• 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.

  • UKCrimeStats goes down because of . . . crime !

    April 18th, 2011

    It’s quite an irony that all phone and internet lines near our datacentre went down for a few days from last Friday mid-afternoon until this morning because of the theft of 1,000 pairs of cable !

    So we had no way of getting our website UKCrimeStats back online again which is incredibly annoying in the early days of any website. And my initial anger with BT turned to some sympathy when I found out why this had happened.

    Cable theft is a growing problem and the root cause it would seem – other than dishonesty – has to be the pretty spectacular recovery of copper prices since 2008, now near recent highs.

    For all that, I find it quite incredible that this actually happened in broad daylight of the time of my cut-off was anything to go by. Cable theft is apparently costing the UK £770m a year – but that doesn’t include the lost time and opportunities to those dependent on broadband and telecom services.

    We need Regional and Regeneration policy that creates Outliers

    December 30th, 2010

    I’ve just finished reading Malcolm Gladwell’s book, Outliers: The Story of Success – see you tube video below and Amazon video here which is a bit better.

    And it’s great. In recent years, American academics seem to have discovered the knack of turning the vast quantities of usually dull academic papers they churn out into personal stories that the rest of us will enjoy reading. This book is no exception.  Gladwell targets the main myth of success – that people succeed alone – and totally dismembers it. No one ever succeeds alone. Amongst the many reasons why people succeed, lots of chance, family relatives and involuntary good timing tends to come a lot into it. And then of course the flipside to this work is to look at some causes for why people fail; cultural legacy and power distance to name but two. Once you accept all of that, here’s a passage that sums up what you should then do about it;

    To build a better world we need to replace the patchwork of lucky breaks and arbitrary advantages that today determine success

    All that being so, writing in the Yorkshire Post yesterday, I lamented the failure of regional policy to do what it says on the tin and how it has succumbed to the siren calls for supporting fashionable industries and moving work to the workers rather than the much cheaper and more effective workers to the work. Regional policy could be about enabling opportunities for Outliers rather than choosing White Elephants – exhibit A of which has to be this semiconductor factory in Scotland.

    Long-term strategy depends on reweighting the balance of cost and value

    October 20th, 2010

    “We have all but lost the capacity to think strategically . . . we have simply fallen out of the habit, and have lost the culture of strategy making.”

    So says, according to Philip Johnston of the Daily Telegraph,  a report of our Parliament’s Public Administration Select Committee –  not yet up on their website, please let me know when it is – and it’s hard to disagree.

    For me the answer is quite stark – government has placed far too much emphasis on cost rather than value. Only if this is rebalanced with long-term incentives, will we ever develop large, long lifespan strategic assets. And as Johnston rightly points out, nowhere is this more true than post the Comprehensive Spending Review,  in energy or defence.

    What is the value of aircraft carriers’ conventional deterrence, low and high intensity warfare air support and disaster relief capabilities over 40 years that these mobile airbases can bring to anywhere in the world?


    Equally, what is the value of a Severn Tidal Barrage’s 100% predictable power output with zero fuel costs throughout its 120 year lifetime?

    In both cases, their long-term value relative to their initial cost, is inordinately high. Would that we as a nation could recognise that and countless other examples too.

    On forecasting private sector job creation . . . by 2024

    September 11th, 2010

    A very troubling analysis by the TUC which says that if private sector companies continued to create jobs at the same rate as they have over the past decade, it would take 14 years before the country could make up for jobs lost during the recession.

    I hope they’re wrong.

    I also remember an argument that was put forward during the 1992 recession that each recession creates additional long-term employed, thus creating a much higher natural unemployment rate. The UK was supposed to come out of that recession with full employment translating into a 9% unemployment rate. It didn’t happen.

    I know that too many of us have been far too optimistic but forecasting any further than 18 months out is fiendishly inaccurate. I daresay 2024 will be a quite radically different economy to the one we have today.

    China – Currency Manipulating Protectionists or President Obama’s scapegoat?

