tag:blogger.com,1999:blog-79979813447779208572024-03-13T19:28:29.995-07:00Not the Treasury view...Professor of Economics and Public Policy at King's College London, and Senior Fellow, UK in a Changing Europe. Economics, immigration, welfare, and public policy..Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.comBlogger146125tag:blogger.com,1999:blog-7997981344777920857.post-90296215336064619732020-12-31T03:49:00.002-08:002020-12-31T03:49:34.743-08:00Marking myself to market: my forecasts for 2020, evaluated<p></p><p class="MsoNormal" style="background: white;"><span style="color: #222222; font-family: Arial, sans-serif;">Every year the Financial Times asks, just before Christmas,
100-odd UK economists for their predictions for the year to come. And in
recent years, in the spirit of Brad Delong’s call for economists to “</span><span style="color: black; font-family: Arial, sans-serif;"><a href="http://www.bradford-delong.com/2011/12/mark-my-beliefs-to-market-time-i-should-make-this-an-annual-observance.html"><span style="color: #888888; mso-fareast-font-family: "Times New Roman";">mark their
beliefs to market</span></a></span><span style="color: #222222; font-family: Arial, sans-serif;">”, I’ve looked back at what I said last year. This
year, of course, is different.<span style="mso-spacerun: yes;"> </span>The FT </span><span style="color: black; font-family: Arial, sans-serif;"><a href="https://www.ft.com/content/7c0be33e-28d8-11ea-9305-4234e74b0ef3"><span style="mso-fareast-font-family: "Times New Roman";">headline</span></a></span><span style="color: #222222; font-family: Arial, sans-serif;"> on New Year’s Day last year was “Economists
predict little change in growth for 2020”.<span style="mso-spacerun: yes;">
</span>And the summary was:</span><span style="color: #222222; font-family: Arial, sans-serif;"> </span></p>
<p class="MsoNormal" style="background: white;"></p><blockquote><span style="color: black; font-family: Arial, sans-serif;">“Any
bounce that the UK economy received from Boris Johnson’s decisive election
victory would swiftly fizzle out in 2020 as the uncertainties from Brexit
continue to curb business investment, according to the FT’s annual survey of
more than 85 leading economists. The vast majority of those polled predicted
there would be little or no improvement in economic growth this year as
chronically weak productivity persists and Britain’s future trading
relationship with the EU remains unknown.”</span></blockquote><span style="font-family: Arial, sans-serif;"><o:p></o:p></span><p></p>
<p class="MsoNormal" style="background: white;"><span style="font-family: Arial, sans-serif;">Nothing
wrong with this in its own terms. Indeed, given the number of political
commentators and journalists (not to mention politicians) who </span><a href="https://www.telegraph.co.uk/business/2019/12/14/must-turn-boris-bounce-jump-kick-starts-economy/" style="font-family: Arial, sans-serif;">predicted</a><span style="font-family: Arial, sans-serif;">
a “Boris bounce”, this suggests that we economists do indeed know what we’re
doing, at least when it comes to analysis of the short-term economic impact of
social and political events.</span></p>
<p class="MsoNormal" style="background: white;"><span style="font-family: Arial, sans-serif;">Not,
however, when it comes to crises. Economists were rightly criticised for our
failures in the run-up to the financial crisis of 2008-09 – although, in my
view, the valid critique was not of our failure to forecast the crisis but much
deeper failures of analysis of the factors that led to it. Nobody is criticising
us for not forecasting the pandemic, and therefore (a little light mockery
aside) no one is paying much attention to the fact that our forecasts for GDP, unemployment
etc in 2020 have no resemblance to what actually happened.</span></p>
<p class="MsoNormal" style="background: white;"><span style="font-family: Arial, sans-serif;">I actually
think economists and economics have performed relatively well during the covid-19
pandemic – better than in 2008-09 and its aftermath, and better than I would
have expected. But that’s a topic for another blog. Meanwhile, for the record and
for future comparisons, here are my predictions from last year. The FT
economists’ survey for 2021 will be published early in the New Year, as usual.</span></p>
<p class="MsoNormal" style="background: white;"><span style="background-color: transparent; color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;">Q1. <b><i>Will the UK see a
"Boris bounce" in growth in 2020 - and how long will any improvement
last? </i></b></span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;">"There
may be some post-election boost to consumer confidence and perhaps house
prices. But Brexit uncertainty, combined with global economic weakness, will
continue to overhang the economy; there is no reason to expect a big upsurge in
business investment, given that the UK faces another possible cliff-edge in
terms of its trading relationship with the EU in December 2020. The UK
economy will continue to stagnate with only modest growth (and the risks are to
the downside)."</span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><u>Evaluation</u>: </span><span style="font-family: Arial, sans-serif;">Pre-covid,
this was correct; there was no “Boris bounce” and the UK economy was flat in
the first quarter of 2020.</span></p>
<p class="MsoNormal" style="text-indent: 0px;"><span style="font-family: Arial, sans-serif; text-indent: -18pt;">Q2. </span><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;"><b><i>To what extent will
fiscal stimulus support the economy in 2020 and beyond?</i></b></span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><o:p>"T</o:p></span><span style="font-family: Arial, sans-serif;">o
a limited extent; the deficit will rise, both because of lower revenues and
discretionary spending increases, but the macroeconomic impact will be modest.
However, if there is a more severe downturn, the government will introduce
further discretionary stimulus."</span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><u>Evaluation</u>: Correct and indeed hugely understated! But I got the main point - the government would not repeat the errors of 2010.</span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><o:p> Q3.</o:p></span><span style="text-indent: -18pt;"><span style="font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> <i> </i></span></span><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;"><b><i>Will households feel
better or worse off at the end of 2020</i></b>? </span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><o:p> "</o:p></span><span style="font-family: Arial, sans-serif;">Wage
growth is likely to slow somewhat, so not much better off."</span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><o:p><u>Evaluation</u>: </o:p></span><span style="font-family: Arial, sans-serif;">Also
technically correct. In fact wage growth as measured by average earnings has indeed slowed only slightly despite covid. </span></p>
<p class="MsoNormal"><span style="text-indent: -18pt;">Q4. <b><i>W</i></b></span><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;"><b><i>hat should the new
Bank of England governor change in the conduct of monetary policy? </i></b></span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;">"After
10 years of ultra-low interest rates it is past time for a thorough review of
the Banks’ mandate – both the exclusive focus on inflation and the level of the
target, as well as the wider relationship with fiscal policy. Obviously the
Bank cannot and should not lead such a review but it – and especially the
Governor – will have an important role to play."</span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><o:p><u>Evaluation</u>: </o:p></span><span style="font-family: Arial, sans-serif;">Nothing
much has happened here although there may be an opportunity post-pandemic to
look again at these issues.</span></p>
<p class="MsoNormal" style="text-indent: 0px;"><span style="text-indent: -18pt;"><span style="font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"><span style="font-family: Arial, sans-serif;">Q5. </span></span><span style="font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> </span></span><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;"><b><i>Optional quantitative
question - what do you expect for GDP, interest rates, wage growth out of the
following options - much higher/a little higher/no change/a little lower/much
lower</i></b></span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;">GDP
growth : a little lower</span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;">Interest
rates: no change<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;">Wage
growth: a little lower<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><u>Evaluation</u>: nul points!</span></p>
<p class="MsoNormal"><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;">Q6.<b><i> Is there anything else
you would like to tell us?</i></b></span></p><p class="MsoNormal"><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;">"Yes, I'm a bit worried about this bat flu in China. " </span></p><p class="MsoNormal"><span style="color: #404040; font-family: Arial, sans-serif; text-indent: -18pt;">Just kidding. I'm not Dominic Cummings. In fact I wrote this: </span></p>
<p class="MsoNormal"><span style="font-family: Arial, sans-serif;"><o:p> "Last year I said that e</o:p></span><span style="font-family: Arial, sans-serif;">en
abstracting fromv Brexit, the UK economy, like the global economy, is not in
great shape. While overall inequality has been relatively stable (although may
now be rising), levels of deprivation are a disgrace for a relatively rich,
advanced developed economy. The flexible labour market (largely a legacy of
policy choices from the mid-1980s on) has delivered close to “full employment”
but the current model is clearly not sustainable. And we are no closer to
working out how to overcome the chronic short-termism of British business and
government. I stand by this."</span></p><p class="MsoNormal"><u style="font-family: Arial, sans-serif;">Evaluation</u><span style="font-family: Arial, sans-serif;">: I still stand by this!</span></p><br /><p></p>Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-82615792317501329482019-12-23T12:49:00.000-08:002019-12-23T12:51:31.727-08:00Marking myself to market: my forecasts for 2019, evaluated<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Every year the Financial Times asks, just before Christmas,
100-odd UK economists for their predictions for the year to come. And in
recent years, in the spirit of Brad Delong’s call for economists to “<a href="http://www.bradford-delong.com/2011/12/mark-my-beliefs-to-market-time-i-should-make-this-an-annual-observance.html">mark
their beliefs to market</a>”, I’ve looked back at what I said last year. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">First, however, it’s worth noting that the collective views
of the economists surveyed were, as in the previous year, pretty accurate. The FT
survey, unsurprisingly, reflects the overwhelming consensus amongst UK
economists that the Brexit vote has already and will continue to be a drag on
UK economic growth for the foreseeable future. Here’s the <a href="https://www.ft.com/content/5a90765c-0ce6-11e9-acdc-4d9976f1533b">FT’s
summary</a> of our views: </span></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , "helvetica" , sans-serif;">
“Uncertainty will hobble UK business investment and depress consumer spending
in 2019, stunting long-term growth even if Britain manages to avoid a
disorderly Brexit, according to a poll of more than 80 leading economists. The
best the UK can expect over the year is uninspiring growth remaining at its
current level of about 1.5 per cent, even if the economy eventually enjoys a
modest rebound on the back of a deal with the EU, the FT’s annual survey on the
UK’s economic outlook suggests.”<span style="mso-spacerun: yes;"> </span></span></blockquote>
<br />
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Our collective pessimism continues to be vindicated: based on the data so far, this is a pretty good summary of
2019. </span></div>
<div class="MsoNormal">
<span style="background: white; color: #212121; font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="background: white; color: #212121; font-family: "arial" , "helvetica" , sans-serif;">So here are my detailed responses from December 2018 (the whole
FT survey is </span><u style="font-family: Arial, Helvetica, sans-serif;"><span style="background: white; color: #888888;"><a href="https://www.ft.com/content/4b566c36-0521-11e9-9d01-cd4d49afbbe3">here</a></span></u><span style="background: white; color: #212121; font-family: "arial" , "helvetica" , sans-serif;">) with
some ex post self-assessment.</span></div>
<div class="MsoNormal">
<span style="background: white; color: #212121; font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">To what extent will Brexit-related uncertainty in the
first quarter of the year affect the UK economy?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />"Brexit-related uncertainty has already affected the economy, with essentially
no growth during the past few months; we may already be in recession. I would
expect — absent a speedy resolution which seems unlikely — the impacts to
spread from large businesses to consumers and business more generally."<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Assessment: My response was very much consistent with that of others; and
with what actually happened. While there have been ups and downs in measured
growth (see next answer) as a result of stockpiling, the underlying picture is
of weakness, partly driven by Brexit uncertainty, partly by wider factors. </i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">How will Brexit affect the UK economy over the course of
2019?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />"Assuming the worst-case (chaotic no deal) outcome does not materialise,
uncertainty is likely to continue. That is, either Article 50 is extended or
some version of the current deal is accepted, neither of which resolves the
medium to long-term issues, but the current threat of a cliff-edge on March 29
is removed. This should improve confidence in the short term, but Brexit will
continue to weigh on business investment for the foreseeable future. So while
there might be a “relief bounce”, I wouldn’t expect a substantial “deal dividend”.
No deal would almost certainly lead to a severe recession, although
uncertainties are huge."<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i><br /></i></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Assessment: This is accurate to date, although we don’t know yet if
there will in fact be the claimed “deal dividend” (my answer to this year’s
survey says much the same thing).<span style="mso-spacerun: yes;"> </span>We don’t
know what would have happened in the event of No deal. </i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">After a long squeeze, real wages are finally rising. Will
households feel better off at the end of 2019?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />"Since the Brexit referendum, real wages have risen by just over 1 per cent; in
the two years before the referendum they rose by about 3.5 per cent. From the
1950s to 2008, they typically rose 1.5 per cent or so annually. So by any
standards, real wage growth remains anaemic, particularly given low unemployment.
Given Brexit uncertainties, as well as the slowing global outlook, I wouldn’t
expect real wage growth to be particularly impressive by historical standards
any time soon."<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Assessment: Real wages grew by about 1.5% in 2019.<span style="mso-spacerun: yes;"> </span>Certainly not impressive by historical
standards, although perhaps slightly better than I expected; but they may now
be slowing.</i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">How far will the government act in 2019 on its promise to
end austerity?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />"The test of whether the government has made good its promise will be whether we
see a real reversal in the rise in rough sleeping, demand for food banks, NHS
waiting times and so on; levels of hardship for the most vulnerable in our
society that would have been almost unimaginable a decade ago. My prediction
would be that, assuming no change of government, we will see some rhetoric but
little action: the government may reduce the scale of future cuts to some
services, but will do very little to restore the very large and damaging cuts
to disability and family benefits, social care, legal aid, justice, prisons and
so on."<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Assessment: Entirely accurate, unfortunately.</i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">How will monetary policy change in 2019? Do you think the
Bank of England will get it right?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />"Obviously, this too depends on Brexit, but I think that as the economy weakens
the bank will (rightly) be reluctant to raise rates quickly. If there is a
short-term fix other than no deal, rates might rise by 0.25bp or 0.5bp, but
still remain at historically very low levels. In a chaotic no-deal scenario, I
think it’s highly implausible that the bank would raise rates."<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Assessment: Correct. </i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">Would you like to tell us anything else?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />"Short-term economic forecasts for the UK are currently contingent on short-term
political forecasts about Brexit. And as William Goldman (who died a few weeks
ago) said, “nobody knows anything”. But, even abstracting from Brexit, the UK
economy, like the global economy, is not in great shape. While overall
inequality has been relatively stable (although may now be rising), levels of
deprivation are a disgrace for a relatively rich, advanced developed economy.
By prioritising short-term deficit reduction (in some cases via transparent
accounting fiddles, as with the student loans fiasco, now reversed by ONS) over
long-term sustainability, the government has left a poisonous legacy for
anyone, from whatever party, who wants to be honest with the public about
fiscal choices. The flexible labour market (largely a legacy of policy choices
from the mid-1980s on) has delivered close to “full employment” but the current
model is clearly not sustainable. And we are no closer to working out how to
overcome the chronic short-termism of British business and government. Other
than that, everything is fine. Happy New Year."<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">I stand by all this. </span><o:p></o:p></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-84802525641311614882018-12-20T23:54:00.002-08:002018-12-20T23:54:39.302-08:00Marking myself to market: my forecasts for 2018, evaluated<div align="center">
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="background: white; mso-cellspacing: 0cm; mso-padding-alt: 0cm 0cm 0cm 0cm; mso-yfti-tbllook: 1184;">
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<td style="padding: 0cm 0cm 0cm 0cm;"><div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="color: #212121; font-family: "arial" , sans-serif; font-size: 12.0pt;">Every year the
Financial Times asks, just before Christmas, 100-odd UK economists for their
predictions for the year to come. And in recent years, in the spirit of
Brad Delong’s call for economists to “</span><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><a href="http://www.bradford-delong.com/2011/12/mark-my-beliefs-to-market-time-i-should-make-this-an-annual-observance.html"><span style="color: #888888;">mark their beliefs to market</span></a><span style="color: #212121;">”, I’ve looked back at what I said last year. Overall,
I don’t think I did too badly – and nor did my colleagues, collectively, with
the FT’s summary of our views not being far off what actually happened: <o:p></o:p></span></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">The
UK’s economy will slow further in 2018 as business investment remains on
hold, interest rates creep up and indebted consumers curb their spending,
according to more than 100 leading economists. The majority of economists who
took part in the Financial Times annual predictions survey agreed that
inflation would start to recede this year, after last year correctly
forecasting it would rise sharply. However, after wrongly predicting that
interest rates would remain frozen in 2017, economists believe there will be
a further 0.5 percentage point rise this year. The UK was one of the fastest
growing advanced economies in 2016 but dropped below all other G7 economies
in 2017 and is expected to remain towards the back of the pack this year,
with Japan and Italy.</span></blockquote>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="color: #212121; font-family: "arial" , sans-serif; font-size: 12.0pt;">Here are my detailed
responses from December 2017 (the whole FT survey is </span><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><a href="https://www.ft.com/content/7003f74e-eedc-11e7-ac08-07c3086a2625"><span style="color: #888888;">here</span></a><span style="color: #212121;">) with some
ex post self-assessment. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="color: #212121; font-family: "arial" , sans-serif; font-size: 12.0pt;"> </span><span style="color: #212121; font-family: "arial" , sans-serif; font-size: 12pt;"> </span></div>
</td>
</tr>
</tbody></table>
</div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">1.
Economic prospects</span></b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">How
fast do you think the UK economy will grow in 2018 and how will this compare to
other countries? Please explain your answer<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">The UK economy has slowed considerably with respect
to other countries, and I would expect this period of relatively sluggish
growth to continue. Brexit-related uncertainty will persist, which will
reduce business and perhaps consumer confidence. Meanwhile, the labour
market will slow, and net migration will continue to fall, reducing labour
supply and hence potential growth. However, if world growth continues to
be relatively strong, this will help UK exports and manufacturing, and the
impact of the sharp fall in the exchange rate post-Brexit will dissipate<b>. <o:p></o:p></b></span></blockquote>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Assessment: Broadly
accurate overall, although slightly too pessimistic with respect to the labour
market, and exports have not performed as well as I hoped.<o:p></o:p></span></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">2.
Brexit</span></b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Compared
to what you thought 12 months ago about the UK's long-term economic prospects
outside the EU, are you now more optimistic or more pessimistic than you were?
Please explain your answer<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">My central expectation hasn’t changed much, but the
variance has increased significantly, because of political events. It is
now considerably more likely that trading arrangements between the UK and EU
will remain more or less unchanged until at least 2021 and possibly thereafter,
while the possibility of the UK remaining in the EU, while still unlikely, is
no longer completely implausible. Such scenarios would be considerably
more benign than I expected last year. At the same time the risk of a chaotic
or disorderly Brexit has not gone away, and the government has shown itself
completely incapable of agreeing, let alone implementing, a coherent strategy
for the Brexit negotiations, which gives little comfort that they are capable
of negotiating a future arrangement with the EU that is in the UK’s economic
interests. So the downside risks have also, if anything, increased.
Right now, anyone who gives a point estimate for the economic impact of Brexit
should not be taken too seriously..</span></blockquote>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Assessment:
Hard to argue with this in broad terms, but since this was explicitly about the
long-term, we don’t really know. The last sentence still applies.<o:p></o:p></span></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">3.
Outlook for consumers</span></b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">In
2017, consumers' finances were squeezed by rapidly rising prices. Will 2018 be
an easier year for UK households and what are the implications for consumer
spending?<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">The impact of exchange rate changes will dissipate,
but wage growth will remain subdued by historical standards, and the labour
market may weaken somewhat (in the most likely scenario – there are clearly
significant risks). So consumers may have it somewhat easier than this
year, but there’s no prospect of a spending boom.</span></blockquote>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Assessment:
As above, a bit too pessimistic about the labour market, but broadly right
about the implications for consumer spending.<o:p></o:p></span></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">4.
Wages</span></b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">With
unemployment at a 40-year low, how much of a pay rise will British workers get
in 2018? Please explain your answer<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">See above – in the most likely scenario, somewhat
more than they got this year (which was basically nothing!) because of the fall
in inflation, but nominal wage growth will still remain fairly low by
historical standards. </span></blockquote>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Assessment: Accurate.
Despite the hype about the “fastest wage growth in a decade” resulting from the
ONS’ misleading focus on nominal wages, real wage growth of 1% of so is nothing
to get excited above.<o:p></o:p></span></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">5.
