9th April 2012
Looney Land and Statistics
Over the past week there has been a raft of statistical information released and with each announcement there has been the usual crop of economists pedalling confusion with their different pronouncements. I still cannot believe that these “experts” are still pouring over statistics looking for signs and still refusing to face up to the reality of what is going on. Disposable real income for the masses has fallen and is set to fall a lot further with the reduction in benefits, tax credits and child allowances and the tax increases which have been introduced as part of the latest austerity measures. All these “experts” seem to be in denial and others I speak to do not wish to consider reality. Instead, for the time being they have swallowed the recurrent line trumpeted by the coalition that the measures they are taking are necessary to keep our borrowing costs low, and are willing to wait for the signs of the green shoots that have been alluded to by some “experts”. I think there is also something in the human psyche which blocks any thoughts of doom but instead maintains a positive outlook allowing people to bury their heads in the sand. That is, unless and until, the severe situation directly affects them.
These “experts” had been asserting that the USA was emerging from recession only to be shocked when the USA announced their latest employment figures. Even Stephanie Flanders the economics editor of the BBC (who has shown more realism then most) suggested recently that the USA was back on track.
The statistics firstly unfolded a few days ago with private sector surveys suggesting that the economy was picking up with growth in manufacturing and services. This was followed by the Office for National Statistics who said” UK manufacturing output fell by 1% in February, suffering its biggest monthly fall for 10 months, casting doubt on the country’s economic recovery”. Factory output was also down 1.4% compared with a year ago. The ONS also revised down January’s manufacturing figure to show a drop of 0.3%. It had previously stated a 0.1% rise.
Then there was heart taken by some from a reported increase in new car sales in the UK which rose 1.8% in March. The month of March typically has the most registrations accounting for roughly 18% of the year’s volume, as the new plate is introduced in the month. Car sales were still 20% lower in 2011 than they were before the crisis in 2007. After 4 years there should be some increase as more cars must have been scrapped. In reality new car registrations are probably down by over 30% as in stable times there would have been some growth each year since 2007. Construction is also down by at least 30% since 2007. In measuring the contraction in the economy the calculation of the number of unemployed should take into account the increase in part time jobs of over 1m. This would probably mean that another 500,000 are “unemployed”. The economy is now a lot smaller than it was in 2007. The policies of the coalition will lead to further reductions in the size of our economy. At the same time there will be ever increasing expenditure because of greater demands for welfare payments. If these are not paid the Greek style food aid queues will become common place in the UK. Unless people have money to spend there cannot be any growth and it may take a decade (or two) before the size of the economy returns to 2007 levels.
Recently, forecasting was described as guess work by Stephanie Flanders. I have reproduced part of her article which she wrote commenting on the statistics. The highlighted paragraph IS interesting as well as her caveats.
The best guess is still that the UK will record very modest growth in the first quarter. But if so it will rely heavily on the relative strength in services. Weakness in manufacturing and – especially – the construction sector could all too easily mess things up.
But, finally, even if we avoid a technical recession we cannot assume that the second quarter will bring more growth. Indeed, with the extra Bank Holiday the figure could very easily be negative. Since the autumn of 2010 the UK has shrunk in three quarters and grown in two.
The best guess now is that it will grow slightly in the last quarter, then stagnate or even fall slightly in the spring, before gathering some steam in the second half of the year. But that is all it is – a guess.
UK and global investors seem to believe, among other things that the euro zone crisis is over; that the US economy is back on track for a “typical” recovery; that the price of oil will not seriously disrupt global growth; and that China will engineer a soft landing for its economy.
Even if those brave assumptions turn out to be right, there will surely be plenty more zigs and zags in the UK recovery before 2012 is done.
