Osborne detached on Marr

George Osborne today did a good impression on the Marr show, of being completely detached from the economic realities of the moment. On the one hand, he said the recovery wasn’t in the bag. Then he refused to support any of the measures we’ve put in place to make sure the recovery is delivered! (globally, by the way, we’re only half way through the stimulus agreed this year). Here in Britain, Government plus Bank of England action is supporting upto 500,000 jobs and helping hundreds of thousands stay in their homes. Cutting that back is simply a recipe for a recovery that doesn’t happen.

More curious was his inability to give a word of detail about the vast spending cuts he’s proposed (you can tell he’s not in control of the shadow cabinet, because they keep making big spending committments). We heard a bit in the press about ‘boomerang bosses’ – but this is something the Audit Commission is already investigating. Anyone would think he’s making it up as he goes on air. Yet, this is a time for sensible economics, not school-boy politics…

This week’s economic news

This week we’ve seen one of the key forward looking indicators of business confidence – the purchasing managers index for Britain’s services sector move up to a 17-month high of 53.2 for July (surpassing expectations for an increase to 51.6); Office for National Statistics data shows an 0.5% jump in June’s industrial production (the largest rise in 20 months) and Halifax says British house prices saw a 1.1% monthly rise in July.

Commenting today, Paul Krugman writes; ‘Two months ago I wrote that there were hints of a relatively quick economic turnaround in Britain. Now those hints have gotten much stronger. Basically, aggressive monetary policy and the depreciation of the pound are giving Britain a boost relative to other advanced countries’.

Finally, the Bank of England has decided to to continue with its programme of asset purchases financed by the issuance of central bank reserves and to increase its size by £50 billion to £175 billion (the ‘qe’ programme) commenting; ‘”On the one hand, there is a considerable stimulus still working through from the easing in monetary and fiscal policy and the past depreciation of sterling. On the other hand, the need for banks to continue repairing their balance sheets is likely to restrict the availability of credit, and past falls in asset prices and high levels of debt may weigh on spending”

Why its smart to invest in jobs

Yesterday I got confirmation of the Government’s decision to award millions of pounds to Birmingham and its partners to help create 7,500 jobs – especially for young people. Today, there’s fresh evidence highlighted in the New York Times, of just why its so important to keep people in work. Economist, Till von Wachter finds;

“even 15 to 20 years later, most (workers) on average had not returned to their old wage levels. He also concluded that their earnings were about 15 percent to 20 percent less than they would have been had they not been laid off.”

“One of the main reasons for the drop-offs, according to economists, is that workers who endure a layoff are more likely to be laid off again.”

Naturally the Conservative party opposed the Future Jobs Fund…

This week’s economic news

With this week’s news you can see why Alistair Darling has being saying repeatedly that we’re confident but cautious that growth will return at towards the end of the year. News over recent months has been mixed, but today credit rating agency Fitch reaffirmed the Government’s AAA debt rating, adding the outlook is ‘stable’; UK retail sales were up according to the ONS 2.9% on the same month last year; Nationwide reported Thursday that house prices have risen three months in a row, reporting the ‘Three month rate of change at highest level since February 2007’ and the FTSE is back at levels last seen in January. GfK NOP’s also reported on consumer confidence today, noting; ‘Consumer Confidence remains at the same level as last month, fourteen points higher than its all time low of last year, but still very low historically’.

American economics

A few different angles to the debate about recovery economics from the US. Christina Romer’s argument about ‘bubble free growth’ sets out the basic argument that future US growth must draw heavily on investment and exports – a point echoed by Fed chief Ben Bernanke in testimony to the Senate Banking Committee. Asked; ‘What will the recovery look like?  He answered ‘Slow. The American consumer is not going to be the source of a global boom by any means” 

Meanwhile, Larry Summers’ progress report on the US Recovery Act to the IIE underlines – contrary to a prevailing view amongst some economists – the importance of fiscal stimulus that was ‘speedy, substantial and sustained’ alongside aggressive monetary policy. Summers also highlights the difference of this recession to others, in that productivity is going up not down as output is delivered with fewer workers as companies shed workers at a faster rate than predicted; Robert Reich’s cautionary words on the Dow Jones’ passing through the 9,000 mark, echoes the same sentiment. Ben Bernake sets out his view that the pace of decline has now slowed, but again risks remain to employment, and the US needs a medium term fiscal consolidation plan. Meanwhile, the debate rages about the pros and cons of a further stimulus. Hat-tip to Harvard’s Greg Mankiw.

GDP figures

Today’s GDP figures underline the sheer scale of the international recession that we’re fighting. It’s a force that has taken unemployment in the US to around 10% – and in Spain to nearly 20%. But today’s provisional figures for April-June this year are about three times better than for the first three months of the year. That says the pace of the downturn is easing – which is why the Government is confident – but cautious – that growth will return towards the end of the year.

What today also shows is why such a bold recovery plan was needed from government. Our action – moving £20 billion into the economy plus action from the Bank of England to slash interest rates to 0.5% and introduce ‘quantitative easing’ could be supporting upto 450,000 jobs. We’re taking these steps to make sure we do everything possible to support jobs and people in their homes, and protect people from the worst of the storm. We don’t want to repeat the mistakes of the 1980s. That would be bad ethics and bad economics.