• The purpose of the the Economic Policy Centre (EPC) is to promote high quality research and debate across all areas of economics in a free democratic society.
    The EPC's vision is to close the gap between economic policy and knowledge. Ultimately it brings together economic opinion formers - in academia, business, the media and government - in new and innovative ways.

  • The diverging unemployment stories in the USA, Britain and Spain

    November 9th, 2010

    A couple of weeks ago, I was invited along with other youngish economics types  by the excellent Centre for the Study of Financial Innovation to a dinner with a top financial journalist. Macroeconomic forecasting is notoriously unreliable but I raised the question about why British unemployment (now 7.7%) hadn’t gone up anything like as much as anticipated with a 6% fall in GDP (about a million short according to Nadeem Walayat of Market Oracle) whereas US uemployment (now 9%) clearly had. What did this say about flexible labour markets in downturns when the UK’s was clearly less regulated in the early 90s?

    There were several answers put to this from the speaker and around the table which I found fascinating;

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    EPC Platform piece on Public Sector Pension Liabilities influences CSR

    October 25th, 2010

    Much praise to EPC author Angus Hanton !

    Back in April 2010, Angus argued on our Platform section   – The £1 trillion black hole – public sector pension liabilities – that the government has used too high a discount rate for unfunded public sector pension liabilities – now at 5.5% compared to 3-4% in some other countries. This means that when those UK public sector pensions become due, the unforseen liability could be as much as £1 trillion pounds.

    I’ve been watching the stats on our website and this article has been viewed many, many times. Of course it’s great to see people reading your work, but it means so much more when they listen and act on it.

    So following the EPC’s and Angus’s promotion of the article and the issue, we were pleasantly surprised to note in George Osborne’s speech last week the following words;

    . . .we will carry out, as the interim report suggests, a full public consultation now on the appropriate discount rate used to set contributions to these pensions“.

    Date of Comprehensive Spending Review – 20th October 2010

    October 3rd, 2010

    Put it in your diaries now !

    Last week I was at a policy wonks’ dinner and a very senior economist made the salient point that the 20th October 2010, will be the most significant date in the UK’s economic calendar for many years to come. He argued that it will set the tone for all debate on public spending and the size of the state for well beyond the life of the coalition and it’s hard to disagree.

    Few then will envy the Chancellor, George Osborne his job when he presents the CSR to Parliament.

    A range of opinion polls suggests it’s going to be very difficult to sell the CSR to the public who are used to an ever-expanding state.  And not least because voters seem unaware for all the ongoing media coverage of “cuts”, as John Redwood MP has pointed out many, many times to an unlistening world, expenditure is still rising and forecast to keep doing so, from £600 bn in FY 2009/1 to £693 bn in FY 2014/15.

    On Greenland’s diversified future . . .

    September 26th, 2010

    Earlier this week I was interviewed on Al-Jazeera English about the discovery of gas just off the coast of Greenland by Cairn Energy. As is always the case, whenever there’s a new hydrocarbon find, there is a great deal of excitement which all too often turns out to be unjustified. So I urged some caution mentioning that it can be up to 10 years before oil discovery and bringing it to market.  And I daresay a great deal of the oil’s exploitation depends on high prices – which should not be seen as a given.

    That said, I couldn’t help but laugh when I found out how unpopular Greenpeace is in Greenland. The route cause of this is their opposition to seal-hunting which pretty much shut down one of their two export industries – seal furs. So I’m not surprised they’re not getting a good reception this time round.  And let’s face it, Greenlanders aren’t the sort of people to care what outsiders think of them – they are the only territory to have joined and left the European Union. I can just see Brussels Eurocrats choking on the audacity of that one !

    Right now, the biggest industry in Greenland is prawn processing – so it’s only natural they’d want some diversity away from that.

    Is the breakup of the Euro fast approaching?

    September 21st, 2010

    It has been 6 months since I showed in chart form here, sales the credit default swap spreads over 5 years for Germany, the UK and the PIIGS. Then I was arguing that the UK was absolutely not in danger of default and it seems that events have borne that out.  Well clearly, for the other countries quite a lot has happened since then – just take a look at this;

    So Greece – particularly, Ireland and Portugal are all considerably worse.  The UK has tentatively improved its position vis a vis Germany and Spain because of the sheer scale of the country compared to the other minnows, is one still to keep a close eye on.