Monetary policy</span></b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">How
far will the Bank of England raise interest rates next year? Do you think they
should? Please explain your answer<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Perhaps to 1% by the end of the year if things go
reasonably well in the Brexit negotiations, but they could easily get stuck at
0.75%.</span></blockquote>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Assessment:
Correct.<o:p></o:p></span></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">6.
Productivity</span></b><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Will
the UK experience a resurgence of productivity growth in 2018? Please explain
your answer<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Looking at productivity quarter to quarter or even
year on year isn’t very illuminating – a sharp recession and labour market
shakeout might easily raise observed productivity. The question is really
whether we can break the post-2008 trend of very low/no productivity growth and
return to the 1973 to 2008 one of 2% a year or so. And we won’t know that
in 2018. More broadly, since we don’t fully understand the post-2008
slowdown, it is very difficult to say what will reverse it, but so far there is
no indication that current policies or trends will do so. The UK could
have used the long period of historically very low interest rates to boost
investment in productivity-enhancing infrastructure and in housing, but chose
do the opposite. While the government has made some tentative moves towards
reversing this, they will take a long time to bear fruit. </span></blockquote>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Assessment: I wouldn’t change this. </span></i></b>Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-91535916284525126332018-03-18T03:58:00.000-07:002018-03-18T03:58:28.514-07:00Child poverty forecasts: my bet with Christopher Snowdon<br />
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-US" style="line-height: 107%;">Last week, the Equality
and Human Rights Commission published an </span><span class="Hyperlink0"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.equalityhumanrights.com/en/effect-tax-and-welfare-reforms"><span style="color: #0563c1;">analysis</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">,
by Howard Reed and me, of the impact of changes to tax and benefits on
household living standards over the entire period 2010 to 2021-22.<span style="mso-spacerun: yes;"> </span>I summarised the key results in the </span></span><span class="Hyperlink1"><span lang="IT" style="line-height: 107%;"><a href="https://www.theguardian.com/commentisfree/2018/mar/14/austerity-poor-disability-george-osborne-tories"><span style="color: #0563c1;">Guardian</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">.
We show that these changes are highly regressive: the direct impact is to reduce the net incomes of the poorest fifth of households by about a tenth, on average, while making little or no difference to the incomes of the richest fifth.</span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">We
also expect that the impact will be a large rise in child poverty; in
particular, we are projecting that as a result of the changes to taxes and
benefits, the proportion of children in Great Britain living in households with
less than 60% of median income (after housing costs) will rise from just over
30% to about 41% in 2021-22 (Table 1 of the </span></span><span class="Hyperlink2"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.equalityhumanrights.com/sites/default/files/cumulative-impact-assessment-report-executive-summary.pdf"><span style="color: #0563c1;">Executive Summary</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;"> of our report. We could have used other
definitions of child poverty – the numbers would be different but the results
would be qualitatively similar). <o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">This
prediction – which is indeed dramatic – caught the eye of </span></span><span class="Hyperlink2"><span lang="EN-US" style="line-height: 107%;"><a href="https://iea.org.uk/christopher-snowdon/"><span style="color: #0563c1;">Christopher
Snowdon</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;"> of
the Institute for Economic Affairs. Chris’s view is that we are being far too
pessimistic; in particular, he notes that predictions made in the early years
of the Coalition government by the IFS and others of a sharp rise in child
poverty have yet to materialise, partly because of rising employment rates and
partly because real wage growth, and hence median income growth, has been very
slow.<span style="mso-spacerun: yes;"> </span>He also notes, correctly, that the
rise we are predicting would be historically unprecedented.<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">Now
economists in general have come in for a lot of flak recently for getting
forecasts wrong. Much of this is in my view </span></span><span class="Hyperlink2"><span lang="EN-US" style="line-height: 107%;"><a href="http://ukandeu.ac.uk/weather-is-not-climate-forecasting-the-impacts-of-brexit/"><span style="color: #0563c1;">unfair or misconceived</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">. Nevertheless, I strongly believe that those
of us who claim to be experts, and make predictions based on our expertise,
should be prepared to stand by those predictions; we should put our money where
our mouths are.<span style="mso-spacerun: yes;"> </span></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">So I offered Chris a
bet, which he has accepted, that relative child poverty (on the definition we
model) will rise above 37%. This takes into account (in crude terms) the fact that our forecast has a fairly large margin
of error: I don’t expect it to be precisely right. In particular, as Chris rightly highlights below, all sorts of other things will happen to the economy, real wages, rents, etc. Our model is not a macroeconomic one, and is not designed to forecast those variables, which will impact the results. </span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">In order to be meaningful, the bet has to be
large enough for us to care who wins (ie, it can’t just be a token amount), so
it’s for £1,000. </span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">This
isn’t the first time I’ve done this: my previous </span></span><span class="Hyperlink0"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.niesr.ac.uk/blog/my-bet-andrew-lilico-result"><span style="color: #0563c1;">bet with Andrew Lilico</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;"> (also for £1,000) was on the level of
inflation in 2015: he thought inflation
would rise sharply; I disagreed. I won
(unfortunately, Andrew says he’s not allowed to make any further bets with me,
although I keep on </span></span><span class="Hyperlink3"><span lang="NL" style="line-height: 107%;"><a href="https://twitter.com/jdportes/status/941204978802274304"><span style="color: #0563c1;">offering</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">,
since Andrew’s predictions on the Brexit process frequently venture into the
realms of fantasy).</span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">However,
the bet with Andrew was rather easier to define, since we were simply making
competing predictions of inflation (“unconditional forecast”).<span style="mso-spacerun: yes;"> </span>But the forecast Howard and I are making is
conditional; it’s explicitly based on the government implementing the changes
to taxes and benefits that have been legislated for or are clearly stated to be
government policy.<span style="mso-spacerun: yes;"> </span>If those changes aren’t
implemented, the forecast isn’t valid any more, and we shouldn’t be held to it.
<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">This
raises a slight difficulty in making the bet<span style="mso-spacerun: yes;">
</span>- of course there will be further changes in one direction or another,
but will they be large enough to mean that we should be no longer held to the
forecast and hence the bet should be invalidated?<span style="mso-spacerun: yes;"> </span>How big a U-turn – for example on the
four-year freeze to most working age benefits, which has a very large impact in
our projections – would be required?<span style="mso-spacerun: yes;"> </span>In
order to deal with this, we’ve appointed an independent arbiter – Chris Giles
of the Financial Times, who will if necessary rule on this question in due
course. <o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">The
final result won’t be in until March 2023 (when the Households Below Average
Income statistics for 2021-22) are published. But the first indications will
come on Thursday, when the </span></span><span class="Hyperlink2"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.gov.uk/government/statistics/announcements/households-below-average-income-199495-to-201617"><span style="color: #0563c1;">statistics for 2016-17</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;"> – the first year of the benefit freeze – are
published.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<br /></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><u style="text-underline: #000000;"><span lang="EN-US" style="line-height: 107%;">Christopher
Snowdon adds</span></u></i></b></span><span class="None"><span lang="EN-US" style="line-height: 107%;">:<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">I am
not betting against Jonathan because his child poverty forecast is the worst
prediction ever made, only that it is the latest. I am getting tired of them.
We have had </span></span><span class="Hyperlink4"><span lang="EN-US" style="line-height: 107%;"><a href="https://velvetgloveironfist.blogspot.co.uk/2017/02/why-i-am-optimistic-about-poverty.html"><span style="color: blue;">eight years of gloomy predictions about rising poverty and
spiralling inequality</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">
from the ‘independent’ (from whom?) Institute of Fiscal Studies and the
relentlessly Eeyorish Resolution Foundation. These predictions invariably
receive more media coverage than the real figures do when they are eventually
published. <o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">By the
time Office for National Statistics’ data exposes these predictions as being
wildly off base, people have moved on. No one seems to notice, no one takes the
blame and new predictions from the same organisations are given the same
credulous reception. As a result, millions of people - perhaps the majority -
genuinely believe that the poor have got poorer, inequality has risen, and
every measure of poverty has gone up in the age of ‘austerity’. <o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">New
figures are published on Thursday but, as of 2015/16, </span></span><span class="Hyperlink4"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/600091/households-below-average-income-1994-1995-2015-2016.pdf"><span style="color: blue;">the rate of child poverty is slightly lower than it was
before the 2008 crash</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">.
This is true in absolute terms, in relative terms and regardless of whether you
measure it before or after housing costs. It also happens to be a fact that </span></span><span class="Hyperlink4"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2017"><span style="color: blue;">the incomes of the bottom quintile have risen more than
those of richer groups</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">,
and </span></span><span class="Hyperlink4"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2017"><span style="color: blue;">income inequality is lower than it was ten years ago</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">. None of this had made the front pages.<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">The
thousand pound question is will it be different this time? It is true that when
measured in relative terms, child poverty has risen since hitting a low in
2012/13 and I am less comfortable betting on relative poverty than on incomes
or ‘absolute’ poverty (the latter is actually a relative measure that uses
2010/11 as the benchmark). I am generally optimistic about people’s incomes,
but with relative poverty it is not clear what optimism implies. Relative
poverty tends to fall when the economy is doing badly and rise when it is doing
well. <o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">If I
thought that the economy was going to be stellar in the next few years while
benefits are frozen, I would not take the bet. But I suspect that GDP and wages
will, at best, trundle gradually upwards. I don’t share the IFS’s belief that
average wages will not return to pre-crash levels until 2022, but it will take
at least a year or two. <o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">It is,
I think, probable that the next five years will see at least two of the
following three: an unspectacular rise in median earnings, fairly low
inflation, and rising incomes for those in the bottom deciles who are employed.
The government also intends to raise the minimum wage so that it equates to 60
per cent of median earnings, meaning that nobody on the minimum wage full-time
will be in relative poverty, and the income tax threshold is due to rise
further. This all works in my favour, but it is not the main reason I accepted
the bet.<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">The
main reasons are threefold. Firstly, Jonathan was prepared to wager, which is
more than can be said for </span></span><span class="Hyperlink4"><span lang="EN-US" style="line-height: 107%;"><a href="https://health.spectator.co.uk/cancer-research-uk-says-most-millennials-will-be-overweight-will-the-ceo-put-his-money-where-his-mouth-is/"><span style="color: blue;">those who make obesity predictions</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">. More academics and pundits should put skin in
the game. Incidentally, if any of the people who believe the NHS is going to be
privatised want to put money on it, you know where to find me.<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">Secondly,
while I accept that freezing benefits is likely to lead to a rise in relative
poverty, the rate being predicted is extremely high. In the last 25 years, it
has always been between 27 and 34 per cent. 41.3 per cent by 2021/22 would be
one hell of a jump and even the lower rate of 37 per cent that is the basis of
our bet would, as Jonathan says above, be unprecedented. That doesn’t make it
impossible, but an extraordinary outcome requires extraordinary policies. I’m
not convinced that May’s benefit reforms fit the bill.<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="None"><span lang="EN-US" style="line-height: 107%;">Thirdly,
every previous forecast I can recall has been wrong - and wrong in the same
direction. They have all overestimated the rate of future poverty, inequality </span></span><span class="Hyperlink4"><span lang="EN-US" style="line-height: 107%;"><a href="https://www.telegraph.co.uk/news/politics/georgeosborne/6224723/Tory-public-spending-cuts-could-push-unemployment-to-5-million.html"><span style="color: blue;">and, in the case of Danny Blanchflower, unemployment</span></a></span></span><span class="None"><span lang="EN-US" style="line-height: 107%;">. It would be Sod’s Law if a prediction finally
came true when I have money against it, but I don’t think the earlier
predictions were wrong because of a run of bad luck. I think they suffered from
the same systemic flaw. Leaving aside the possibility that they they are
deliberately biased upwards to draw public attention to policies of which the
authors disapprove, they tend to be based on what people’s income would be if
they did not respond to economic incentives. But people change their behaviour
to maximise financial returns. One reason why incomes have risen so much in the
bottom fifth since the crash is that people have moved into the labour market -
or, if already in the labour market, have worked more hours. We now have the
lowest unemployment rate in forty years, but it could go lower.<o:p></o:p></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></span></div>
<div class="BodyA" style="text-align: justify;">
<span class="None"><span lang="EN-US" style="line-height: 107%;"><span style="font-family: Arial, Helvetica, sans-serif;">I
haven’t read Jonathan’s report and I claim no expertise. I am just some chump
who distrusts gloomy economic forecasts. Do bear that in mind if I win the bet.
But I have to say that this is probably all academic. The most likely outcome
of this bet is that it is invalidated by a change in policy. The Tories have
developed a peculiar habit of shouting loudly about big, unpopular spending
cuts and then whispering quietly when they deliver the inevitable U-turn,
thereby ensuring the worst possible publicity for the least possible benefit to
the public finances. I expect these reforms to be watered down or ended
prematurely for political reasons, so we will probably never know if Jonathan’s
model was right.</span><span style="font-family: Arial, sans-serif; font-size: 12pt;"><o:p></o:p></span></span></span></div>
<br />Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-22752364169016745042017-12-27T01:28:00.002-08:002017-12-27T01:28:59.874-08:00Marking myself to market: my forecasts for 2017, evaluated<div align="center">
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<span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Every year the Financial Times asks, just before Christmas, 100-odd UK
economists for their predictions for the year to come. And in recent years, in the spirit of Brad
Delong’s call for economists to “</span><a href="http://www.bradford-delong.com/2011/12/mark-my-beliefs-to-market-time-i-should-make-this-an-annual-observance.html"><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">mark thei</span><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">r beliefs</span><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"> to market</span></a><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">”, I’ve looked
back at what I said last year. So here
are my responses from December 2016 (the whole FT survey is </span><a href="https://www.ft.com/content/a0c3fce4-d0e2-11e6-b06b-680c49b4b4c0"><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">here</span></a><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">) with some ex post self-assessment. <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">1. Economic
prospects<o:p></o:p></span></b></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">How much, if at all, do you expect UK economic growth to slow in 2017?
Please explain your answer.<o:p></o:p></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">I would expect it to slow somewhat in the first half of the year. What
happens in the second half depends very much on developments with the Brexit
negotiations (as well as events in the US and elsewhere in Europe). We could
see reasonable if not spectacular growth, but downside risks are large <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: Accurate. Growth did
slow significantly in the first half of the year, but there was no recession.<o:p></o:p></span></b></div>
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<br /></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">2. Brexit<o:p></o:p></span></b></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Compared to what you thought 12 months ago about the UK's long-term
economic prospects outside the EU, are you now more optimistic or more
pessimistic than you were?<o:p></o:p></span></div>
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<span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"> </span><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><select name="entry.778545999">
<option value="">
</option><option disabled="" value="More optimistic than 12 months ago"> More optimistic than 12 months ago
</option><option disabled="" value="Feel about the same as 12 months ago"> Feel about the same as 12 months ago
</option><option disabled="" selected="" value="More pessimistic than 12 months ago"> More pessimistic than 12 months ago
</option></select></span><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Please explain
your answer.<o:p></o:p></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
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<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">The strong consensus amongst economists is that Brexit will make the
UK significantly worse off in the medium to long term - not disastrously so,
but significantly. This is backed up by a considerable body of theoretical
and empirical evidence. Of course, this evidence is based on historical data,
and past is not necessarily prologue; there is a high degree of uncertainty.
But the probability must be that Brexit will make us worse off. It is also
important to note that while economic developments since the referendum have
certainly not borne out the pessimistic forecasts of some institutions, that
really tells us almost nothing about long-term impacts - short-term forecasts
are made using very different methodologies to those used to estimate
long-term impacts, and (paradoxically) are much less reliable. <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: not much new evidence
on this. It still seems a reasonable
assessment to me.<o:p></o:p></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">3. Inflation<o:p></o:p></span></b></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Inflation has started to increase in recent months. To what extent do
you expect inflation to rise in 2017?<o:p></o:p></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">If the exchange rate stays where it is to about 3%. However, if it
falls a lot farther inflation could rise more (or conversely) <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: Accurate. It is
currently at 3.1%, which is likely to be the peak.<o:p></o:p></span></b></div>
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<br /></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">4. Monetary
policy<o:p></o:p></span></b></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">In December, the Monetary Policy Committee said the next interest rate
move could as easily be up as down. Will there be a shift in this monetary
policy stance by the end of 2017? Please explain your answer.<o:p></o:p></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It is difficult at the moment to see the next move being down, even
if the economy worsens. Barring negative shocks (which are quite possible)
I'd expect the next move to be up. <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: Accurate. The Bank of England raised interest rates
in November.<o:p></o:p></span></b></div>
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<br /></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">5. Immigration<o:p></o:p></span></b></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Immigration is likely to be central to the Brexit negotiations in
2017. How much do you think immigration will change and what effect do you
think this will have on the UK economy?<o:p></o:p></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">My recent research suggested that EU migration to the UK could fall by
well over half over the period from now to 2020, resulting in net EU
migration falling by more than 100,000. Both the state of the economy and the
existence of free movement of workers are significant determinants of
migration flows. In particular, free movement with the UK results in an
increase of almost 500% - that is, by a factor of six. It follows any
significant restrictions on free movement will reduce those flows. I also
used the existing empirical research on the impact of migration on
productivity, growth and wages to estimate the broader economic impacts of
such a reduction. Over the period to 2020, the resulting reduction in GDP
would be about 0.7 to 1.3%, with a GDP per capita reduction of 0.3 to 0.8%.
By contrast, the increase in low-skilled wages resulting from reduced
migration is expected to be relatively modest. <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: Accurate up to now. As
I predicted, migration, especially from the EU, has already fallen
substantially, even before any changes to free movement or immigration
policy, and this is likely to be part of the reason growth has weakened. <o:p></o:p></span></b></div>
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<br /></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">6. Fiscal policy<o:p></o:p></span></b></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Philip Hammond is expecting government borrowing to fall in 2017. His
new fiscal rules provide headroom for more borrowing than currently forecast.
To what extent will he need to use it and why?<o:p></o:p></span></div>
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<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
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<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">The OBR's fiscal forecasts look relatively pessimistic; however the
economic ones may be too optimistic. Moreover, current spending plans for
health and social care (and perhaps education) look unrealistic. The NHS is
clearly significantly underfunded (it is basic economics that a richer, older
society should, from the point of view of overall welfare or wellbeing, spend
a greater proportion of GDP on health over time - the reverse has been the
case over the past few years.) It is not clear that such spending increases
should be financed by borrowing, but the government is unfortunately
committed to a set of tax cuts that have little economic rationale and will
mostly benefit the relatively better off. Some discretionary increase
therefore seems likely. <o:p></o:p></span></div>
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<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: Accurate. It has become abundantly clear (if it wasn’t
already) that the NHS is underfunded, and, as I suspected, the government
does not have the political will to raise taxes. There has therefore been
some discretionary fiscal loosening, although current plans still look
unrealistic and the current government is still intent on changes to the tax and benefit system that will redistribute from the poor to the better off. <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; vertical-align: middle;">
<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">7. Donald Trump<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">How do you think Donald Trump's presidency will affect the UK economy
in 2017?<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">This is exceptionally uncertain, for obvious reasons. However, it does
look likely that US interest rates may now begin to rise steadily. This will
put some downward pressure on the pound and upward pressure on UK long-term
rates, which may well be unwelcome. <o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
</div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Assessment: Mixed at best. Interest rates have risen, but not steadily,
and sterling has risen against the dollar rather than fallen over the year. Not
particularly insightful (though I did say that it was highly uncertain). <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Overall assessment: Broadly accurate.