    March 20th, 2010

    An excellent, absolutely must-read piece in this weekend’s Wall Street Journal – The Yuan Scapegoat – and a timely rejoinder to calls for China to orchestrate a revaluation of the Yuan so that all will be well with global imbalances, US trade deficit etc.

    And before we get started, those of you not familiar with the deep interdependence of the America and Chinese economies could have it summed up as what the excellent Niall Ferguson calls Chimerica;

    To put it very simply, one half did the saving and the other half did the spending. Comparing net national savings as a proportion of gross national income, American savings declined from above 5 per cent in the mid 1990s to virtually zero by 2005, while Chinese savings surged from below 30 per cent to nearly 45 per cent. This divergence in saving allowed a tremendous explosion of debt in the United States because one effect of what Ben Bernanke, chairman of the US Federal Reserve, called the Asian “savings glut” was to make it very much cheaper for households to borrow money – and to a lesser extent for the government to borrow money – than would otherwise have been the case.

    Back to the WSJ piece. Ok, so China pegs its Yuan to the dollar at about 6.83 and if it was floating, it would be worth a lot more because of the US recession and continued growth in China. However, the point is that currency pegs are not just about mercantilism – far from it. They are also about exchange rate stability and stable monetary policy.  Those were after all the two main reasons for the creation of the Euro (thank God we never joined it!) and all the legion currency pegs that have existed in the past and continue to exist today.

    The WSJ leader adds that “China is right to resist calls for devaluation, not least because a large revaluation could damage growth. China has learned from the experience of Japan, which bowed to similar US currency pressure in the 1980s and 1990s” which as we all know was followed by a prolonged bout of deflation and near zero growth.  Less observed though is that Japan continued to run a trade surplus, as imports fell with slower internal growth and cross-border prices adjusted.  Whilst conceding that the current situation is not ideal, a far better solution to the revaluation says the WSJ would be to address the shortcomings of the yuan’s development as a tradable currency and disintermediate China’s central bank who keeps buying US T-Bills or Fannie Mae Securities which it calls a huge misallocation of global resources.  What the Chinese could do would be to make the yuan convertible (+ a small one-time revaluation to 6.5), and let capital and trade flows adjust through private markets rather than the Chinese Central Bank. All of which sounds pretty sensible to me.

    Unlike a spectacularly worse solution that is now being proposed by none other than Paul Krugman, who is actually advocating a 25% surcharge on Chinese goods.  As Jeremy Warner cogently observes;

    Let us briefly consider what would happen if Professor Krugman got his way and there was either a 25 per cent devaluation of the dollar against the renminbi or 25 per cent import duties. Almost overnight China would sink into a deep recession as exporters already operating on wafer-thin margins were plunged into insolvency“.

    A Chinese recession  really matters a lot because as I wrote in Spring 2007 (the May 2008 date shown is incorrect) for World Finance Magazine – The Nightmare of a Chinese Economic Collapse – the country could quite literally implode into a morass of ethnic tensions and profound rural unrest and may even try to maintain unity by lashing out at Taiwan, which America is pledged to defend.

    When you start a trade war, you just don’t know where it’s going to end. No doubt, some genius at the European Commission is already thinking about how to implement a 30% import tariff on US goods because the Euro is seriouly over-valued against the US Dollar.

    Now back to the real world. Can I just say that I for one, have been very impressed with my Chinese printers – who are cheaper, better, keener and almost as fast thanks to air freight as my local ones.  No wonder the price of paper pulp has shot up since last year because of Chinese demand . . .

    A double-dip recession? It’s the anecdotal evidence that troubles me

    February 9th, 2010

    One of the things I always like to ask shopkeepers, restaurant owners and small businesses in general when I’m out and about is this;

    How’s business?

    What’s interesting is I always get a pretty detailed response, usually with a fairly upbeat spin. This last month it has been markedly different. What troubles me is that those answers have been decidedly negative over the last couple of weeks.  January is always bad for retail, but the volume of snow, renewed concerns about the housing market, the end of QE and a rumbling crisis in euroland have conspired to make it a lot worse.

    That’s why with the UK only emerging out of recession by a measly 0.1% could drop back yet into recession – double-dippers may yet be right.