economic Outlook is not that it further explodes the myth - repeated again yesterday by the Chancellor - that low interest rates reflect policy "credibility" rather than economic weakness, or that it again emphasises that the UK and others could and should loosen fiscal policy in the face of that weakness. The IMF said all this about the UK back in July, as I explained then. Rather, it is that the Fund has radically revised its opinion about just how damaging the impacts of premature fiscal consolidation have been in the UK and elsewhere.

[Update, November 2012: following on from the IMF analysis, we at NIESR have now published the first rigorous quantitative estimates of the impact of coordinated fiscal consolidation in the eurozone. They show that austerity has, indeed, been self-defeating, in the sense that debt-GDP ratios are higher, rather than lower, as a consequence of the premature move to contractionary fiscal policy.]

Wednesday, 3 October 2012

Who's accountable for this spreadsheet? Ministers, civil servants and mistakes

A junior civil servant makes a coding error on a complicated spreadsheet.  Unfortunately, this has direct implications for a hotly debated political issue.  When the error is discovered, the Secretary of State apologises and issues an embarrassing correction.  Not surprisingly, his opposition counterpart is outraged:
"This is an extraordinary development. It really does call into into question the competence of ministers and of the government as a whole"

Tuesday, 2 October 2012

Fair taxes: not just about income tax

[This article originally appeared in the Independent]

The Liberal Democrats call for a "mansion tax" (that is, a higher rate of council tax for the most expensive properties), possibly supplemented by some form of wealth tax seems to have provoked a peculiarly illogical misuse of one particular statistic among economic commentators who really should know better.  Their objective appears to be to show that the "rich" are already paying more than their "fair share", and that any additional imposition would be both unfair and economically damaging.  This is, of course, an entirely legitimate argument, both as a matter of ideology and of economics. But they will have to come up with some rather more convincing facts and evidence than they have so far.