I got most things broadly right: growth, inflation, interest rates, fiscal
policy, and – reassuringly, given that this was based on my </span></b><a href="http://voxeu.org/article/economic-impact-brexit-induced-reductions-migration-uk"><b><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">research</span></b></a><b><span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"> rather than just
educated guessing – immigration. Indeed,
it’s notable that while lots of economists got individual things wrong, overall
and on average we were pretty accurate, especially on the UK’s headline growth
performance. I don’t think any of us said anything terribly useful about Trump, however, certainly not me. <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #212121; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Finally, since Patrick Minford, of Economists for Brexit, recently
claimed, falsely, that I’d predicted a recession after the Brexit vote, it’s
worth noting what he said last year:</span><span style="color: #212121; font-family: Arial, sans-serif; font-size: 12pt;"> </span></div>
<blockquote class="tr_bq" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">The
Cardiff/Liverpool forecasting group does not expect a slowdown but rather that
growth will continue in the 2-3% corridor of 2016. The reasons are that a) the Brexit long run
effect should be positive due to the opening up of free trade globally and the
return of regulation to the UK from the EU, while we expect migration control
to be exerted on unskilled labour where taxpayer costs are high, leaving
skilled labour lin its current liberal regime. b) ‘uncertainty’ is mild, since
it spans a range from a status quo ‘soft’ Brexit to a ‘clean’ Brexit with
effects as in a)- uncertainty therefore about the upside.</span></blockquote>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #212121; font-family: Arial, sans-serif; font-size: 12pt;">More (even more embarrassing) detail <a href="https://twitter.com/ChrisGiles_/status/943548085120258050">here</a>, via Chris Giles. </span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #212121; font-family: Arial, sans-serif; font-size: 12pt;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #212121; font-family: Arial, sans-serif; font-size: 12pt;">The FT Economists survey for 2018 will be published early in the New
Year.</span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<br />
<div class="MsoNormal">
<br /></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-85359678625185129322017-09-22T13:41:00.000-07:002017-09-22T13:41:12.644-07:00Citizens' rights: will Theresa May keep her promise?<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">Did Theresa May just commit the UK to
keeping a key Vote Leave promise? No, not the £350 million – we may be getting
back full control over our own laws, but not the laws of arithmetic. I mean this
one, <a href="http://www.voteleavetakecontrol.org/restoring_public_trust_in_immigration_policy_a_points_based_non_discriminatory_immigration_system.html">signed</a>
by three current members of the Cabinet, Boris Johnson, Priti Patel, and
Michael Gove:</span></span></div>
<blockquote class="tr_bq">
<span style="background-color: white; color: #4c4c4c;"><span style="font-family: inherit;"><span style="font-family: inherit;">There will be no change for EU citizens
already lawfully resident in the UK. These EU citizens will automatically be
granted indefinite leave to remain in the UK and will be treated no less
favourably than they are at presen</span><span style="font-size: 12pt;">t</span></span></span></blockquote>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">In fact, when the UK belatedly
produced its <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/621847/60093_Cm9464_NSS_SDR_Print.pdf">counterproposals</a>
on the rights of UK citizens in the EU and EU citizens here, they were considerably
less generous than the offer made by the EU27, and in particular they explicitly
removed a number of important rights. Perhaps most obviously, the UK proposes that
EU citizens in the UK will no longer have the same rights to be joined by
family members, but instead will be subject to the considerably more
restrictive rules applied to UK nationals:</span><span style="font-size: 12pt;"><o:p></o:p></span></span></div>
<blockquote class="tr_bq">
<span style="line-height: 107%;"><span style="font-family: inherit;">Future family members of those EU
citizens who arrived before the specified date – for example a future spouse –
who come to the UK after we leave the EU, will be subject to the same rules
that apply to non-EU nationals joining British citizens</span></span></blockquote>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">Now, some might argue that this is “fair”,
because it brings to an end a position where EU nationals in the UK (and indeed
UK nationals elsewhere in the EU) have, in some respects, more rights than
Britons here. On the other hand, EU nationals who moved here exercising their
free movement rights did so on the basis that they had these rights, which the UK
signed up to in various Directives. </span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">Moreover – and this is my view – if anyone is
really worried about the “unfairness” to British citizens, then that unfairness
could be ended tomorrow by the UK government, which could simply give us the same
rights EU citizens have. The fact that most of those who make this argument are
unprepared to contemplate this solution carries more than a whiff of hypocrisy. Nor are these the only rights EU nationals
will lose, as Dr Mike Ward <a href="http://badreason99.blogspot.co.uk/2017/09/where-do-eu-citizens-in-uk-now-stand.html">explains</a>.
<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">Some commentators – in particular,
Migration Watch and Daniel Hannan – continue to attempt to <a href="http://www.lbc.co.uk/radio/presenters/ian-collins/ian-dunt-tells-brexiteer-daniel-hannan-some-facts/">mislead</a>
the public about this: for example, Daniel Hannan recently <a href="https://twitter.com/davidallengreen/status/879951702585225216">claimed</a>
that “EU citizens will have all the same rights as now”, while Migration Watch <a href="https://news.migrationwatchuk.org/2017/09/15/come-off-it-professor">argue</a>
that when they said that “EU citizens will keep their existing rights” they
didn’t mean <b><u>all</u></b> their
existing rights. But no one senior in government
has made such an obviously false claim; indeed, David Davis explicitly
recognised that EU nationals would lose some of their current rights, <a href="https://twitter.com/pswidlicki/status/884806944611065856">saying</a> “we
agonised” over the issue. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">That is, until today, when in response
to a question from an Italian journalist, the Prime Minister did just that (<a href="https://www.youtube.com/watch?v=lUFpahcEOX8">video – at about 1.13</a>):</span></span></div>
<blockquote class="tr_bq">
<span style="font-family: inherit;">Q. As you said, 600,000 Italians now live in the
UK. You said that you want them to
remain. What is going to change for them
– I guess something is going to change?</span></blockquote>
<blockquote class="tr_bq">
<span style="font-family: inherit;">A.
(the Prime Minister). <b>We set out that for those EU citizens
currently living in the UK who have made the UK their home, including those
600, 000 Italians who are in the UK, we want them to be able to stay and to have
the same rights as they have at the moment</b>.</span></blockquote>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">That is unequivocal. The same rights they have now. Now, of course, the Prime Minister’s statement
is technically untrue – the UK has set out no such thing.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 107%;"><span style="font-family: inherit;">But that’s not really the point,
because what matters is not what we’ve said so far, but what we do next – and in
particular, what David Davis and Ollie Robbins, our lead representatives, say
at the negotiations next week. Monsieur
Barnier has already <a href="https://twitter.com/jdportes/status/911253123985022983">signalled</a> very
clearly in his response to the speech that he expects them to make good on the Prime
Minister’s promise. </span></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;">So do they say that the Prime Minister
didn’t really mean it, or didn’t understand what she was saying, and that the
UK’s position remains unchanged – we have no intention of giving EU citizens “the
same rights as they have at the moment”?
In that case, why on earth should anyone in the rest of the EU27 take
anything she, or the UK government says, seriously? Such a course would be
deeply damaging to the Prime Minister’s credibility (especially in Italy, where
her comments have been widely, and accurately, <a href="http://ilmessaggero.it/primopiano/esteri/brexit_theresa_may_firenze_protestano_inglesi_pro_ue-3255418.html">reported</a>). Or do they, belatedly, do the right thing,
and change the UK’s approach - a course
of action which would generate a huge amount of goodwill? Three million EU citizens here and a million
Britons elsewhere in the EU are waiting to hear. </span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-61972038645813866082017-04-05T00:32:00.001-07:002017-04-05T00:32:51.907-07:00The contradictions of Fraser Nelson<div class="MsoNormal">
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Fraser Nelson is upset with this passage, from my <a href="http://notthetreasuryview.blogspot.co.uk/2017/04/spreadsheets-are-people-too-statistics.html">blog </a>about statistics yesterday:</span></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background: white; color: #222222;">A similar, but
even more toxic, disjunction from reality is seen in those who claim that
poverty is not about money. For example, Fraser Nelson frequently<span class="apple-converted-space"> </span></span><a href="http://www.telegraph.co.uk/news/politics/9145913/Sticking-with-Gordon-Browns-flawed-policy-keeps-people-in-poverty.html"><span style="background: white; color: #888888; text-decoration: none;">claims</span></a><span class="apple-converted-space"><span style="background: white; color: #222222;"> </span></span><span style="background: white; color: #222222;">that the Labour government saw poverty
solely through the lens of numbers, and that the Brown strategy of attacking
child poverty by redistributing money to the poor via tax credits was simply
manipulating numbers on a spreadsheet. <o:p></o:p></span></span></blockquote>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background: white; color: #222222;">Fraser </span><a href="https://twitter.com/FraserNelson/status/849161619770929152"><span style="background: white;">says</span></a><span style="background: white; color: #222222;">: <o:p></o:p></span></span></div>
<blockquote class="tr_bq">
<span style="background: white; color: #222222;"><span style="font-family: "arial" , "helvetica" , sans-serif;">You quote me
saying “poverty is not about money”. I’ve never said that. My point: it’s not
JUST about money. Please correct. </span></span></blockquote>
<div class="MsoNormal">
<span style="background: white; color: #222222;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Fraser can read
and isn’t stupid, so he knows perfectly well I didn’t “quote” him directly
saying “poverty is not about money”; rather, I attributed that view to him (among others). And I linked to his <a href="http://www.telegraph.co.uk/news/politics/9145913/Sticking-with-Gordon-Browns-flawed-policy-keeps-people-in-poverty.html">Telegraph
article</a>, in which he says this: <o:p></o:p></span></span></div>
<blockquote class="tr_bq">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background: white; color: #282828;">At the heart of
the Child Poverty Act lies an agenda which has arguably done more damage to
Britain’s social fabric than any idea in modern history. It is based on the
Eurostat definition of poverty: an income 40 per cent below the national
average.</span>...instead of fighting poverty, the Labour government
spent billions manipulating a spreadsheet – to catastrophic effect.</span></blockquote>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background: white; color: #222222;">Tax credits
boosted the incomes of low income families and reduced poverty as measured by
low income. It is therefore, as a matter
of simple logic, impossible for Fraser to admit that, as he <a href="https://twitter.com/FraserNelson/status/849168510727094272">did</a> yesterday,
that “</span><span style="background: white; color: #222222; line-height: 115%;"><b>low income is the most
important measure of poverty</b></span><span style="background: white; color: #222222;">”,
and at the same time stand by his earlier view that billions were spent on tax
credits “instead of fighting poverty”. </span></span></div>
<div class="MsoNormal">
<span style="background: white; color: #222222;"><span style="font-family: "arial" , "helvetica" , sans-serif;"> <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="background: white; color: #222222;"><span style="font-family: "arial" , "helvetica" , sans-serif;">If Fraser’s
point was that at least some of the money spent on tax credits could have been
spent more efficiently on addressing poverty in other ways – that is, that what
Labour did was not necessarily the best way of fighting poverty - then he could
have said that. But he didn’t. Instead, he claimed that money spent on tax
credits made absolutely no difference to poverty – and indeed, in some
undefined sense, had a “catastrophic” impact.
And just in case anyone thinks I’m quoting him selectively, nowhere in
his <a href="http://www.telegraph.co.uk/news/politics/9145913/Sticking-no-Gordon-Browns-flawed-policy-keeps-people-in-poverty.html">entire article</a> is there anything remotely consistent with his admission
yesterday that low income is indeed the most important measure of poverty..<o:p></o:p></span></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Now it may be that the obvious contradiction between Fraser’s
article and what he said yesterday means he’s changed his mind. In that case he
should say so. Or maybe he never really meant what he wrote, but went over the
top in his hyperbole, Again, he should say so. What he shouldn’t do is try to
pretend he never made an argument he – rightly – <a href="https://twitter.com/FraserNelson/status/849164514335608832">describes</a>
as “repugnant”. </span></div>
</div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Finally, Fraser decided to invoke the Independent Press Standards Organisation, resulting in this
exchange: </span></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHzel8v665aBOVx9KDBLQBTodBacnHddBTF486P6cCL5oLWiAxTamnxocMmVDaJ5_HwBnt24MLIBWWPTqbKxCLO6Px8STACYLObIHuHoNc6GYvBwHdL01-TGvxLIkNWpuyzYmgsUVZE7s/s1600/fraser+ipso.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><img border="0" height="152" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHzel8v665aBOVx9KDBLQBTodBacnHddBTF486P6cCL5oLWiAxTamnxocMmVDaJ5_HwBnt24MLIBWWPTqbKxCLO6Px8STACYLObIHuHoNc6GYvBwHdL01-TGvxLIkNWpuyzYmgsUVZE7s/s320/fraser+ipso.jpg" width="320" /></span></a></div>
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span>
<br />
<div class="MsoNormal">
<span style="font-family: "arial" , "helvetica" , sans-serif;">He has declined to take me up on it. The offer remains open. </span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-24170505568706958022017-04-03T07:08:00.000-07:002017-04-05T00:37:07.029-07:00Spreadsheets are people too: statistics and reality<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;">
<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">One of the occupational hazards of taking data and statistics seriously – and using social media to do so – is frequent accusations that my focus on hard numbers means that I have my head in the clouds, or buried in a computer, and am therefore somehow detached from “reality”. I’ve lost count of the number of times a Twitter link to a chart, research paper or ONS data release, making a point about what the evidence shows, is greeted by some version of “<a href="https://twitter.com/PublicPolicyS/status/694625371380174848" style="color: #888888; text-decoration: none;">why don’t you stop looking at spreadsheets and get out into the real world?</a>”<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;">
<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;">
<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">This is particularly the case for immigration. The response to the overwhelming <a href="http://cep.lse.ac.uk/pubs/download/brexit05.pd" style="color: #888888; text-decoration: none;">evidence</a> that, in the UK, there is no measurable impact of immigration on employment, and only a very modest impact on the wages of the low-paid, is often an anecdote, a reference to (perceived) personal experience, or just an injunction that I should spend more time in the pub. Here’s a recent typical<a href="http://www.conservativewoman.co.uk/niall-mccrae-single-british-don-voted-leave/" style="color: #888888; text-decoration: none;">example</a> (amazingly and embarrassingly, from a lecturer at King’s, my own university, in a scientific discipline):</span></span></div>
<blockquote class="tr_bq" style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px; margin-left: 36pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 14.124px;">Jonathan Portes gave an accomplished perfo</span>rmance, asserting that immigration has boosted society, and that it hasn’t depressed wages. Such thinking may be lapped up by a forum of intelligentsia, but try telling that to my landscape gardener friend, who has been severely undercut by waves of east Europeans.<span class="apple-converted-space"> </span></span></blockquote>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span class="apple-converted-space"><span style="line-height: 14.124px;">I was reminded of this by a </span></span><span style="line-height: 14.124px;"><a href="https://twitter.com/danielbentley/status/848146200369016834" style="color: #888888; text-decoration: none;">tweet</a><span class="apple-converted-space">, attached to a passage in David Goodhart’s new book. This, Daniel Bentley at Civitas argued, is a “really underappreciated point”<o:p></o:p></span></span></span></div>
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<span class="apple-converted-space"><span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">In recent years the falling relative pay for basic jobs, the overwhelming stress on mobility and educational stress, the hourglass labour market and the apartheid system created by a mass higher education system have all made it harder for the mainly Somewhere people doing routine jobs to feel valued and dignified in the modern economy.</span></span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span class="apple-converted-space"><span style="line-height: 14.124px;">Underappreciated, perhaps, because it’s wrong. Leaving aside the truly bizarre apartheid analogy (Mr Goodhart has a habit of this sort of thing, as I've </span></span><span style="line-height: 14.124px;"><a href="https://twitter.com/jdportes/status/848281979988697088" style="color: #888888; text-decoration: none;">noted</a> before<span class="apple-converted-space">) the claim that “in recent years” relative pay has fallen for basic jobs is simply false. It’s true enough that earnings inequality did widen sharply in the 1980s and early 90s. But this isn’t exactly “recently”, and has absolutely nothing to do with the post-1997 immigration Mr Goodhart blames for much of the UK’s contemporary problems. Indeed, over the last decade, if anything, boosted by increases in the National Minimum Wage, it has improved somewhat, as this chart shows:<o:p></o:p></span></span></span></div>
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<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Now I would argue that this point – that workers at the lower end of the earnings distribution have done particularly badly - is pretty fundamental to the entire argument Mr Goodhart is making (indeed, the importance of this paragraph to Mr Goodhart’s thesis is presumably why Mr Bentley highlighted it). So you might think that getting it wrong matters rather a lot. But I have no doubt what Mr Goodhart’s response will be. As with my <a href="https://www.lrb.co.uk/v35/n12/jonathan-portes/an-exercise-in-scapegoating" style="color: #888888; text-decoration: none;">review</a> of his earlier book, “The British Dream”, which listed (very much non-exhaustively) a number of his more glaring factual errors, he would<a href="https://www.lrb.co.uk/v35/n12/jonathan-portes/an-exercise-in-scapegoating" style="color: #888888; text-decoration: none;">say</a> that I am “sniping in the footnotes” and that I spend too much time with databases and not enough in the “real world”.<o:p></o:p></span></span></div>
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<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">But there is a fundamental problem with the argument by those like Dr McCrae or Mr Goodhart that “spreadsheets” or “databases” are somehow divorced from reality, while the experiences of (selected) individuals represents it. In fact, spreadsheets – or at least the ones used by labour market economists and, indeed, quantitative social scientists more broadly, are far more closely connected to the “real world” than any individuals’ experience can hope to be.<o:p></o:p></span></span></div>
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<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Consider the <a href="https://www.ons.gov.uk/file?uri=/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/qmis/labourforcesurveylfsqmi/qmilfsjan2015finalforpubdocx_tcm77-180685.pdf" style="color: #888888; text-decoration: none;">Labour Force Survey</a> (LFS), the primary data source for economists analysing the UK labour market. Each quarter the LFS samples 40,000 households, covering 100,000 individuals, a representative sample of (broadly) the UK resident population; lengthy interviews are conducted in person (and subsequently by phone) and cover a wide range of topics in considerable detail, from education, earnings and employment to age, marital and family status, country of birth, and disability.<o:p></o:p></span></span></div>
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<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">So when I say that the evidence is clear that immigration doesn’t impact on the employment of UK-born residents, this analysis is formulated in terms of numbers on a spreadsheet or data points in a regression. But behind those numbers are what tens of thousands of real people have told professional interviewers, and in a way which means that the results are in turn representative of lived experience of the UK population as a whole. </span></span><br />
<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span><span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">So the statement that, say, the bottom decile of full-time workers have recently seen their pay rise faster than average is not (just) a statement about numbers, or a claim that Mr Goodhart has failed to read the right ONS spreadsheet. It is a statement about what has – contrary to Mr Goodhart’s claim - actually happened to the pay packets of several million people. It is the spreadsheet, not what my nephew looking for a job, your cab driver, or Dr McCrae’s landscape gardener friend say that best reflect the real world.<o:p></o:p></span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 14.124px;">A similar, but even more toxic, disjunction from reality is seen in those who claim that poverty is not about money. For example, Fraser Nelson frequently <a href="http://www.telegraph.co.uk/news/politics/9145913/Sticking-with-Gordon-Browns-flawed-policy-keeps-people-in-poverty.html" style="color: #888888; text-decoration: none;">claims</a> that the Labour government saw poverty solely through the lense of numbers, and that the Brown strategy of attacking child poverty by redistributing money to the poor via tax credits was simply manipulating numbers on a</span><span style="line-height: 14.124px;">spreadsheet:</span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: #282828; line-height: 14.124px;">Someone who is nudged just above this threshold, with an extra £10 a week, is deemed to be “lifted out of poverty”, although the people concerned would be astounded to hear themselves so described. If they had a family, then their children would be described as being “lifted out of poverty”. So, by precision-bombing the right people with tax credits, you could claim to have lifted hundreds of thousands of children out of poverty.</span>,, instead of fighting poverty, the Labour government spent billions manipulating a spreadsheet – to catastrophic effect.</span></blockquote>
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<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">[UPDATE: Fraser Nelson doesn't like this description of his views. I discuss his contradictions <a href="http://notthetreasuryview.blogspot.co.uk/2017/04/the-contradictions-of-fraser-nelson.html">here</a>]</span></span><br />
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<span style="line-height: 14.124px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">And indeed it is true that this approach was shaped and driven by numbers on spreadsheets – numbers which represented hundreds of thousands of low-income families with more money in their bank accounts to spend on food, shoes or the occasional holiday. There’s plenty of evidence that’s exactly what happened, with commensurate improvements in child welfare. A comprehensive review by the Joseph Rowntree Foundation <a href="https://www.jrf.org.uk/report/does-money-affect-children%E2%80%99s-outcomes" style="color: #888888; text-decoration: none;">concluded</a> – unsurprisingly to anyone who knows anything at all about the topic:</span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 14.124px;">Children in low-income households do less well than their better-off peers on many outcomes in life, such as education or health, simply because they are poorer</span> </span></blockquote>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">In other words, despite Mr Nelson’s rather convenient assumption, the spreadsheet-driven policy – by ensuring that low-income parents had enough money to look after their children - worked in the real world. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">None of this means that talking to people – or, more relevantly for these topics, rigorous qualitative research, which is generally not what the critics mean – is not useful and sometimes necessary to get a full picture. But suggesting that data doesn’t represent reality as well as personal experience is simply the opposite of the truth. If you want to know what’s actually going on in the real world, look at the data.</span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-6510418169205070942017-03-04T16:01:00.000-08:002017-03-05T02:47:43.516-08:00EU citizens’ rights: the Brexit Committee report<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">The <a href="https://emea01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fgoo.gl%2FkMggcT&data=01%7C01%7Cjonathan.portes%40kcl.ac.uk%7Ccaac5c3d420c4046275208d46191563e%7C8370cf1416f34c16b83c724071654356%7C0&sdata=hvhYHELMIuNCtJvlYMd1cTxQ74rdTA%2BQF%2FX4ZhV2VO8%3D&reserved=0"><span style="color: windowtext;">report</span></a> of the Commons Committee on Exiting
the EU (known to its friends as the Brexit Committee) on the rights of EU
citizens resident here, and UK citizens resident in other EU countries, is a
welcome contribution to a debate that has so far generated rather more heat
than light. <o:p></o:p></span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">The
headlines will be for its recommendation that “the UK should now make a unilateral
recommendation to safeguard the rights of EU nationals living in the UK” (in
other words, that the government should accept at least the spirit of the Lords’
amendment passed last week).<o:p></o:p></span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">This is
entirely sensible; the government’s line that we need to hold back on this commitment
to use as a “bargaining chip” (regardless of what you think of the morality of
this approach) is flimsy at best. For
it to be a useful bargaining chip, we would need a credible threat; since there
is neither the political will or the administrative capacity to deport large numbers
of EU citizens, this does not exist. <o:p></o:p></span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">In the
meantime, the government’s refusal to commit is <a href="https://www.theguardian.com/world/2017/feb/28/scottish-woman-and-french-husband-quit-uk-over-brexit"><span style="color: windowtext;">damaging</span></a> the UK, both directly and in terms
of the UK’s image. In fact, this line is
dictated far more by domestic politics – in particular, the need to show that
it is the government, not Parliament, that will shape our approach to Brexit –
than by the Article 50 negotiation strategy.<o:p></o:p></span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">But the report
is perhaps most useful for its thorough and detailed explanation of the administrative
and bureaucratic hurdles that will remain even when a solution is agreed in principle.