    One city expert tells me that because the EU/IMF aid package is in place for Greece and on-hand for Ireland and Portugal, default is not yet on the cards.  That certainly makes eminent sense. And yet, writing yesterday in Critical Reaction, Tim Congdon says in PIGS to the Slaughter? that the two key facts emerging are;

    1. The PIGS’ banking systems have not – so far – been able to repay their ECB borrowings. If the banking systems are eventually unable to repay the loans, the ECB will suffer a loss.

    2. The ECB has already incurred losses on the bonds it bought in May, because of the adverse yield movements already noticed.

    These issues are bound to be raised by the five German professors who are testing the legality of the May support package for Greece at the German Constitutional Court. The losses that the ECB is now taking on its interventions to help the PIGS undoubtedly constitute a breach of the no bailout clause of the 1992 Maastricht Treaty. If words have any definite meaning, the German Constitutional Court must deem the ECB’s actions and the Greek rescue inconsistent with that treaty and therefore illegal. The Eurozone remains in great trouble.

    The confusing recovery continues . . .

    July 30th, 2010

    News today that UK consumer confidence has fallen to its lowest point in nearly a year and that M4 lending is now the lowest on record – since 1964 – comes hard on the heels of the suprisingly high Q2 growth figure of 1.1%. What this all tells me is that the next quarter of growth is going to be weak and maybe even weaker than expected.

    N.b. M4 money supply – as explained by wikipedia here.

    What are the warning signs of a double-dip recession?

    July 28th, 2010

    The Q2 growth figures may well have impressed us at 1.1% but it would be mistaken to believe we were well out of the woods just yet. Jim Rogers – he who infamously said the UK was finished a year or so ago – now predicts a recession in 2012. A technical recession, 2 consecutive quarters or more of declining growth still seems fairly unlikely but a single negative quarter is quite on the cards. So what should we look out for that might indicate this is happening?

    1. House prices – already falling again, on a monthly basis. There could be much worse to come if Capital Economics is right, a 5% fall this year, 10% in 2011 and 10% again in 2012. And NIESR is today talking about a real terms decline in house prices below inflation over the next 5 years, taking the average home back to 2003 levels. The bottom line is that house-owing consumers will be less inclined to spend if they think the value of their homes is going down, a lot, for some time.

    2. Unemployment – the big surprise of the recession is how little it went up. We’re now at 7.8%. But there’s a lot of people working part-time who’d rather be working 9-5, or who took pay cuts to hold onto their jobs,  and with bank balance sheets still as weak as they are, there’s not much credit to fund investment in new jobs which would be normal at this stage of the cycle.

    3. What’s happening in America – if you accept that the UK is around 6 months behind the USA in its cycle, then the slowdown in the US economy driven by US consumer sentiment and renewed housing worries is troubling indeed.

    4. What’s happening in Euroland – not much good news from there either – some sort of breakup of the Euro is still on the cards, probably just postponed and growth is anaemic.

    5. Sterling – there were high hopes that the pound’s fall in value of around 25% against the dollar and the euro which started in summer ’08 could help lead us out of recession with more competitively-priced exports. Unfortunately, the UK is starting to look like a relatively safe haven and Sterling is going up again. It’s quite possible before the end of the year that it may reach 1.75 against the dollar and 1.40 against the euro not because that’s what it’s worth but because all currency movements have a habit of overshooting. That will obviously hurt exports, but would reduce the cost of government debt as gilt yields are driven down by investors. Which makes me think, what is the precise trade-off on that one?

    Anyway, if we’re going to have a negative quarter – and obviously, I’d much rather be wrong – I would bet on it happening in Q1 of 2011.

    No country ever got rich by driving its rich people away . . .

    December 13th, 2009

    Deep down, I think most governments understand this, they just don’t know where to draw the line. So news today that Britain’s financiers and entrepreneurs are quitting the UK at a rate of 10 a week to avoid Labour’s new 50% taxes ought to be cause for alarm at HM Treasury.

    And then again, I do wonder a bit. When looking at the mobility of  individual wealth, you have to factor in inertia, family ties, moving costs and generally economically irrational behaviour. I keep thinking about Jeremy Clarkson’s insightful and as ever humorous piece  from a month ago, who despite his obvious disgruntlement with Britain declines to emigrate, stating;

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    The UK Recession – it wasn’t meant to be like this . . .

    December 8th, 2009

    I’ve been making a little mental list of ways in which this recession has turned out differently to that expected. Now that output is down 6% down on a year ago and we are very possibly emerging into a relatively sunny  period of regrowth, it’s  time to write those thoughts down. Here goes;

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