So one bank holiday may tip us in to negative territory? Such a statement which I have heard from other economists confirms we are in a precarious position. The highlighted comments, if they were found to be true (which I very much doubt), cannot on their own be signs of a recovery for those economies like the UK who have embarked upon severe austerity measures. Osborne seems to believe that keeping our borrowing costs down by austerity cuts and thus taking money from consumers, and making it easier to hire and fire employees will create an environment for investment and jobs! Clearly Osborne does not understand economics. He is out of touch with reality. I can only think that somehow he believes that reducing the size of the State, and leaving it full of starving people who will work for a pittance just to eat, will result in investors pouring in to set up businesses and create jobs. Jobs can be created but the political landscape, and economic model will have to change (still keeping a capitalist system) in order that the right initiatives can be introduced.
Worrying, as the UK economic crisis is, there are equally worrying, if not sinister, proposals and changes already implemented by the Coalition which will affect our rights and liberties. Employees now have to work for two years rather than one before they are protected from unfair dismissal. The CBI said this change in the law was “the only concrete step” ministers had taken to encourage job creation!! The Justice Minister is planning changes whereby, those bringing a case to a tribunal, claiming anything from unfair dismissal to sexual discrimination, would be charged a fee. He maintained that the present system “weighs heavily on the public purse”. The plans have been dismissed as “chequebook justice” by the TUC, which says that the move will be seized upon by unscrupulous employers to “discriminate at will”. Then there are the proposals for secret courts and the accessing of Emails and the monitoring of internet use. A secret society will lead to accusations of injustice, whether with foundation or not, and will create unintended consequences by alienating sections of the population. Justice has to be fair, available to all and seen to be done. The case for an open and fair society has to outweigh any considerations of security or the public purse. The cost otherwise could be far greater. The Government, though, has been ordered by the courts to publish its risk register on the NH reforms. John Healey a Labour spokesman said “the government used its big guns to defend its refusal to publish the risk register and this legal judgement demolishes their case for secrecy”
Attention is now focused by the party leaders on the May Municipal and Council elections. As they expend their energies in their scramble for votes the economy will be left to slide further towards ruin. A recent poll conducted for ITV has shown that public trust in Cameron and Osborne to steer Britain through the economic crisis has plunged to a record low. Only 31% trust Cameron. It is even and St because he has always defended them against bigotry, hatred, occupation and war”. This lack of trust in the mainstream political parties could lead to there being many more places like Bradford West resulting in a sea change in the political landscape. If this results in more fragmentation and large sections of the country having a perception that they do not have access to political power then much unrest could follow. Then this coalition would have proved disastrous not only economically and socially but also politically and be the cause of a possible breakup of the UK. It was the halving of the LibDems support in the Scottish Parliamentary elections of 2011 that handed the baton of independence to Alex Salmond for him to run with.
Cameron has had just too many associations with advisors and the media where allegations of fraud or wrong doing have surfaced. The secret recording of his party treasurer offering political influence for £250,000 would not have helped. There is now a perception that he and Osborne are out of touch with the people and only favour their own wealthy class. As matters get worse in the economy and failures occur in the health service (which probably would have happened without the reforms) the LibDems will be wishing they had not joined the coalition.
This favouring of the wealthy class has gained credence from a speech made by Francis Maude (Mr Jerry Can). According to the Daily Mail he said” it would be a compliment if Britain were seen as a place where foreigners or businesses paid little or no tax”. He said this only a few days after Cameron and Osborne claimed that they would clamp down on tax avoidance. There was also a recent report in the Guardian about Amazon the online retailer which was launched in the UK in 1998 and is the UK’s most popular retail website, with more visitors than Argos, Next and Tesco. It sells a vast array of goods other than books. It generated sales of more than £3.3bn in the UK last year but paid no corporation tax. It has been operating out of Luxemburg. It can be assumed that there are other online retailers doing the same. I noticed this unfair advantage was not cited by Mary Porter the shopping Czar appointed by Cameron to breathe new life into our blighted high streets.
A recent suicide in Greece serves as a grim warning of where we may be heading. In the suicide note, found by police and reported by Athens News, the retired chemist said: “The government has annihilated all traces for my survival, which was based on a very dignified pension that I alone paid for 35 years with no help from the state. And since my advanced age does not allow me a way of dynamically reacting … I see no other solution than this dignified end to my life, so I don’t find myself fishing through garbage cans for my sustenance.”