As I <a href="http://ukandeu.ac.uk/let-them-stay-if-only-it-were-that-easy/"><span style="color: windowtext;">wrote</span></a> back in August:</span></div>
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<span style="background: white; font-family: "arial" , sans-serif; font-size: 12pt;">The practical
issues involved are formidable..There aren’t any ideal options – just less bad
ones. But anybody who thinks that with the best will in the world this will be
an easy issue to resolve is living in a fantasy world.</span>”</blockquote>
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<o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">The
Committee echoes this, and calls on the government, as a matter of urgency, to
either reform or (preferably) replace entirely the current permanent residency
application process:</span></div>
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<span style="color: windowtext;"><span style="font-family: "arial" , "helvetica" , sans-serif;">T<span style="font-weight: normal;">he current process for consideration of permanent residency
applications is not fit for purpose and, in the absence of any concrete
resolution to relieve the anxiety felt by the estimated three million EU
citizens resident in the UK, it is untenable to continue with the system as it
stands. We recommend that the Government set out whether it intends the
permanent residence system to be the basis for EU nationals to demonstrate
their eligibility to reside in the UK once the UK leaves the EU. If so then it
needs to set out as a matter of urgency, how it will reform the permanent
residence application system. If not, then it needs to set out what an
alternative system will involve and what will be expected of EU nationals to
demonstrate their eligibility to reside in the UK once the UK leaves the EU.</span></span></span></blockquote>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Importantly,
there is absolutely no reason for the government not to start on this now and
to say so; in practical terms, it wouldn’t commit the government to doing
anything it won’t have to do at some point anyway. The fact that it hasn’t
reflects a combination of bureaucratic inertia and political unwillingness to
accept the inevitable consequences (for Home Office resources, for employers, and
for individuals). But reality has to kick in sometime. The sooner this happens, the smoother the process
will be, and the less unnecessary damage that will be inflicted. The Committee has a large number of detailed
and practical recommendations (on the need for any process to be simple,
without unrealistic administrative or
technical hurdles, and for
data-sharing). The government would do
well to listen.<o:p></o:p></span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">Separately,
the Committee also discusses the post-Brexit immigration system, without coming
to any particularly firm conclusions. But it does make two important, related
points. First, that “taking back control” when it comes to immigration
policy/free movement doesn’t have much to do with border control per se. The Committee quotes me:<o:p></o:p></span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Ending free movement
immigration control is not going to be enforced at the borders at all. It
simply is not. We are still going to let people in, at Stansted and Heathrow,
with French passports. They just will not have the right to work here, and that
right to work will be enforced at the workplace.”</span></blockquote>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">This
point is fundamental – it is employers (and landlords, public services,
universities, etc) who will be at the sharp end of changes to free movement. As the Committee says, “any new system will
add to the regulatory burden.” Or, as I <a href="http://www.independent.co.uk/news/business/news/brexit-immigration-uk-freedom-movement-myths-eu-referendum-theresa-may-amber-rudd-a7393136.html"><span style="color: windowtext;">put</span></a> it:<o:p></o:p></span></div>
<blockquote class="tr_bq" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="background: white; font-family: "arial" , sans-serif; font-size: 12pt;">When
it comes to immigration, “taking back control” means expanding the size and
role of the state.</span>”</blockquote>
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<o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">However,
one potential advantage of this point – that what we do at border controls is
not necessarily determined by what we do about individuals’ right to work in
the UK – is reflected in the Committee’s acceptance that there could, in
principle, be a geographic component to future policy – a Scottish work permit,
or a London one. Those who say that this
would require border controls at Hadrian’s Wall or the M25 simply miss the
point. <o:p></o:p></span></div>
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<br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: "arial" , sans-serif; font-size: 12.0pt;">There’s
lots more detail on this and other issues in the report, which is certainly the
best summary of this set of issues produced so far;
it is well worth reading in full. <o:p></o:p></span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-25185126314283425222017-02-23T02:51:00.002-08:002017-02-23T02:51:41.529-08:00Immigration is falling. Be careful what you wish for..<div class="MsoNormal">
Today’s<a href="https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/bulletins/migrationstatisticsquarterlyreport/feb2017#net-migration-to-the-uk-estimated-to-be-273000"> immigration figures </a>are the first with any
meaningful data after the Brexit vote. And they show – as I predicted back in <a href="https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwi46aze16XSAhWsLMAKHZZ-A3kQFggcMAA&url=http%3A%2F%2Fwww.niesr.ac.uk%2Fblog%2Fbrexit-migration-and-labour-market&usg=AFQjCNHQn46fqrBMZwDxnvvMwGH_cQ8aJQ&sig2=48VtabMd9"><span style="color: windowtext;">August</span></a> – a fall in EU migration to the UK,
particularly those coming from the countries of Central and Eastern Europe (the
“EU8”) that joined the EU in 2004; in the year to September, net migration from
these countries fell by about 20,000. Meanwhile,
the number of new National Insurance registrations in the year to December was
flat, but again numbers from the EU8 fell.
Broadly, the figures are consistent with the fall in the number of EU
nationals in the UK workforce that I highlighted last week. Non-EU immigration also fell, particularly
for students, now at the lowest level since 2002. <o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXhi_NWEX2Y5K0LTArvdUrmRUuSvqlYg2r5lbjX27UCzQyyPSSv0gHzszxGF6dTFWaljPhupznWAQAlhNF6DycLrOCr8IoHibgXa_IXnblauDZQTah6GBex2RaB6qgfKjqV_9fcNC3pME/s1600/Figure+3-+Immigration+to+the+UK+by+citizenship%252C+2006+to+2016+%2528year+ending+September+2016%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="222" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXhi_NWEX2Y5K0LTArvdUrmRUuSvqlYg2r5lbjX27UCzQyyPSSv0gHzszxGF6dTFWaljPhupznWAQAlhNF6DycLrOCr8IoHibgXa_IXnblauDZQTah6GBex2RaB6qgfKjqV_9fcNC3pME/s400/Figure+3-+Immigration+to+the+UK+by+citizenship%252C+2006+to+2016+%2528year+ending+September+2016%2529.jpg" width="400" /></a></div>
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So what’s going on? After all, nothing has changed in law or
policy terms– we are still a member of the EU, and will be for some time, and
we still have freedom of movement. But
it’s not just today’s law that matters to existing and future migrants. I also warned back in <a href="http://ukandeu.ac.uk/let-them-stay-if-only-it-were-that-easy/"><span style="color: windowtext;">August</span></a> that even if politicians behaved
sensibly, dealing with the status of EU nationals already here was likely to be
an intractable bureaucratic tangle. Since then, the government has done little
or nothing to reassure them, nor to streamline the process. It is hardly surprising
that some are already choosing to leave. <o:p></o:p></div>
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More broadly, i<span style="background: white;">f people
cannot plan with any confidence, not just about themselves but their families,
they are both less likely to come and less likely to stay. Small wonder that
employers – not just <a href="https://t.co/iX9jRL8vso">farmers</a>, but sectors
ranging from the <a href="https://www.theguardian.com/politics/2017/feb/23/thousands-eea-doctors-may-leave-uk-after-brexit-survey-bma?CMP=Share_iOSApp_Other">National
Health Service</a> to universities – are finding it far harder to persuade EU
nationals to take up jobs in this country.
And this, once again, illustrates a vitally important point; mi</span>gration
is not just a matter of the UK choosing migrants; migrants have to choose us. Even
if we wish to remain open to skilled migrants from elsewhere in the EU
post-Brexit, they may not choose to come here (or remain here).<o:p></o:p></div>
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<span style="background: white;">It is still very early days –
forecasting migration flows, particularly at a time of policy change, is extremely
difficult. But we can already begin to
sketch out the long-term implications. If, as my previous research <a href="http://voxeu.org/article/economic-impact-brexit-induced-reductions-migration-uk"><span style="color: windowtext;">predicts</span></a>, net migration from the EU falls
by more than half over the next five years, the <a href="http://voxeu.org/article/economic-impact-brexit-induced-reductions-migration-uk">economic
impact</a> on the UK will be significant; the resulting hit to GDP could be
about 0.6 to 1.2%, with a GDP per capita reduction of 0.2 to 0.8%. Over the
period to 2030, the resulting reduction in GDP per capita could be up to 3.4%.
By contrast, the increase in low-skilled wages resulting from reduced migration
is expected to be relatively modest.</span> </div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG8h_MuJgWDECqAZbBcb88IetXlpvU6TEAnV_YtqIXmB09m4fwvfPZ1YcwM3vFGoAbQtLdpSsNbQ2MCxXqQTNbgUTGsqWZ_haiQP3wYtr8FT5EF_XclNuO1B6acod4tlBQJAagUEnXeYs/s1600/portes+forte+table.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="146" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG8h_MuJgWDECqAZbBcb88IetXlpvU6TEAnV_YtqIXmB09m4fwvfPZ1YcwM3vFGoAbQtLdpSsNbQ2MCxXqQTNbgUTGsqWZ_haiQP3wYtr8FT5EF_XclNuO1B6acod4tlBQJAagUEnXeYs/s640/portes+forte+table.jpg" width="640" /></a></div>
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<span style="background-color: white;"><br /></span></div>
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<span style="background-color: white;">So those who – from both
sides – have </span><a href="http://www.bbc.co.uk/news/uk-politics-39007019">argued</a><span style="background-color: white;">
that Brexit will not lead to a substantial fall in migration, especially from
the EU, are wrong.</span><span style="background-color: white;"> </span><span style="background-color: white;">Indeed, the
government’s target of reducing migration to the “tens of thousands” is not
nearly as </span><a href="http://ukandeu.ac.uk/immigration-and-brexit-myths-and-realities/">unrealistic</a><span style="background-color: white;">
as many think – particularly if the labour market weakens significantly over
the next year or two. </span><span style="background-color: white;"> </span><span style="background-color: white;">But the government
– and those who support an end to free movement – should be careful what they
wish for. </span><span style="background-color: white;"> </span><span style="background-color: white;">Perhaps it will ease very slightly
pressure on the wages of some low-paid workers; but this will be far outweighed
to the cost to us all in growth and tax revenues. </span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-36757495103318122462017-02-02T11:40:00.001-08:002017-02-02T11:40:25.128-08:00A(nother) debate on immigration: how about starting with the facts? <span style="font-family: Arial, Helvetica, sans-serif;">Launching the Home Affairs Select Committee inquiry on immigration, Yvette Cooper <a href="https://www.theguardian.com/uk-news/2017/feb/02/yvette-cooper-calls-for-national-debate-on-immigration-as-she-launches-inquiry">called</a> for a "national debate" claiming that immigration "was <span style="background-color: white;">was one of those things that people just thought was a bit too difficult to talk about". As Stephen Bush <a href="http://www.newstatesman.com/politics/staggers/2017/02/theory-yvette-cooper-stuck-stable-time-loop">points out</a>, virtually the only plausible explanation for this nonsensical assertion is that Yvette is somehow stuck in a Star Trek style time loop. I first started working on immigration issues in the Cabinet Office in late 1999; migration, in one form or another, hasn't been out of the news since. The <a href="https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0ahUKEwjAxv_ujfLRAhUDipAKHYkWCNMQFgguMAI&url=http%3A%2F%2Fwebarchive.nationalarchives.gov.uk%2F20110218135832%2Frds.homeoffice.gov.uk%2Frds%2Fpdfs%2Focc67-migration.pdf&usg=AFQjCNE-2N8Xit2Ef8FUuLhDEM40Z6j0gw&sig2=g9gZKW-JG8i9_IWd1wLzxA&bvm=bv.146073913,bs.1,d.d24">paper</a> I wrote then was published in early 2001, accompanied by considerable publicity, precisely because Tony Blair (and some of his Ministers, like Barbara Roche) wanted a constructive debate on immigration. Sadly, they largely failed, as Yvette's intervention today and countless others like it from politicians who should know better show. </span></span><br />
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">However, one major achievement of that report was to kick-start funding and other government support for academic research on immigration, and in particular the economics of immigration, that had up to then been largely absent. We now know quite a lot about the impacts of immigration on the UK economy and labour market; as my contribution to the ongoing debate, I've tried to synthesise the evidence in my <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/home-affairs-committee/immigration/written/45077.pdf">written testimon</a>y to the inquiry (this also formed the basis for much of my <a href="http://www.parliamentlive.tv/Event/Index/158d9923-b78d-45e1-b1bc-e59a23ce7353">oral evidence</a> to the Exiting the EU Committee earlier this week). In my view, the key points are:</span></span><br />
<br />
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">immigration doesn't appear to have any negative impacts on the employment prospects of native workers (indeed, the employment rate is at historic highs). W</span><span style="font-family: Arial, Helvetica, sans-serif;">hile the evidence on wage impacts is less conclusive, the emerging consensus is that recent migration has had little or n</span><span style="font-family: Arial, Helvetica, sans-serif;">o impact overall, but possibly some, small, negative impact on low-skilled workers. </span><span style="font-family: Arial, Helvetica, sans-serif;">But other factors, positive and negative (technological change, policies on tax credits, the National Minimum Wage) were far more important.</span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">recent migrants, especially those from the EU, are likely to have a positive fiscal impact; however, </span><span style="font-family: Arial, Helvetica, sans-serif;">positive net impact on public finances at the national level does not preclude significant impact on demand (and hence cost) at the local level. B</span><span style="font-family: Arial, Helvetica, sans-serif;">roader concerns about the potential negative impacts on public services appear to be largely unsubstantiated. T</span><span style="font-family: Arial, Helvetica, sans-serif;">his does not mean, of course, that citizens do not associate their experience of deterioration in public service quality and availability resulting from other</span><span style="font-family: Arial, Helvetica, sans-serif;"> factors with immigration ; the fact that migrants' fiscal contribution could, in principle, at least provide enough funding t</span><span style="font-family: Arial, Helvetica, sans-serif;">o cover their marginal impact on demand is not much comfort in practice if those </span><span style="font-family: Arial, Helvetica, sans-serif;">revenues are in fact being allocated elsewhere, for tax cuts or deficit reduction, as in fact has been the case</span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">the impact o</span><span style="font-family: Arial, Helvetica, sans-serif;">f immigration o</span><span style="font-family: Arial, Helvetica, sans-serif;">n productivity and hence (per capita) </span><span style="font-family: Arial, Helvetica, sans-serif;">growth is meth</span><span style="font-family: Arial, Helvetica, sans-serif;">odologically </span><span style="font-family: Arial, Helvetica, sans-serif;">harder to estimate. But there is </span><span style="font-family: Arial, Helvetica, sans-serif;">growing empirical evidence, based on cross country data, of posi</span><span style="font-family: Arial, Helvetica, sans-serif;">tive impacts from migration on productivity and per capita GDP.</span></li>
</ul>
<br />
<div style="margin: 0pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">I also discuss some of the common misperceptions ab</span><span style="font-family: Arial, Helvetica, sans-serif;">out changes to the UK immigration system post-Brexit. Briefly, ending free movement </span></div>
<div style="margin: 0pt;">
</div>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">might reduce migration to the tens of thousands, especially if accompanied by a much weaker labour market; </span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">doesn't in itself mean a "hard border" between Northern and Southern Ireland; </span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">will reduce high skilled as well as low skilled immigration; </span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">will involve considerably greater burdens on business, as "immigration control" is about workplaces much more than borders; </span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">and is likely to reduce GDP, GDP per capita/living standards, and worsen the UK's fiscal position.</span></li>
</ul>
<div>
<span style="font-family: Arial, Helvetica, sans-serif;">A useful "public debate" might begin with this evidence base and move on from there. We can but hope. My full written testimony, with references, is <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/home-affairs-committee/immigration/written/45077.pdf">here</a>. </span></div>
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<span style="font-family: Arial; font-size: 12pt;"><br /></span>Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-48423343131508992602017-01-16T02:52:00.000-08:002017-01-16T02:52:00.624-08:00The weather is not the climate: predicting the economic impacts of Brexit<div class="MsoNormal">
Interviewed for <a href="http://itnsourcenews.com/?cat=Economy">ITN/Channel 4 New</a>s, I was asked – very
reasonably – why anyone should listen to economists’ views on the economic
impacts of Brexit, when many short-term forecasts that a Brexit vote would lead
to a sharp slowing of the economy had been proved wrong. This was my response: <o:p></o:p></div>
<blockquote class="tr_bq" style="margin-left: 36.0pt;">
“Short-term economic forecasting
is very unreliable. Just because the weatherman gets it wrong about whether
it’s going to snow tomorrow doesn’t mean that the scientists have it wrong
about whether climate change is going to make the planet warmer over the medium
to long term”</blockquote>
<div class="MsoNormal" style="margin-left: 36.0pt;">
<o:p></o:p></div>
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I think it’s worth
explaining this. The forecasters –
including City economists and <a href="http://www.niesr.ac.uk/blog/leaving-eu-would-almost-certainly-damage-our-economic-prospects#.WHvvkvmLTIU">independent
research institutions</a> like NIESR and IFS, as well as the Treasury and the
IMF - who predicted economic gloom as a direct result, not of Brexit itself but
of the referendum result, did so on the basis of the expected impact on
financial markets, business and consumer confidence: “<a href="http://www.niesr.ac.uk/blog/leaving-eu-would-almost-certainly-damage-our-economic-prospects#.WHvvkvmLTIU">Our
research shows that a vote to leave would increase uncertainty and, at best,
reduce growth”</a>. <span class="apple-converted-space"><span style="background: white; color: #666666; font-family: "Trebuchet MS",sans-serif;"> </span></span></div>
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<o:p></o:p></div>
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But they were (mostly)
wrong. On the markets, while the pound
did indeed fall much as expected (which is actually good for economic activity
in the short-term; the exchange rate acts a shock absorber to the expected long
term hit to the economy by making UK exports cheaper) market interest rates
didn’t rise and the stock market didn’t collapse (although UK companies have
certainly underperformed). More importantly, after an initial shock to
confidence, businesses and consumers appear to have decided that nothing has
happened yet and nothing much will happen for a while; so it’s business as
usual. Research on uncertainty, it turns out, isn’t exactly a certainty.<o:p></o:p></div>
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We can dismiss a
couple of excuses for this failure. It’s true Brexit hasn’t happened yet – but
the forecasts were explicitly related not to Brexit, but to the uncertainty and
expected future impact of Brexit. It’s true some (but not all) of the forecasts assumed immediate Article 50 notification,
but that was not central – and if it was uncertainty that was supposed
to drive economic weakness, delaying notification merely prolongs the
uncertainty. And it's true there was a policy response from the Bank of England - but if anything could have been forecasted it was that.<o:p></o:p></div>
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So what forecasters
fundamentally got wrong was their judgement about the short-term behaviour of
millions of individuals interacting in a very complex system, where (as we know
from the analysis of such systems) relatively small changes in a few variables
can lead to quite different outcomes. The
claim that “the flap of a butterfly’s wing in Brazil can set off a tornado in
Texas” is <a href="http://www.livescience.com/17455-butterfly-effect-weather-prediction.html">poetic
license</a> – but the inherent difficulty of forecasting short to medium term
perturbations is true both of the economy and the weather. <o:p></o:p></div>
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<div class="MsoNormal">
Now, despite these
difficulties, weather forecasting has got considerably more reliable over the
last 20 years, so there’s plenty of room for economic forecasters to improve –
but explaining how the economy will do
in the next few months is always likely to be very challenging. That’s true of
economic forecasting in “normal” times: but it’s even more so the case when
trying to assess the short-term impacts of a political event on the
psychological attitudes of consumers and investors.</div>
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<div class="MsoNormal">
By contrast, predictions
about the long-term impact of Brexit – like climate science - are based on quite different reasoning,
about how changing one key factor – our openness to trade, or the degree to
which the earth’s atmosphere retains heat – changes the long-run properties of
the system. The methodologies used are
well-established and robust – and while of course the detailed modelling of
their impacts requires considerable expertise and huge amounts of data, the
basic mechanisms at work are well-established and easy enough to explain. The operation of the greenhouse effect can be
demonstrated in a school lab.</div>
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<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Similarly, the basic
insights of the “<a href="http://www.economist.com/news/finance-and-economics/21707912-brexiteers-need-respect-gravity-models-international-trade-down-earth">gravity model</a>” approach to predicting international trade –
that trade between two economies depends on how big each is, how far apart they
are, and historical, cultural and policy factors including the existence of
special trade arrangements like the EU – are common sense, and their empirical
and practical validity is not seriously in question. More CO2 will make us hotter: less trade and
migration will make us poorer. <o:p></o:p></div>
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Now, economists’ forecasts
of the long-term impacts of Brexit could still be wrong – or inaccurate- just
as climate scientists could be wrong about the path of climate change. First,
our scenarios could be wrong; Brexit could turn out very differently from the
options (hard or soft, clean or chaotic) most people are trying to analyse;
similarly, sudden technological advances could change the path of CO2
emissions. Second, the numbers are
probably more uncertain even more than the models (which already incorporate some
forms of uncertainty) suggest – some forms of uncertainty are simply impossible
to model. <o:p></o:p></div>
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<div class="MsoNormal">
So while we can predict
that Brexit will reduce growth and CO2 will warm the planet, we should take the
quantitative modelling on just how large these effects are with a large pinch
of salt. In particular, feedback effects
could either amplify or dampen the impacts – and it is very difficult to guess
which. But the basic point - that reductions in trade and migration will reduce
growth and productivity, relative to what otherwise would have occurred – is
very unlikely to be disproved, any more than the greenhouse effect.</div>
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So how should that
translate into how we actually make decisions?
Well, I listen to the weather forecast: but, like most Londoners,
whatever it says, I always carry an umbrella.
On the other hand, that doesn’t mean I’d buy a house on a flood plain. </div>
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<o:p></o:p></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-71396585429005246992017-01-04T08:46:00.000-08:002017-01-04T08:46:50.361-08:00My predictions for 2017 (from the FT Economists' survey)<div align="center">
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<td style="padding: 0cm 0cm 0cm 0cm;"><div class="MsoNormal" style="line-height: normal; margin-bottom: 8.05pt; margin-left: 0cm; margin-right: 0cm; margin-top: 8.05pt; mso-outline-level: 1;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">The Financial Times <a href="https://www.ft.com/content/a0c3fce4-d0e2-11e6-b06b-680c49b4b4c0">annual survey </a>of leading British economists' predictions, views and forecasts for the year ahead was published on January 3. Last year (that is, in January 2016) <a href="http://www.niesr.ac.uk/blog/2016-financial-times-economists-surveymy-answers#.WGwIU_mLTIU">this</a> is what I said about Brexit: </span></b></div>
<blockquote class="tr_bq" style="color: #666666; line-height: 20px; margin-bottom: 12px; margin-top: 6px;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><strong>Q2: Brexit: If the British electorate vote to leave the EU in 2016, how would that: a) change your views about prospects for next year? b) Change your views about medium-term prospects?</strong></span></blockquote>
<blockquote class="tr_bq" style="color: #666666; line-height: 20px; margin-bottom: 12px; margin-top: 6px;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">I'd divide this into three:</span></blockquote>
<blockquote class="tr_bq" style="color: #666666; line-height: 20px; margin-bottom: 12px; margin-top: 6px;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">a) short-term: relatively little visible impact. No doubt there would be some turbulence in financial markets, but I doubt we'd see much impact on the real economy in the very short-term (ie next year).</span></blockquote>
<blockquote class="tr_bq" style="color: #666666; line-height: 20px; margin-bottom: 12px; margin-top: 6px;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">b) medium-term (ie the period of the negotiation over terms of exit and post-exit relationship between the EU and the UK, lasting at least 2 years). Significantly negative. These negotiations would be protracted, complex and probably acrimonious, leading to considerable uncertainty for both UK companies trading with the EU and international investors (not to mention EU citizens resident in the UK and vice versa). All this would be likely to have a substantial and negative impact on business confidence, business investment, FDI, and possibly trade and migration.</span></blockquote>
<blockquote class="tr_bq" style="color: #666666; line-height: 20px; margin-bottom: 12px; margin-top: 6px;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">c) longer-term (post the negotiations and any transition) — impossible to forecast with any precision at this point, given we have very little idea of what the outcome of the negotiations in b) would be. The UK could undoubtedly survive and prosper outside the EU, and in some respects (flexibility on some aspects of trade and migration policy and regulation, reduced contributions to the EU budget) might benefit; but there are obvious and serious risks, in particular to trade in services (including financial services) which are vital to the UK economy and will become even more so in the next few decades.</span></blockquote>
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<b><span style="font-family: "arial" , "helvetica" , sans-serif;">Below are my detailed predictions from this year. I'm not a forecaster (and we have seen this year just how unreliable short-term forecasts can be) but they represent my best effort at providing some meaningful analysis of what we can expect over the next year. Come back next January...</span></b></div>
<blockquote class="tr_bq" style="line-height: normal; margin-bottom: 8.05pt; margin-left: 0cm; margin-right: 0cm; margin-top: 8.05pt; mso-outline-level: 1;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">1. Economic prospects</span></b></blockquote>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">How much, if at
all, do you expect UK economic growth to slow in 2017? Please explain your
answer.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">I would expect it
to slow somewhat in the first half of the year. What happens in the second
half depends very much on developments with the Brexit negotiations (as well
as events in the US and elsewhere in Europe). We could see reasonable if not
spectacular growth, but downside risks are large <o:p></o:p></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 9.95pt; vertical-align: middle;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">2. Brexit<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Compared to what
you thought 12 months ago about the UK's long-term economic prospects outside
the EU, are you now more optimistic or more pessimistic than you were?<o:p></o:p></span></span></div>
<div class="MsoNormal" style="line-height: normal; vertical-align: middle;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"> <select name="entry.778545999">
<option value="">
</option><option disabled="" value="More optimistic than 12 months ago"> More optimistic than 12 months ago
</option><option disabled="" value="Feel about the same as 12 months ago"> Feel about the same as 12 months ago
</option><option disabled="" selected="" value="More pessimistic than 12 months ago"> More pessimistic than 12 months ago
</option></select><o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 9.95pt; vertical-align: middle;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">Please explain your answer.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The strong
consensus amongst economists is that Brexit will make the UK significantly worse
off in the medium to long term - not disastrously so, but significantly. This
is backed up by a considerable body of theoretical and empirical evidence. Of
course, this evidence is based on historical data, and past is not
necessarily prologue; there is a high degree of uncertainty. But the
probability must be that Brexit will make us worse off. It is also important
to note that while economic developments since the referendum have certainly
not borne out the pessimistic forecasts of some institutions, that really
tells us almost nothing about long-term impacts - short-term forecasts are
made using very different methodologies to those used to estimate long-term
impacts, and (paradoxically) are much less reliable. <o:p></o:p></span></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , "helvetica" , sans-serif;">3. Inflation<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Inflation has
started to increase in recent months. To what extent do you expect inflation
to rise in 2017?<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">If the exchange
rate stays where it is to about 3%. However, if it falls a lot farther
inflation could rise more (or conversely) <o:p></o:p></span></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 9.95pt; vertical-align: middle;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">4. Monetary policy<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">In December, the
Monetary Policy Committee said the next interest rate move could as easily be
up as down. Will there be a shift in this monetary policy stance by the end
of 2017? Please explain your answer.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">It is difficult
at the moment to see the next move being down , even if the economy worsens.
Barring negative shocks (which are quite possible) I'd expect the next move
to be up. <o:p></o:p></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 9.95pt; vertical-align: middle;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">5. Immigration<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Immigration is
likely to be central to the Brexit negotiations in 2017. How much do you
think immigration will change and what effect do you think this will have on
the UK economy?<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">My recent
research suggested that EU migration to the UK could fall by well over half
over the period from now to 2020, resulting in net EU migration falling by
more than 100,000. Both the state of the economy and the existence of free
movement of workers are significant determinants of migration flows. In
particular, free movement with the UK results in an increase of almost 500% -
that is, by a factor of six. It follows any significant restrictions on free
movement will reduce those flows. I also used the existing empirical research
on the impact of migration on productivity, growth and wages to estimate the
broader economic impacts of such a reduction. Over the period to 2020, the
resulting reduction in GDP would be about 0.7 to 1.3%, with a GDP per capita
reduction of 0.3 to 0.8%. By contrast, the increase in low-skilled wages
resulting from reduced migration is expected to be relatively modest. <o:p></o:p></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 9.95pt; vertical-align: middle;">
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">6. Fiscal policy<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Philip Hammond is
expecting government borrowing to fall in 2017. His new fiscal rules provide
headroom for more borrowing than currently forecast. To what extent will he
need to use it and why?<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The OBR's fiscal
forecasts look relatively pessimistic; however the economic ones may be too
optimistic. Moreover, current spending plans for health and social care (and
perhaps education) look unrealistic. The NHS is clearly significantly
underfunded (it is basic economics that a richer, older society should, from
the point of view of overall welfare or wellbeing, spend a greater proportion
of GDP on health over time - the reverse has been the case over the past few
years.) It is not clear that such spending increases should be financed by
borrowing, but the government is unfortunately committed to a set of tax cuts
that have little economic rationale and will mostly benefit the relatively
better off. Some discretionary increase therefore seems likely. <o:p></o:p></span></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , "helvetica" , sans-serif;">7. Donald Trump<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; vertical-align: middle;">
<span style="color: #666666;"><span style="font-family: "arial" , "helvetica" , sans-serif;">How do you think
Donald Trump's presidency will affect the UK economy in 2017?<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: #EEEEEE; line-height: normal; vertical-align: middle;">
<span style="color: #545454;"><span style="font-family: "arial" , "helvetica" , sans-serif;">This is
exceptionally uncertain, for obvious reasons. However, it does look likely
that US interest rates may now begin to rise steadily. This will put some
downward pressure on the pound and upward pressure on UK long-term rates,
which may well be unwelcome. <o:p></o:p></span></span></div>
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<br /></div>
</td>
</tr>
</tbody></table>
</div>
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Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-70758801698832651212016-10-17T11:01:00.003-07:002016-10-17T11:06:42.115-07:00Troubled Families - anatomy of a policy disaster <div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: large;">[IMPORTANT DISCLAIMER: This blog represents my personal view only: not that of NIESR or of the evaluation consortium led by Ecorys]</span></span></span><br />
<span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: large;"><br /></span></span></span>
<span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: large;">People sometimes ask me why I spend so much time correcting
the inaccurate or misleading use of statistics by politicians and newspapers.
After all, they say, it’s just politics and spin, mostly – a Minister getting
her facts wrong doesn’t necessarily mean anything for real people or actual
policy. Perhaps I should calm down and
focus on what's really happening, not the public statements. </span> </span></span><br />
<span style="font-size: small; font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="font-size: large;"><span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif;">However, with the publication of the evaluation of the
Troubled Families Programme (TFP), we have a perfect case study of how the
manipulation and misrepresentation of statistics by politicians and civil
servants – from the Prime Minister downwards – led directly to bad policy and,
frankly, to the wasting of hundreds of millions of pounds of taxpayers’ money.</span></span><span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif;">The findings of the evaluation are set out <a href="https://www.gov.uk/government/publications/national-evaluation-of-the-first-troubled-families-programme">here</a> - those
interested in the detail of the TFP should read the synthesis report, produced
by a consortium led by Ecorys and including NIESR, or at least the Executive
Summary of NIESR’s National Impact Study. But, after trawling through literally
hundreds of regressions, the bottom line is quite simple:</span></span></span><br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large; line-height: 115%;">The key finding is that across a wide range of
outcomes, covering the key objectives of the Troubled Families Programme -
employment, benefit receipt, school attendance, safeguarding and child welfare -
we were unable to find consistent evidence that the programme had any
significant or systematic impact. The
vast majority of impact estimates were statistically insignificant, with a very
small number of positive or negative results.
These results are consistent with those found by the separate and
independent impact analysis using survey data, also published today, which also
found no significant or systemic impact on outcomes related to employment, job
seeking, school attendance, or anti-social behaviour. </span></span></blockquote>
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;">In other words, as far as we can tell from
extensive and voluminous analysis of tens of thousands of individual records,
using data from local authorities, DWP, HMRC, the Department for Education, and
the Police National Computer, the Troubled Families Programme had no impact on the
key outcomes it was supposed to improve at all. It didn’t make people more (or
less) likely to come off benefits .To get jobs. To commit fewer crimes. And so
on. And, just to rub it in, these findings were confirmed by an entirely
separate evaluation, conducted by another research organisation, which used a
different data set and a different methodology to come up with essentially the
same answer – no measurable impact on any of the key outcomes.</span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: 12.0pt;"><br /></span></span></span><br />
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: 12.0pt;">But the key point here – and the indictment of
politicians and civil servants - is not that the TFP didn’t achieve what it set
out to do. That's unfortunate of course.
But successful policymaking requires experimentation and risk-taking – and by
definition, sometimes that results in failure. If new programmes never failed
to deliver the promised results, that would show government was not taking
enough risks. That is should not be the issue. Indeed, many social policy experts thought that the basic principles underlying the programme made a lot of sense. The point is that it was the government’s
deliberate misrepresentation of the data and statistics that led to badly
formulated targets, which in turn translated into a funding model that could
have been designed to waste money. Bad stats meant bad policy.</span></span></span><br />
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: medium;"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">And yes, I (and others - I'd note in particular </span><a href="http://www.poverty.ac.uk/policy-response-working-papers-families-social-policy-life-chances-children-parenting-uk-government"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">Ruth Levitas</span></a><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;"> and </span><a href="https://akindoftrouble.wordpress.com/author/akindoftrouble/"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">Stephen Crossley</span></a><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">) told them so. In February 2012, I </span><a href="http://www.niesr.ac.uk/blog/neighbours-hell-who-prime-minister-talking-about#.V5eJmPm6eUk"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">explained</span></a><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;"> the fundamental
flaw in the analysis – that the government was taking a set of families who
were undeniably poor and disadvantaged, and redefining them – without a shred
of evidence – as dysfunctional and antisocial.
I said:</span></span></span></span><br />
<span style="font-size: large;"><br /></span>
<br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif; font-size: large;">What
began as a shortcut taken by civil servants with the data was translated into a
speech by the Prime Minister that simply misrepresented the facts. That in turn
resulted in sensationalist and misleading headlines; the end result, more
likely than not, will be bad policy.</span></span></blockquote>
<span style="font-size: large;"><br /></span>
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">Did
they stop, listen, and think? No. Instead they chose to translate an obviously
flawed analysis, constructed for the purposes of a speech, into local level targets and funding. Four months later, </span><a href="http://www.niesr.ac.uk/blog/government-continues-abuse-data-troubled-families#.V5eJq_m6eUl"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">I
wrote</span></a><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">:</span></span></span><br />
<span style="font-size: large;"><br /></span>
<br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="background: white; font-family: "arial" , "helvetica" , sans-serif; font-size: large;">Even
leaving aside the morality of using the language of "stigmatising"
with respect to a set of families many of whom neither deserve nor will benefit
from any such thing, this is a terrible way to make policy. Using data -
and a completely arbitrary national target number - that everyone knows are
simply wrong, solely because it would be embarrassing to admit a mistake, will
make the programme less effective and risks wasting public money. Not
only does it reflect badly on Ministers, it also does no credit to the senior civil
servants who allow the publication of information which - at the most
charitable - appears to reflect a complete lack of understanding of the
relevant data. This is a clear case for the National Audit Office. </span></span></blockquote>
<span style="font-size: large;"><br /></span>
<span style="font-weight: normal;"><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">We can now skip ahead three years. It was at this point, in March 2015, that
Ministers decided to pre-empt the result of the evaluation, claiming that:</span></span></span><br />
<span style="font-size: large;"><br /></span>
<br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">More
than 105,000 troubled families turned around saving taxpayers an estimated £1.2
billion</span></span></blockquote>
<span style="font-size: large;"><br /></span>
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><span style="font-family: "arial" , "sans-serif";">This was untrue. And we – including the civil
servants responsible for the press release - knew it at the time, as I </span><a href="http://www.niesr.ac.uk/blog/troubling-attitude-statistics#.V5idK_m6eUl"><span style="color: windowtext; font-family: "arial" , "sans-serif";">pointed out</span></a><span style="font-family: "arial" , "sans-serif";">:</span></span></span><br />
<span style="font-size: large;"><br /></span>
<br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">We
have, as of now, absolutely no idea whether the TFP has saved taxpayers
anything at all; and if it has, how much. The £1.2 billion is pure,
unadulterated fiction.</span></span></blockquote>
<span style="font-size: large;"><br /></span>
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><span style="font-family: "arial" , "sans-serif";">But it was worse than that. As Stephen Crossley </span><a href="https://akindoftrouble.wordpress.com/2015/03/15/the-troubled-families-non-announcements/"><span style="color: windowtext; font-family: "arial" , "sans-serif";">observed</span></a><span style="font-family: "arial" , "sans-serif";">, anyone who actually bothered to read
the CLG report in detail would have realised that the TFP targeting and funding
model was - just as I had predicted - resulting in huge misallocations of
money:</span></span></span><br />
<span style="font-size: large;"><br /></span>
<br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">Manchester
(for example) have identified, worked with and turned around a staggering 2385
‘troubled families’. Not one has ‘slipped through the net’ or refused to engage
with the programme. Leeds and Liverpool have a perfect success rate in each
‘turning around’ over 2000 ‘troubled families. By my reckoning, over 50 other
local authorities across the country have been similarly ‘perfect’ in their TF
work. Not one single case amongst those 50 odd councils where more ‘troubled
families’ were identified or where a ‘troubled family’ has failed to have been
turned around.</span></span></blockquote>
<span style="font-size: large;"><br /></span>
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">Commenting on Stephen's analysis, I said:</span></span><br />
<span style="font-size: large;"><br /></span>
<br />
<blockquote class="tr_bq">
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">In
other words, CLG told Manchester that it had precisely 2,385 troubled families,
and that it was expected to find them and “turn them around”; in return, it
would be paid £4,000 per family for doing so. Amazingly, Manchester did
precisely that. Ditto Leeds. And Liverpool. And so on. And CLG is
publishing these figures as fact. I doubt the North Korean Statistical
Office would have the cheek.</span></span></blockquote>
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<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;">At this point, it should have been
blindingly obvious to the most casual observer that TFP was not - as the
government had claimed - a "payments by results" programme. Numbers
which had absolutely no basis in any objective reality had first become the
basis for targets, then for claimed "success", and then for money. It wasn't payment by results. It was make up the
results as you go along. And cash the cheques. T</span></span><span style="font-family: "arial" , "helvetica" , sans-serif;">he
results of the evaluation should hardly come as a surprise. </span></span><br />
<span style="font-size: small; font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">As a postscript, it's worth noting the
caveats in NIESR's evaluation, which state, carefully and correctly, that
issues with data quality mean that:</span></span><br />
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<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">the
results cannot be taken as conclusive evidence that the programme had no impact
at all</span></span></blockquote>
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<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;">This is quite true. But CLG's attempt
to use this as an excuse for their failures conforms perfectly to the classic
definition of the Yiddish term "chutzpah"(cheek or audacity in
English) - "the man who kills his mother and father, and asks the court
for mercy because he's an orphan". The data quality issues are entirely
the result of the decision by the government to press ahead with spending
hundreds of millions of pounds on an untested, unpiloted programme, on the
basis of little or no evidence, rather than piloting it and/or rolling it out
in such a way that a more robust data collection and evaluation strategy would
have been possible. </span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";"><br /></span></span></span></span><br />
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<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";">So whose fault is this sorry
saga? The senior civil servant who
directed the Troubled Families Programme, Louise Casey, once </span><a href="http://www.bbc.co.uk/news/uk-politics-33592323"><span style="font-family: "arial" , "sans-serif";">said</span></a></span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span><br />
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<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">If
No 10 says bloody 'evidence-based policy' to me one more time, I'll deck them.</span></span></blockquote>
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;">With David Cameron, who appointed her
to this role in 2011, we can be pretty sure no physical violence was
required. Nothing he told her interfered
with her instincts to press ahead, and to ignore both the evidence and the
warnings from me and from others. </span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span><br />
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span>
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;">So it starts at the top. But while
most of the blame rightly rests with Ministers, including the former Prime
Minister, and the responsible senior civil servants at CLG - and they should be
held accountable – it is also important to note that the normal checks and
balances that should have picked up on all this simply failed. What on earth
did the Treasury think it was doing allowing public money to be squandered like
this? Were they busy cutting core local
authority budgets to notice that CLG were throwing hundreds of millions of
pounds away with no serious scrutiny? </span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span><br />
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Nor was it just civil servants.
Parliament didn’t do any better. Where was the National Audit Office? As far as
I can tell it produced one, frankly mediocre report, that fudged or buried the
key points - which were all by this time in the public domain. The key Parliamentary Committees - the Public
Accounts Committee (PAC) and the CLG Committee? They too were asleep at the
wheel. Opposition parties and MPs do not appear to have ever raised any of these points, even though they had ample opportunity to do so.</span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";"><br /></span></span></span></span><br />
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";">On Wednesday, when the PAC holds
a hearing – Ms. Casey will be testifying – they will have a chance to redeem
themselves by asking some of the questions that should have been asked years
ago. You can already read the </span><a href="http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/inquiries/parliament-2015/troubled-families-16-17/publications/"><span style="font-family: "arial" , "sans-serif";">written evidence</span></a><span style="font-family: "arial" , "sans-serif";"> – I’d particularly highlight </span></span></span></span><br />
<span style="font-size: large;"><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";">that
from Stephen Crossley.<br /> <o:p></o:p></span></span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span><span style="font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white;">What
lessons can we learn from this? Most
obvious is the one I started with. Statistics and facts do actually matter.
They translate directly into policy, and hence into real outcomes for real
people. But for that to happen in the
way that it should – and not be distorted by politicians on the way – then the
process not just for the production but for the analysis and interpretation of
statistics and evidence needs to be genuinely independent. I set out some
modest proposals </span><a href="http://www.ft.com/cms/s/0/dcf46a5a-a335-11e4-9c06-00144feab7de.html#axzz4Fk4sL0a9" style="background-color: white;"><span style="font-family: "arial" , "sans-serif";">here</span></a><span style="background-color: white;">. </span></span></span></span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-61809085061528195962013-05-12T12:24:00.002-07:002013-05-12T12:24:54.793-07:00The impacts of immigration: my summary of the evidence (video)<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: Arial, Helvetica, sans-serif;">My summary of the economic evidence on immigration: labour markets, benefits, public services and the long-term impacts on growth and productivity (8 minutes): </span></div>
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<br />Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-27211242923685342302013-05-06T02:36:00.001-07:002013-05-07T01:45:20.709-07:00White flight: "600,000 have quit London in a decade". The true figure is far higher<span style="font-family: Arial, Helvetica, sans-serif;">The Daily Mail is rarely knowingly understated when it comes to a scare story, especially about immigration. However, sometimes ignorance of basic statistical concepts does the job for them. So it is for today's piece, "</span><a href="http://www.dailymail.co.uk/news/article-2320002/How-rise-white-flight-creating-segregated-UK-Study-reveals-white-Britons-retreating-areas-dominated-ethnic-minorities.html"><span style="font-family: Arial, Helvetica, sans-serif;">How rise of white flight is creating a segregated UK</span></a><span style="font-family: Arial, Helvetica, sans-serif;">", which states: </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"<strong>600,000 HAVE QUIT LONDON IN A DECADE</strong></span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">More than 600,000 white British Londoners have left the capital in a decade"</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">This is nonsense. The true figure for the number of white Londoners who've left is far higher - once again, the Mail confuses net with gross figures. Even assuming that we are only talking about Londoners moving from the capital to other parts of the UK (that is, ignoring international emigration, much of which may be non-British and/or non-white), the </span><a href="http://www.ons.gov.uk/ons/dcp171778_280054.pdf"><span style="font-family: Arial, Helvetica, sans-serif;">ONS' best estimate</span></a><span style="font-family: Arial, Helvetica, sans-serif;"> is that about 240,000 people moved out of London in the single year ending June 2011 - over a decade, that adds up to well over 2 million. </span><span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">Of course, by Mail logic, that suggests that I'll be the last white Briton in London by the time I collect my pension. But are white Britons really voting with their feet against multi-ethnic London? </span><span style="font-family: Arial, Helvetica, sans-serif;">The Telegraph<a href="http://www.telegraph.co.uk/comment/telegraph-view/10040664/Mass-immigration-has-left-an-alarming-legacy.html"> thinks so:</a></span><br />
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<span style="background-color: white; color: #282828; line-height: 20.71875px;"><span style="font-family: Arial, Helvetica, sans-serif;">"a continuing pattern of “white flight” from areas where indigenous Britons find themselves surrounded by new minority communities." </span></span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">However, what do the numbers actually say? Two more statistics from the same</span><a href="http://www.ons.gov.uk/ons/dcp171778_280054.pdf"><span style="font-family: Arial, Helvetica, sans-serif;"> ONS release</span></a><span style="font-family: Arial, Helvetica, sans-serif;">: </span><br />
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<span style="font-family: LiberationSans;"><span style="font-family: Arial, Helvetica, sans-serif;">"The London region had the largest turnover of internal migrants in England and Wales with 201,600 estimated moves into the region and 242,000 estimated moves out of the region, and this represents around 5.5 per cent of its mid-2011 population estimate."</span></span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">This doesn't suggest "white flight", since presumably a large majority of those 200,000 people who are moving from other parts of England and Wales to London are white . Rather it suggests a lot of churn; as is well known, there is significant in-migration to London among relatively young people in search of employment, followed in many cases by out-migration when they want to have children and/or a larger house. There is nothing new about this and no reason to believe it has much if anything to do with race.</span> <span style="font-family: Arial, Helvetica, sans-serif;">But do the very large gross figures conceal growing white flight? </span></span><br />
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<span style="font-family: LiberationSans;"><span style="font-family: Arial, Helvetica, sans-serif;">The ONS again: </span>
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<span style="font-family: LiberationSans;"><span style="font-family: Arial, Helvetica, sans-serif;">"In the year ending June 2011, an estimated 40,400 more people left the region than arrived, this represented a reduction of approximately 2,500 in net outflow for the London region when compared to the previous year. This change in the net level of internal migration was consistent with a general trend of a reduction in the net outflow of migrants for the London region over the last ten years."</span></span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">In other words, the ONS thinks that over the last decade the number of people leaving London for the rest of England and Wales has been falling, not rising. In fact, other </span><a href="http://www.ons.gov.uk/ons/rel/regional-trends/region-and-country-profiles/population-and-migration---2013/regional-profiles---population-tables--march-2013.xls"><span style="font-family: Arial, Helvetica, sans-serif;">ONS data</span></a><span style="font-family: Arial, Helvetica, sans-serif;"> shows that even back in 1991 more than 200,000 people a year, pretty much all of them white, were moving out of London (out of a considerably smaller total population). There really doesn't seem to be anything in the aggregate data to support the view that there has been a substantial rise in white people (or people in general) moving out of London, let alone that they are "fleeing" from non-whites (or non-Brits). </span></span><br />
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<span style="font-family: LiberationSans;"><span style="font-family: Arial, Helvetica, sans-serif;"></span><span style="font-family: Arial, Helvetica, sans-serif;">This doesn't mean "white flight" doesn't exist, or that we shouldn't worry about segregation at a local level - the detailed local authority level data for a small number of boroughs is suggestive. But it's very difficult to believe that it's anything like the main driver of London demographics. </span><br />
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<span style="font-family: Arial;">[Note: I may update this later after looking at some of the more detailed data]</span><br />
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Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-66644394157722604452013-05-02T13:50:00.000-07:002013-05-02T15:38:27.924-07:00Comment on Reinhart and Rogoff's FT article<span style="font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 13.5pt;">My <a href="http://www.ft.com/cms/s/0/f9c43336-b282-11e2-8540-00144feabdc0.html">letter to the FT </a>responds to Ken Rogoff and Carmen Reinhart's </span><a href="http://www.ft.com/cms/s/0/cca28c2e-b1a4-11e2-9315-00144feabdc0.html" style="line-height: 13.5pt;">opinion piece</a><span style="line-height: 13.5pt;"> (2 May):</span></span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>"In their article 'Austerity is not the only answer to a debt problem', Ken Rogoff and Carmen Reinhart argue:<u></u><u></u></b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>"the debate needs to be reconnected to the facts. Let us start with one: the ratios of debt to gross domestic product are at historically high levels in many countries, many rising above previous wartime peaks."</b></span></blockquote>
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;"><b> <span style="line-height: 13.5pt;">In an effort to reconnect myself with the facts, I consulted Rogoff and Reinhart's own <a href="http://www.reinhartandrogoff.com/data/browse-by-topic/topics/9/">database</a>. Among G7 countries, their statement is false for the UK, US, Canada, France and Italy. They do not have data for Germany or Japan for the World War 2 peak. More importantly, the way that these very high debts were reduced was primarily by growth, not by rapid fiscal consolidation at a time of weak private demand.</span></b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Nevertheless, their call for more borrowing for public infrastructure investment, and their recognition that such borrowing can make the public finances more, not less, sustainable is welcome. Many of us, including of course Martin Wolf in your columns, have been arguing for some time that in the UK with demand weak, interest rates at historically extraordinarily low levels, and a legacy of underinvestment, this is both basic macroeconomics and simple common sense. The support of Professors Reinhart and Rogoff is welcome. <u></u><u></u></b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Unfortunately, the UK government does not appear to be listening to our advice; despite the much-trumpeted, but very small, additions to capital spending announced recently, public sector net investment over the next five years is planned to average about 1.5 percent of GDP. Three years ago, it was more than twice. So far, most deficit reduction in the UK has been achieved by cutting public investment. That was a mistake which should be reversed."</b><u></u><u></u></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The letter deliberately concentrates on the case for borrowing now to finance investment, where Reinhart and Rogoff have belatedly joined a growing <a href="http://notthetreasuryview.blogspot.co.uk/2013/03/budget-2013-time-for-investment-led.html">consensus</a>. In the interests of brevity and focus, I omitted a couple of points where their article is simply incoherent, which I will set out here. In particular, they argue that we should be cautious about borrowing because interest rates might rise:</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates.No one fully understands why [real interest] rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained...Economists simply have little idea how long it will be until rates begin to rise. If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Leave aside the silly straw man (repeated elsewhere) that "ultra-Keynesians" want an "unlimited open-ended surge in debt." Who are these "ultras"? Not Martin Wolf and Simon Wren-Lewis in the UK, or Paul Krugman and Brad Delong in the US. And, as Reinhart and Rogoff know perfectly well, of course we think (and hope!) that real interest rates will rise at some stage, when demand and confidence returns and the private sector wants to invest. Bringing that time forward is precisely the objective of the policies we advocate.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif; line-height: 13.5pt;">The broader point here is that Reinhart and Rogoff seem to have got their logic completely inverted. At the moment the UK (and US) can borrow very long term at very low or even negative real interest rates; the UK index-linked gilt maturing in 2055 has a real yield below zero. So what Reinhart and Rogoff are arguing is that we should not lock ourselves into long-term debt at very low real interest rates now, because real interest rates might go back up. Suffice it to say that if your financial adviser told you not to take out a long-term fixed rate mortgage now, because interest rates might go up next year, you might reasonably doubt her competence. </span><br />
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<span style="line-height: 13.5pt;">As for the reference to Keynes:</span></span><br />
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<span style="font-family: Arial, Helvetica, sans-serif; line-height: 13.5pt;"><span style="background-color: white;">"John Maynard Keynes himself wrote </span><em>How to Pay for the War</em><span style="background-color: white;"> in 1940 precisely because he was not blasé about large deficits – even in support of a cause as noble as a war of survival."</span></span></blockquote>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; line-height: 13.5pt;">I am genuinely puzzled as to what point they are trying to make here. Of course Keynes was worried about the inflationary impact of high deficits during the War, when demand (for both guns and butter) was effectively unlimited, and supply constrained (with full employment and much of the workforce off fighting). To say the least, that's not where we are now. It's always a little silly speculating what eminent dead people would do today, but it's hardly difficult to figure out what Keynes' prescription would be when unemployment is far too high and investment too low. </span></div>
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Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-73278323748800483002013-05-01T22:23:00.000-07:002013-05-02T01:20:13.209-07:00Underemployment in the UK<span style="font-family: Arial, Helvetica, sans-serif;">In a <a href="http://ner.sagepub.com./content/224/1/F8.abstract">new paper</a> published today in the<a href="http://ner.sagepub.com./content/current"> latest issue of the </a></span><i style="font-family: Arial, Helvetica, sans-serif;"><a href="http://ner.sagepub.com./content/current">National Institute Economic Review</a></i><span style="font-family: Arial, Helvetica, sans-serif;">, economists David Bell and David Blanchflower of the University of Stirling and Dartmouth College introduce a new measure of labour market slack. The conventional measure of the difference between supply and demand in the labour market is the unemployment rate. But it does not capture a phenomenon which has become increasingly important during the current recession - underemployment.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Workers are underemployed when they are willing to supply more hours of work than their employers are prepared to offer. The number of workers willing to supply extra hours can be measured using the UK Labour Force Survey, which also asks underemployed workers how many extra hours they would be willing to work at the same pay rate. Expressing the number willing to supply extra hours as a share of the workforce gives an estimate of the <i>underemployment</i> rate. This rate has risen from 6.2 per cent of the UK workforce in 2008 to 9.9 per cent in 2012 (see figure 1). Over the same period, the unemployment rate rose from 5.8 per cent to 8 per cent.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Underemployment is particularly concentrated among the young, where unemployment rates are close to 20 per cent. In 2012, 30 per cent of those aged 16 to 24 that did have jobs wished to work longer hours. This means that the labour market for the young is even more difficult than the raw unemployment rates imply. Even if there was an upturn in demand, employers would likely extend the hours of existing workers before taking the risk of hiring new young employees.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Ethnic minorities also have high rates of underemployment, particularly those that describe themselves as Black or Black British.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The main driver of the demand for increased hours is likely to be falling real wages. Total hours worked in the economy have increased since the beginning of the recession. But a combination of slow-growing wages and price inflation averaging above 3 per cent since 2008 has led to a reduction in the real value of take-home pay.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Bell and Blanchflower’s innovation is to produce a new index which combines both unemployment and underemployment. It expresses the additional hours that the unemployed and underemployed are willing to provide as a share of total workforce hours. It also accounts for overemployment. Some workers, particularly those aged over 50, want to work shorter hours and are willing to accept less pay.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">When the extra hours that the underemployed desire equals the reductions in hours sought by the overemployed the Bell-Blanchflower index simply reproduces the unemployment rate. This was broadly the case from 2001 to 2007. But as increasing numbers of workers say they want more hours and fewer would like to reduce their hours, this new index rises above the unemployment rate. For 2012, the index stood at 9.9 per cent, well above the unemployment rate of 8 per cent.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">This new measure helps us to understand the true level of excess capacity in the UK labour market and the difficulties face by particular groups within this market. It is also clearly relevant to the debate about the size of the UK output gap. It supports the view that even a substantial increase in aggregate demand is unlikely to exert significant upward pressure on real wages.</span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-13555695190934772432013-04-23T01:52:00.000-07:002013-04-23T12:31:20.423-07:00The deficit is falling..<span style="font-family: Arial, Helvetica, sans-serif;"><b>[Updated 17.00 with HMT response: see end]</b></span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">The deficit is falling! </span><span style="font-family: Arial, Helvetica, sans-serif;">Today's figures show that the budget deficit for 2012-13 (public sector net borrowing, excluding some of the more obvious distortions) was £120.6 billion - £0.3 billion lower than in 2011-12. So maybe the Chancellor's cunning plan - to reduce last year's deficit by not paying some of the UK's bills until this year, also known as "</span><a href="http://www.bbc.co.uk/news/business-21867026" style="font-family: Arial, Helvetica, sans-serif;">the cheque is in the post</a><span style="font-family: Arial, Helvetica, sans-serif;">" strategy, has worked. Or, more prosaically, the government has simply cut public investment again - net investment was £2.4 billion lower in March 2013 than in March 2012, while the current deficit was about £1 billion higher.</span><br />
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">So is the plan on track</span><span style="font-family: Arial, Helvetica, sans-serif;">? Certainly not measured against the government's original intentions. The</span><span style="font-family: Arial, Helvetica, sans-serif;"> Chancellor's first "</span><a href="http://www.conservatives.com/News/Speeches/2010/02/George_Osborne_A_New_Economic_Model.aspx" style="font-family: Arial, Helvetica, sans-serif;">benchmark for Britain</a><span style="font-family: Arial, Helvetica, sans-serif;">" was to cut the deficit at a faster rate than that set out in his predecessor's plans. But under those plans the deficit was supposed to be now about 1% of GDP ( £15 billion) lower than today's figures show. Of course that would never have happened - those plans too were far too optimistic, and would have proved undeliverable. But describing them as insufficiently ambitious - indeed as likely to lead to a debt crisis - and then making even less progress than they implied, can hardly be described as policy success. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">But where we are now is more important. And here the key point is that, as Robert Chote, Chair of the independent Office of Budget Responsibility, has pointed out, deficit reduction "appears to have stalled". Here's his chart:</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">So what's going on? As I noted <a href="http://notthetreasuryview.blogspot.co.uk/2012/10/weve-got-deficit-down-by-quarter-update.html">earlier</a>, most of the deficit reduction has come from cutting public sector net investment (spending on schools, roads, hospitals, etc) roughly in half. Pretty much all the rest came from tax increases (note that the investment cuts and tax increases were both, to a significant extent, policies inherited from the previous government). And we can see when it happened - between 2009-10 and 2011-12.</span><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">But these sources of deficit reduction stopped in 2011-12, because the government belatedly realised that cutting investment was a major mistake and that the economic imperative was actually to do precisely the opposite (not that there was much investment left to cut); and it stopped putting up taxes overall. So we can see also what's happened since - with the impact of the weak economy on tax receipts reducing revenues, the deficit has been flat and is projected to stay flat. As the IFS <a href="http://www.ifs.org.uk/publications/6663">puts it</a>:</span><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"The bigger picture is the same: the Government has implemented a combination of tax rises, welfare spending cuts and cuts to spending on public services and brought about a reduction in the deficit between 2009–10 and 2011–12. However, while 2012–13 also saw further austerity measures being implemented, weak economic performance has meant that the deficit was largely unchanged from its 2011–12 level. The same is forecast to be true in the current financial year: the OBR's forecast is that borrowing will fall by just £0.9 billion to £120 billion in 2013–14. This would leave the deficit largely unchanged for three years."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Of course, contrary to the rhetoric, there was an alternative. In fact there were (at least) three. </span><br />
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<li><span style="font-family: Arial, Helvetica, sans-serif;">The first would have been to listen to the </span><a href="http://notthetreasuryview.blogspot.co.uk/2013/03/budget-2013-time-for-investment-led.html" style="font-family: Arial, Helvetica, sans-serif;">growing economic consensus </a><span style="font-family: Arial, Helvetica, sans-serif;">- now finally joined unequivocally by the IMF, where </span><a href="http://www.edmundconway.com/2013/04/the-imf-vs-george-osborne-the-inside-story/" style="font-family: Arial, Helvetica, sans-serif;">economic analysis is finally overriding political expediency</a><span style="font-family: Arial, Helvetica, sans-serif;"> - that, with borrowing rates at historic lows, ample spare capacity, creaking infrastructure, and a chronic shortage of housing supply, now is the time to borrow and invest. This might raise borrowing in the short term, but at no great short-term cost and with substantial short-term benefits to growth and longer term benefits to the economy. </span></li>
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<li><span style="font-family: Arial, Helvetica, sans-serif;">The second would have been to follow the example of eurozone policymakers, and react to the lower economic growth and hence weaker public finances that have resulted from premature fiscal consolidation with still more, and more damaging, austerity; the death spiral in which several eurozone countries remain trapped. This option has been tested to destruction in Greece and Spain; it would have been a disaster. </span></li>
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<li><span style="font-family: Arial, Helvetica, sans-serif;">The third would have been to listen to what I describe as the neo-Hayekian approach of cutting taxes, but cutting spending even more. This has the merit of intellectual consistency - and of course it is perfectly legitimate to argue, on either political or economic grounds, for a much smaller state over the medium term - but would again, in my view and that of most mainstream economists, be catastrophic in current circumstances. </span></li>
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<span style="font-family: Arial, Helvetica, sans-serif;">The government has chosen none of these alternative approaches; instead, it is simply <a href="http://www.publicfinance.co.uk/news/2013/03/osborne-is-muddling-through-says-portes/">muddling through</a>. </span><span style="font-family: Arial, Helvetica, sans-serif;">A year ago I described the government's refusal to change course as the </span><a href="http://notthetreasuryview.blogspot.co.uk/2012/03/its-not-too-late-to-change-course.html" style="font-family: Arial, Helvetica, sans-serif;">"Macbeth" approach to policy:</a><span style="font-family: Arial, Helvetica, sans-serif;"> well, although the blood is still up to his waist, Macbeth has now decided to pause in the middle of the river. While this is undoubtedly better than pressing on, or adopting the second or third of the approaches set out above, th</span><span style="font-family: Arial, Helvetica, sans-serif;">ere is no economic rationale, theoretical or empirical, that I can think of to justify the particular - very odd looking - trajectory of deficit reduction set out in the chart above (note that the reduction in the cyclically adjusted current deficit, the government's notional target variable, also stalled this year). There's nothing in economic theory that says you pause a third of the way through a deficit reduction programme which has gone way off track; nor does the fiscal framework, now effectively<a href="http://notthetreasuryview.blogspot.co.uk/2012/09/debt-deficits-and-fiscal-framework.html"> defunct</a> with the abandonment of the debt target, dictate this approach. As Matt O'Brien puts it, austerity - such as it is - is "</span><a href="http://www.theatlantic.com/business/archive/2013/04/who-is-defending-austerity-now/275200/" style="font-family: Arial, Helvetica, sans-serif;">a policy without a justification.</a><span style="font-family: Arial, Helvetica, sans-serif;">" We're here because we're here because we're here. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">So what happens next? Eventually, assuming that reasonably healthy economic growth returns, as both we and the OBR do indeed forecast, deficit reduction resumes at a fairly rapid pace, although this to a large extent depends on what Paul Krugman in the US context describes as "<a href="http://krugman.blogs.nytimes.com/2012/08/16/whats-in-the-ryan-plan/">magic asterisks</a>" (that is, future spending reductions that are simply assumed in advance of actually having policies to deliver them). </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">One thing we can be reasonably certain of is that the Budget will in itself do little or nothing to boost growth; the OBR has gone through all the significant policy measures in the Budget (<a href="http://budgetresponsibility.independent.gov.uk/pubs/March-2013-EFO-44734674673453.pdf">Box 3.1)</a> and concluded that while some will have very small positive impacts, and others equally small negative impacts, the overall impact is negligible. </span><span style="font-family: Arial, Helvetica, sans-serif;"> That's not to say we won't get a proper, sustainable recovery at some point; the UK's underlying economic strengths remain, as the current health of the labour market illustrates. But it won't be thanks to macroeconomic policy.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"> To sum up; an honest and accurate description of the progress on the government's deficit reduction plan would be:</span><br />
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<b><i><span style="font-family: Arial, Helvetica, sans-serif;">"We reduced the deficit by a third in our first two years in government, mostly by massive cuts to public investment, which we now understand were a big mistake and have damaged the economy. We've also now realised that trying to reduce the deficit further while the economy isn't growing is self-defeating, so we're not even going to try to get back on track until it does grow. </span><span style="font-family: Arial, Helvetica, sans-serif;">We won't miss our fiscal targets, since we no longer really have any. If the IMF understood that we're not really going anywhere, perhaps they would stop telling us to change course."</span></i></b></blockquote>
<b><span style="font-family: Arial, Helvetica, sans-serif;"><u>UPDATE 17.00 23 April. </u></span></b><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">The Treasury have been in touch with a response: here it is in full: </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"Given the unprecedented size of the UK's fiscal
deficit and the record overhang of private sector debt, the Government's
macroeconomic strategy is a combination of fiscal responsibility and monetary
activism. The Government has set fiscal policy to meet the fiscal mandate which
is to eliminate the structural current budget deficit over a 5 year forecast
horizon. In response to slower than forecast growth due to the eurozone crisis
and the damage done by the financial crisis, the Government has stuck to
announced fiscal plans while allowing the automatic stabilisers to operate
freely and has not tightened fiscal policy in order to chase the debt target.
This strategy is well understood by economic commentators and financial markets
and has maintained fiscal credibility while delivering a gradual and relatively
steady reduction in the estimated structural deficit. Since the Government came
to office the deficit is down by a third and the structural deficit has been
reduced by more than any other G7 country. Over the forecast horizon the
reduction in the structural deficit is around 1% of GDP per year, in line with
the IMF's recommendation for advanced countries, despite the fact that the UK
has one of the largest structural deficits in the developed world."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Readers can largely judge for themselves. I will merely note three points. First, as observed above, and explained more fully </span><a href="http://notthetreasuryview.blogspot.co.uk/2012/09/debt-deficits-and-fiscal-framework.html" style="font-family: Arial, Helvetica, sans-serif;">here</a><span style="font-family: Arial, Helvetica, sans-serif;">, eliminating the structural current deficit in 5 years - without the debt target - is not a constraint on anything. The Treasury is well aware of this, because in the 2010 Budget they gave a very clear explanation of the need for the debt target to ensure that there is some binding constraint. Second, note the unexplained switch in the second half of the paragraph from the structural </span><u style="font-family: Arial, Helvetica, sans-serif;">current</u><span style="font-family: Arial, Helvetica, sans-serif;"> deficit to the structural deficit, which is not the same thing and was never part of the original framework. As for "relatively steady reduction", we can simply look at table 4.34 of the OBR's</span><a href="http://budgetresponsibility.independent.gov.uk/pubs/March-2013-EFO-44734674673453.pdf" style="font-family: Arial, Helvetica, sans-serif;"> Economic and Fiscal Outlook</a><span style="font-family: Arial, Helvetica, sans-serif;">, which shows essentially no reduction in the structural deficit ("cyclically-adjusted PSNB ex. Royal Mail and APF") in 2012-13. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">To repeat, policy could undoubtedly be worse; muddling through is better than some of the alternatives. But I remain of the view that this is not a coherent fiscal strategy. </span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-73360922874614866372013-04-09T15:00:00.000-07:002013-04-09T07:01:40.682-07:00Recessions and recoveries: a historical perspective (updated April 9, 2013)<span style="background-color: white; color: #222222; line-height: 18px; text-align: left;"><span style="font-family: Arial, Helvetica, sans-serif;">Here is NIESR's chart showing the path of recession and recovery in various previous downturns, updated for our estimate of monthly GDP, published April 9, 2013. </span></span><br />
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">Our monthly estimates of GDP suggest that output rose by 0.1 per cent in the three months ending in March, after a rise of 0.1 per cent in the three months ending in February 2013. While this suggests that the economy did not fall back into recession, it implies that the economy continued to stagnate in the first quarter of this year. </span><br />
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<span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">Over a longer perspective, this represents the slowest post-recession recovery in output in the past one hundred years; the economy was only ½ per cent larger in the first quarter of 2012 as it was in the third quarter of 2010. Indeed, per capita GDP - the simplest measure of the UK's overall economic prosperity - actually fell over this period; we do not expect it to regain its pre-recession peak until approximately 2018.</span><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; line-height: 18px;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #222222; line-height: 18px;"></span></span><span style="font-family: Arial, Helvetica, sans-serif;"><br style="background-color: white; color: #222222; line-height: 18px;" /><span style="background-color: white; color: #222222; line-height: 18px;">Looking forward, the focus should be on whether stagnation persists throughout 2013. </span></span><span style="font-family: Arial, Helvetica, sans-serif;">NIESR’s latest quarterly forecast (published 5th February 2013) projects growth of 0.7 per cent per annum this year and 1.5 per cent in 2014. </span><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">More detail on NIESR's latest quarterly forecast for the UK economy, published February 4, is</span><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; line-height: 18px;"> </span><a href="http://www.niesr.ac.uk/pdf/050213_01924.pdf" style="background-color: white; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">here</a><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">. Our comment on the 2013 Budget, and the OBR forecast, is <a href="http://www.niesr.ac.uk/press/budget-2013-and-obr%E2%80%99s-forecasts-%E2%80%93-niesr%E2%80%99s-response-11172#.UWQecpPJyQQ">here</a>. </span><br />
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Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-77933446520454242652013-04-04T23:56:00.004-07:002013-04-08T01:49:01.281-07:00When it comes to migration, there are no winners in the numbers game<span style="font-family: Arial, Helvetica, sans-serif;"><b><i>NIESR's research for the Foreign and Commonwealth Office, by NIESR researchers Tatiana Fic, Mumtaz Lalani, and Heather Rolfe, on the impact of immigration from Bulgaria and Romania was published <a href="http://www.niesr.ac.uk/publications/potential-impacts-uk-future-migration-bulgaria-and-romania#.UV51Q5PIU1-">today</a>. The key findings are discussed in detail by Heather Rolfe in the New Statesman <a href="http://www.newstatesman.com/economics-blog/2013/04/what-will-be-effect-bulgarian-and-romanian-migration-uk">here</a>. Here, Heather explains what's not in the research - an estimate of the numbers of new migrants likely to move to the UK from Bulgaria and Romania after January 1, 2014.</i></b></span><br />
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">Speculation about migration from Romania and Bulgaria has barely been out of the news since the start of 2013. The countdown to midnight was shortly followed by a media countdown of 365 days to the lifting of interim restrictions on the right of citizens of the two countries to live and work in the UK. Like previous press coverage on migration, the focus has been on numbers. In January, the pressure group <a href="http://www.migrationwatchuk.org/briefingPaper/document/287">Migration Watch</a> predicted a post-2014 flow of around 50,000 people from the two countries each year. At around the same time, the <a href="http://www.telegraph.co.uk/news/politics/9832741/Migrant-report-was-suppressed-says-Labour.html">Daily Telegraph</a> referred to work we at NIESR were conducting, which is now published, and to speculation that we would produce a figure. Our report includes no such predictions. We were not asked to produce one and never intended to. This is why.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /> </span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Migration behaviour is unpredictable</b></span><span style="font-family: Arial, Helvetica, sans-serif;"><br /> <br />As we know from the 2004 experience, when the UK allowed free movement of workers for the previous round of new EU Member States, forecasting migration is inherently very difficult. As previous <a href="http://www.res.org.uk/details/mediabrief/1452985/Drivers-Of-International-Migration-To-The-UK.html">NIESR research</a> has shown, even sophisticated econometric models - let alone Migration Watch's guesstimates - are likely to be highly inaccurate.<span style="background-color: white;"><span style="text-align: justify;"> As the Telegraph has also pointed out, e</span><span style="text-align: justify;">arlier <a href="http://www.niesr.ac.uk/publications/labour-mobility-within-eu-impact-enlargement-and-functioning-transitional-arrangement-0#.UV3p3ZPIU18">research</a> by NIESR in 2011 made estimates of potential migration flows based on the UK's share of earlier migration from Romania and Bulgaria, but these were made before it was known that the UK would extend transitional controls, while other countries would not. </span></span></span><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><span style="text-align: justify;">Since then, some migrants who might have been expected to come to the UK have gone elsewhere, particularly Spain and Italy.</span></span><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Meanwhile, estimates based on survey evidence alone are worthless; surveys about migration intentions of Bulgarians and Romanians do exist, but they simply measure an interest or potential willingness to migrate. Whether they remain a dream or become reality depends on a whole host of other factors; they should not be used as a basis for policy making in the UK any more than France should prepare for a middle class invasion of Provence.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"> <br />The UK is not a favoured destination for Romanians and Bulgarians, with Spain, Italy and Germany more attractive to prospective migrants. However, there is still considerable uncertainty, since migration is highly dependent on economic, political and social factors in sending and potential host countries. Of all the factors behind migration decisions, economic ones are possibly the most unpredictable, yet for prospective Eastern European migrants they are most important – they are attracted by the opportunities to work.<br /><br /><b>Some migration from Bulgaria and Romania to the UK has already happened</b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><b><br /></b></span><span style="font-family: Arial, Helvetica, sans-serif;">The UK’s doors are not opening in 2014 for the first time for Bulgarians and Romanians. Significant migration from the two countries has already happened but they haven’t been able to work where they choose. They have been largely confined to shortage sectors including hospitality, cleaning services, construction and trade, and to self-employment. These existing migrants may stay put once restrictions are lifted, but may change jobs. Another possibility is that some migrants currently in the UK may move elsewhere within the EU once restrictions are lifted across the EU in 2014.</span><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><b style="font-family: Arial, Helvetica, sans-serif;">If not numbers – what should migration debates focus on?</b><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><b><br /></b></span><span style="font-family: Arial, Helvetica, sans-serif;">The focus of our report is on the potential impact of migration on demand for services. Those who plan service provision properly do not use overall population estimates – they look at the characteristics of populations. All evidence on current and future migration from Eastern Europe shows consistently that migrants are young and healthy, they come to the UK to work and not to claim out of work benefits, as a </span><a href="http://www.guardian.co.uk/commentisfree/2013/mar/06/uk-benefits-eu-migrants-what-crisis" style="font-family: Arial, Helvetica, sans-serif;">recent article</a><span style="font-family: Arial, Helvetica, sans-serif;"> by NIESR director Jonathan Portes clearly explains; even Migration Watch <a href="http://news.migrationwatch.org.uk/2013/04/the-contribution-of-a8-migrants-to-the-uk-public-finances-some-further-comment.html">agree</a>.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Meanwhile, they tend to under-use services such as health, welfare benefits and social housing. Whether they make demands or not depends crucially on whether they settle in the UK. But settlement of migrants doesn’t just bring costs, it brings benefits to the UK, in the form of skills, tax revenue and, in the case of schools, it seems they improve performance rather than drain resources. We shouldn't forget these important contributions which include working in our health and social care services, building our houses and caring for our children. If we continue the numbers game we’ll lose sight of the real issues around migration, so let’s end it and start talking sense.</span>Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-52974663234399041602013-04-04T13:39:00.000-07:002013-04-04T13:43:25.478-07:00The (economic) objectives of immigration policy: a dialogue with Martin Wolf<span style="font-family: Arial, Helvetica, sans-serif;">I recently devoted a </span><a href="http://notthetreasuryview.blogspot.co.uk/2013/03/david-goodharts-fantasy.html" style="font-family: Arial, Helvetica, sans-serif;">blog post</a><span style="font-family: Arial, Helvetica, sans-serif;"> to an analysis of David Goodhart's claim that people in Whitehall and Westminster made immigration policy on the basis of a view that "</span><a href="http://notthetreasuryview.blogspot.co.uk/2013/03/david-goodharts-fantasy.html" style="font-family: Arial, Helvetica, sans-serif;">the only decent policy is to throw open our doors to all</a><span style="font-family: Arial, Helvetica, sans-serif;">" - an assertion so self-evidently absurd I am still astonished an intelligent person could actually write it down and expect to be taken seriously. David's </span><a href="http://notthetreasuryview.blogspot.co.uk/2013/04/a-response-from-david-goodhart.html" style="font-family: Arial, Helvetica, sans-serif;">defence</a><span style="font-family: Arial, Helvetica, sans-serif;"> appears to be that he didn't really expect the words that appeared under his name in the Daily Mail to be taken at face value. This is not in my view how a serious researcher approaches a serious issue, but please read David's piece in full if you think I'm being unfair. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">However, the blog provoked a very interesting debate in the comments section, addressing much more real, substantive and difficult issues than David's original articles. In particular, Andrew Green from Migration Watch noted that (almost in passing) I had said that GDP per capita was a better measure of the economic benefits of migration than GDP; this in turn led to a lengthy discussion with Martin Wolf. The full set of comments (and there are a number of interesting contributions from others) can be be read </span><a href="http://notthetreasuryview.blogspot.co.uk/2013/03/david-goodharts-fantasy.html" style="font-family: Arial, Helvetica, sans-serif;">here</a><span style="font-family: Arial, Helvetica, sans-serif;">, but I thought that it was worth pulling out my exchange with Martin, which we also continued on email. I have edited it for readability, but don't think I've changed the main points. I am very grateful to Martin for allowing me to reproduce his words in this format. </span><br />
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<b style="font-family: Arial, Helvetica, sans-serif;"><u>Martin </u></b></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br />"Aggregate GDP is, as I frequently noted at the time, a ludicrous measure of the benefits of immigration. That the Treasury used it was scandalous. Indeed, if that were the goal, elimination of controls on immigration would have been the right policy, because that would have maximised GDP.<br /> <br />Leave that absurd position aside. The question, then, is what weight should be put on the welfare of future immigrants. If the weight is very much higher than zero, then one is getting ever closer to the cosmopolitan welfare position that David is describing. So what was (and now should) the weight be, Jonathan?<br /><br />To put it in the context of your debate with David, let us agree that UK immigration policy is not concerned with the welfare of Burundi. But what is the value it places on the welfare of the Burundians who will arrive, as a result of a liberal policy?<br /><br />I would argue that this weight should be zero. Under a zero weight on the welfare of future immigrants (surely the position of most British citizens), the policy question becomes not what is the impact on GDP per head, or productivity per worker, but the impact of immigrants (of different kinds) on GDP per head (and its distribution) for those already in the UK. That was never the criterion used by the previous government, so far as I know</span>.<br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">To defend my assumption that the weight on the
welfare of potential immigrants should be (close to) zero, I would note that if
one adds foreign aid, net contributions to the European Union and that part of
the defence budget which might be of benefit to foreigners, the sum is certainly
considerably less than 5 per cent of total public spending (with aid at about
1.5 per cent of spending). Thus, 95 per cent of spending goes on 60m British
residents, while 5 per cent goes on the rest of the world’s roughly 7bn people.
So, revealed preference suggests that the weight placed by the British on the
welfare of foreigners is not much greater than zero per head.</span>"<br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><u>Jonathan</u></b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"> "What should the
weight be? I agree there is a case for zero when we're talking about
immigration policy decisions. But there's an obvious philosophical time
inconsistency problem there. When does the weight become positive, and
when 1, as immigrants become settled members of UK society, and eventually
citizens? Let's leave that for now, and stipulate, for the sake of
argument, that it's zero.<br />
</span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br />
Even if we make this assumption, I do think that there is a strong practical
argument for GDP per capita being the primary economic objective of immigration policy, even if the welfare weight
on new immigrants is zero. Given a significantly progressive tax and
benefit system, then the purely fiscal effects imply that high productivity
immigrants will raise the welfare of the existing population, because they'll
pay in more than they take out. That is even before you take into account
labour market impacts (high productivity immigrants will presumably exert
downward pressure on wage inequality) and productivity spillovers, which you
would expect to be positive from high productivity immigrants. So it is
difficult to think of circumstances under which an immigration policy directed
at increasing GDP per capita wouldn't also increase the welfare of existing
residents. Do you disagree?</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br />
And as an illustration of this, it's obviously absurd to suggest the previous
government didn't regard the distributional impact of immigration as a
criterion alongside GDP and/or GDP per capita. While I was at DWP, I wrote
papers, and commissioned external research, on the unemployment and wage
impacts of immigration. Ministers and my superiors didn't allow me to do this
because they thought abstract academic papers were a good use of civil service
time and money, but because they were keenly interested in the distributional
impacts of immigration policy, especially on the unemployed, young and
low-skilled. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">I would also note that if you don't agree with this logic, and
think we should ignore the fiscal effects and other spillovers, then perversely
you could actually end up at a more liberal position, because migration just
becomes economically directly analogous to trade. In that case of course the
natives benefit, for the usual reasons we all agree on.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Abstracting from this, I do find the GDP/GDP per capita
argument slightly overdone. As you and I well know, the government's objective function has many
arguments, of which aggregate economic outcomes (GDP, GDP per capita, productivity)
are only one, and far from determinative. If all policies, immigration
and otherwise, were directed at maximising either GDP, GDP per capita, or any
other single variable, things would be very different indeed."</span></div>
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<b><u><span style="font-family: Arial, Helvetica, sans-serif;">Martin</span></u></b></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">"On the economics, the impact of moving a large number of
people into a country is very complex. But I am inclined to believe, on the
evidence I know, that liberal immigration of highly skilled people is likely to
benefit both the economy and nearly all the people inside it. The only
important qualification comes via the impact on the scarcity of resources
(land) and costs of housing. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The impact of immigration of relatively less skilled people
is more complex, distributionally, at least. I think the white working class
has almost certainly been harmed by immigration of relatively unskilled people,
not least because it has reduced the incentive to train them.<br />
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<span style="font-family: Arial, Helvetica, sans-serif;">I think your question about the time inconsistency of the
weight to be placed on the welfare of potential immigrants is very interesting.
This seems to be similar to the question of abortion - a foetus has no
moral value, perhaps, but the baby it would become, if not aborted, does.
Similarly, a foreigner has no weight, but a foreigner does have weight if
allowed to enter. Such somewhat arbitrary lines are difficult to draw. My
answer has been that countries are like clubs.
They can decide who members are. Once you are a member, you matter to
the club. If you are not a member, you don't.<br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Finally, I think the trade analogy doesn't work. Standard
trade theory assumes fixed factors of production, the most important of which,
from a welfare point of view, is labour. If you assume, instead, that labour
and capital are freely mobile, we are in the world of regional economics. Assume that a given country is
capital-abundant, before opening. Then free immigration will reinforce whatever
tendency free trade gives towards factor price equalisation. Wages will then
fall towards the global equilibrium level. The benefits accrue to local
capitalists and landowners. While aggregate world economic output will rise,
the effects on the welfare of nearly all residents of capital-abundant
countries will be negative. In theory, they could be compensated. In practice,
particularly with mobile capital, they won't be."</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><u>Jonathan</u></b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">"I think we are in broad agreement on the impact of relatively
skilled immigration.<br />
<br />
On low skilled immigration, I am less
convinced. I agree it is an empirical question. But I think the evidence of
significant harm is thin to nonexistent:</span></div>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">as you know, the overwhelming
<a href="http://cep.lse.ac.uk/pubs/download/ea006.pdf">conclusion </a>of the econometric work on labour markets is that impacts are
zero/insignificant, and certainly dwarfed by other factors (skill biased
technological change, the national minimum wage, and so on)</span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">on incentives to train, I understand the theoretical case, but am not aware of
any empirical work in the UK. What I would say is that - as you and Alison
[Martin's wife, author of an excellent<a href="https://www.education.gov.uk/publications/standard/publicationDetail/Page1/DFE-00031-2011"> report </a>for govenrment on vocational
education] know - British employers have historically not done well at
training lower skilled young people, and this long preceded the large expansion
in low skilled immigration</span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">nor does the incentive to acquire educational qualifications appear to
operate on individuals in this way. As your colleague Chris Cook has so
convincingly<a href="http://www.ft.com/cms/s/0/f432a740-dc95-11e1-bbdc-00144feab49a.html"> shown</a>, attainment of working class white kids in London has
improved remarkably over the last decade as they have become increasingly
surrounded by the children of immigrants. Meanwhile, attainment of
working class white kids who live in areas where they neither attend schools
with immigrants or compete with them in local labour markets has<a href="http://www.ft.com/cms/s/0/8f65f1ce-5be7-11e2-bef7-00144feab49a.html#axzz2PQsEHttg"> fallen wellbehind.</a> We do not know why this is the case, but it is hardly consistent with
your thesis. </span></li>
</ul>
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<span style="font-family: Arial, Helvetica, sans-serif;"> I'm not sure I follow your argument on trade. As you say the standard
trade thought experiment is to assume fixed factors by country and see what
happens when you liberalise goods trade; and the standard result is a tendency
towards factor price equalisation and overall welfare gains for both countries.
The same is surely true of liberalisation of labour movements. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Consider for example a tradeable, low skilled industry with
not much capital required and small barriers to entry - call centres, for
example. In this case, surely the impact of allowing Indian companies to bid
for UK call centre contracts is formally identical to allowing Indians to come
here to work in call centres? British call centre workers lose, displaced into
other sectors and having to accept lower wages, while British consumers of call
centre services gain. We can argue out whether the distributional
consequences outweigh the efficiency gains and whether, in practice, the
resulting overall surplus will be "fairly" distributed, but surely
the theoretical model is mathematically identical.</span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /><span style="font-size: small;">
I don't take from this that all migration is good in the same way that all
trade is (more or less) good, because in fact the static welfare gains from
trade are quite small, and - returning to the earlier point about the impacts -
I do think that at some point low skilled immigration is likely to have
seriously negative distributional consequences. But I do think that those who
thought that it was right, on principle, to allow the UK coal industry (say) to
be destroyed because the standard economics of trade argued that this was
likely to benefit the UK economy overall should have to explain why similar
arguments don't apply to immigration.</span><br />
<br /><span style="font-size: small;">
Finally, I doubt this leaves us very far apart in policy terms, and would be
interested to what extent you agree:</span></span><br />
<ul><span style="font-family: Arial, Helvetica, sans-serif;">
<li>I am in favour of free movement of labour in the EU, notwithstanding the potential disadvantages of
some unskilled immigration, since these seem to me to have been empirically
very small so far compared to the broader economic and political advantages</li>
</span></ul>
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</span>
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<ul><span style="font-family: Arial, Helvetica, sans-serif;">
<li>I favour a relatively liberal approach to skilled immigration coming here
from outside the EU, for the reasons we discussed above;</li>
</span></ul>
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</span>
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<ul><span style="font-family: Arial, Helvetica, sans-serif;">
<li>moreover, I think there should be a presumption that those who've been here
a few years and have demonstrated an ability to make a contribution and some
degree of integration should be allowed to stay permanently ("join the
club") in your phrase</li>
</span></ul>
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</span>
<br />
<ul><span style="font-family: Arial, Helvetica, sans-serif;">
<li>I think the government's objective of reducing net migration, and in
particular setting a numerical target, is subject to all the usual objections
for this sort of target in the economic sphere. And it's likely to be
particularly damaging in this policy area, since the "marginal"
migrants - those who policy can keep out - are likely to be skilled workers and
students. Even worse, the target also forces government to seek to expel
students and workers who've come here on temporary visas but wish to stay,
usually because they've attained some form of economic and/or social
integration."</li>
</span></ul>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><u>Martin</u></b> </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">"Let me comment/clarify a few important points.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">First, I agree that the conclusion of the econometric work
is that the impact is insignificant. I think this is because the immigration
itself has been quite small, in relation to the labour market. It is not
difficult for me at least to imagine that the impact would be substantial if,
for example, unskilled immigration were to be expanded dramatically (on which
further below).<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Second, your comment on training by UK employers is well-taken.
I am interested in your point that the
performance in school of working class children is better if they have to
compete with children of immigrants. My question, though, is what happens when
they go out into the labour market to compete with fresh immigrants with
already high qualifications. It may be that this has no effect on the behaviour
of employers. But I would need to be convinced of this.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Third and most important, I made my little analysis of trade
vs migration too simple. I will try to give a fuller view of what is going on. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The tendency towards wage equalisation generated by liberal
trade alone, though present, is not overwhelming. This is partly because countries
are not working with the same know-how (though this point has become weaker, in
recent decades). More important, the large amount of non-tradeable activity and
the possibility of non-overlaps in production between rich and poor countries
diminish the likelihood of factor price equalisation.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">A high-income country ends up specialising in ultra-high-human-capital-intensive
output, while relatively unskilled workers no longer able to work in tradeable activities find at least tolerable
opportunities in non-tradeable activities. Wages of relatively unskilled people
are then no longer determined by opportunities to trade. Meanwhile,
opportunities to trade are very important to many developing economies. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">But free movement of labour (the analogy with free trade)
would, I fear, be a far more powerful force for wage equalisation, to the
benefit of landowners and owners of capital (including high-level human capital),
since immigrants would then penetrate even the non-tradeable sector. I think
this could be very socially disruptive indeed.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">To come to the policy conclusions:</span><span style="font-family: Arial, Helvetica, sans-serif;"> </span></div>
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<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">First, I would accept free movement of labour in the
European Union, though there should be a significant time-period before
immigrants could have a right to domestic welfare benefits. The – to my mind,
reasonable – assumption would be that if people were unable to support
themselves from work, they would return home, unless/until they had developed a
substantial attachment to the UK.</span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Second, I would favour a liberal approach to skilled
immigration, giving a particular preference to people who have qualified in
scientific and technical subjects in UK universities. I would also auction work
permits for different periods to employers or individuals and let the price
tell me whether the policy was too restrictive. Anybody who has worked in the
UK long enough, on these terms, would become eligible for citizenship. (We
agree on this.)</span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Third, I would be restrictive on immigration of relatively unskilled
people.</span></li>
</ul>
<o:p><span style="font-family: Arial, Helvetica, sans-serif;"> </span></o:p><span style="font-family: Arial, Helvetica, sans-serif;">Note that I have deliberately avoided discussion of
non-economic aspects."</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><u>Jonathan</u></b></span></div>
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<!--[endif]-->Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-15385097466693579362013-04-03T11:21:00.004-07:002013-04-03T11:26:09.199-07:00A response from David Goodhart<blockquote type="cite">
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>[David Goodhart's response to my <a href="http://notthetreasuryview.blogspot.co.uk/2013/03/david-goodharts-fantasy.html">blog </a> is now posted below]</b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><i>David Goodhart here</i></b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">I agree with Martin! But can I just clear up Jonathan's original misunderstanding. He jumped on a couple of paragraphs in an excerpt of my book in the Daily Mail, and I think unfairly twisted them. I would not have expressed things in quite the blunt way that the Mail did (an excerpt often involves a bit of re-writing and simplifying, that is what happens and I am not blaming the Mail). But even in the Mail version "I" did not say that the Treasury policy was "driven" by a belief in the equal or greater importance of the welfare of Burundians.</span></div>
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">I did report a conversation in which two influential figures in British public life, did say that was their belief. What the Mail did have me saying was that a liberal openness ("throwing the doors open" in Mail speak) was the "instinctive reaction" for many people in Whitehall and it helped "set the tone." A bit of an exaggeration perhaps but not the rank absurdity that Jonathan claims. But just for the record below is an extract from a piece in the last issue of the Sunday Times, that I did write, which tries to explain why politicians talk a lot about immigration but say so little, and also explains what I do believe about elite universalism.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">"This is also about a gulf in political instinct [between most voters and many members of the policy elite] . I was struck by this two years ago dining at an Oxford college. When I said to my neighbour, one of the country’s most senior civil servants, that I wanted to write a book about why liberals should be more skeptical about large-scale immigration, he frowned and said, ‘I disagree. When I was at the Treasury I argued for the most open door possible to immigration … I think it’s my job to maximise global welfare not national welfare.’ I was surprised to hear this from such a senior figure in a very national institution and asked the man sitting next to the civil servant, one of the most powerful television executives in the country, whether he believed global welfare should be put before national welfare, if the two should conflict. He said he believed global welfare was paramount and that therefore he had a greater obligation to someone in Burundi than to someone in Birmingham. </span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">My dining companions were unusual. Very few people, even in the liberal elite, believe that the idea of human equality means that we have equal obligations to all people, everywhere. But there tends to be a more “universalist” assumption the higher up the educational scale you go.</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">The liberalism shared by much, though not all, of the political elite likes the idea of community in theory but does not see </span><span style="font-family: Arial, Helvetica, sans-serif;">that a meaningful one excludes as well as includes. To this kind of liberalism people are rational, self-interested individualists existing apart from group attachments or loyalties. Much of modern economics and law are based on this model of how people behave. And if you accept the liberal premises then any defence of tradition or community is likely to appear irrational or, in the case of immigration, racist. </span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">There is a dilemma here, especially for the left, between the obligations of governments to prioritise the well-being of their own citizens and a more universal ethic that values the well-being of all humanity. As David Miliband has written: ‘The left is torn between a commitment to individual human rights for all people, whatever their nationality, and a recognition that communities depend on deep roots.’ By plumping for a New York refugee charity over South Shields, Miliband has perhaps made his choice.</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">But for most ordinary voters there is no dilemma here at all. They are moral particularists with a hierarchy of obligation that ripples out from family and friends to town and country and then rest of humanity. They believe that belonging to a nation means prioritizing the interests of national citizens before outsiders, if the two should conflict, and are therefore dismayed to discover that their government cannot give priority to their interests in the labour market or welfare system or housing list over someone from Latvia or Romania. </span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">British politicians, with the exception of those that want to quit the EU, are caught in a bind. They generally like talking about Britishness and “all being in it together” and, rightly, appreciate the value of moderate national feeling especially in a more fragmented and diverse country. Yet, as the ordinary voter understands, those same politicians have agreed to the abandonment of national citizen preference within the EU. No wonder their speeches sound a bit hollow and technical."</span></blockquote>
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Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-14835930939899899092013-03-27T14:22:00.002-07:002013-03-28T14:01:13.901-07:00David Goodhart's British fantasy<span style="font-family: Arial, Helvetica, sans-serif;">David Goodhart's book on immigration and the UK, the </span><a href="http://www.guardianbookshop.co.uk/BerteShopWeb/viewProduct.do?ISBN=9781843548058" style="font-family: Arial, Helvetica, sans-serif;">British Dream</a><span style="font-family: Arial, Helvetica, sans-serif;">, hasn't been released yet. But on what I know (I've discussed these issues with David numerous times and he kindly asked me to read part of the draft) it will have a tremendous amount of sociologically interesting anecdote but a rather selective, at best, reading of the evidence. I suspect I will agree to a considerable extent with some of the conclusions on the broad approach to integration, while disagreeing violently with immigration policy prescriptions that I consider very poorly reasoned and economically damaging. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">[<u><b>UPDATED</b></u> 11pm 27/3 - SEE END]</span><br />
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<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">But meanwhile I wanted to pick up on one point David has raised in two articles, which strikes me as not just wrong, but outlandish, and makes me wonder about the coherence of his general thesis. In the </span><a href="http://www.dailymail.co.uk/news/article-2297776/SATURDAY-ESSAY-Why-Left-epic-mistake-immigration.html" style="font-family: Arial, Helvetica, sans-serif;">Mail</a><span style="font-family: Arial, Helvetica, sans-serif;"> he wrote: </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"There has been a huge gap between our ruling elite’s views and those of ordinary people on the street. This was brought home to me when dining at an Oxford college and the eminent person next to me, a very senior civil servant, said: ‘When I was at the Treasury, I argued for the most open door possible to immigration [because] I saw it as my job to maximise global welfare not national welfare.’I was even more surprised when the notion was endorsed by another guest, one of the most powerful television executives in the country. He, too, felt global welfare was paramount and that he had a greater obligation to someone in Burundi than to someone in Birmingham."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">And he repeated this in the </span><a href="http://www.guardian.co.uk/books/2013/mar/27/why-left-wrong-mass-immigration" style="font-family: Arial, Helvetica, sans-serif;">Guardian</a><span style="font-family: Arial, Helvetica, sans-serif;">: </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"In busy offices up and down the land some of Britain's most idealistic young men and women – working in human rights NGOs and immigration law firms – struggle every day to usher into this <a href="http://www.guardian.co.uk/books/society" style="background-repeat: no-repeat no-repeat; border-collapse: collapse; color: #005689; margin: 0px; padding: 0px; text-decoration: none;" title="More from guardian.co.uk on Society">society</a> as many people as possible from poor countries.They are motivated by the admirable belief that all human lives are equally valuable. And like some of the older 1960s liberal baby boomers, who were reacting against the extreme nationalism of the first half of the 20th century, they seem to feel few national attachments. Indeed, they feel no less a commitment to the welfare of someone in Burundi than they do to a fellow citizen in Birmingham"</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">So apparently UK immigration policy, from the Treasury downwards, has been driven by a common objective, shared by the liberal elite, of "maximising global welfare not national welfare" - with that of somebody from Burundi having the same value, from a policy-making perspective, as that of somebody from Birmingham. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">To describe this as a straw man is far too generous. It is such obvious nonsense that it is completely inexplicable that anybody as intelligent as David could possibly have got to the point of writing it down - if he were not blinded by a preconceived viewpoint that has absolutely nothing to do with the reality of UK policymaking. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Just think about it for, say, 10 seconds. If it had been the case, what would policy have actually looked like? Well, for a start, if the Treasury cared as much about Burundi as Birmingham we'd presumably have allowed free movement of people from Burundi - they should have just as much chance to get a job in London, or access the NHS, as UK natives. Coincidentally, we do actually know how many people born in Burundi are resident in England and Wales, from yesterday's <a href="http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-301985">Census release</a>: a grand total of 4,169 or about 0.008% of the resident population (and about 0.05% of the Burundian population). </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Moreover, we would have been spending (per capita) on aid to Burundi about what we spend on public services in Birmingham. In fact, when we had an aid programme to Burundi, it was worth about £2 per head per year; Brummies, like the rest of us, get £10,000 per head or so, very roughly. At a more macro level, it is hardly a secret - you would expect nothing less from a responsible finance ministry - that the Treasury, under both this government and the previous one, has done its level best to stop the 0.7% target for overseas aid being written into law. This is not how an organisation that was trying to maximise global welfare would behave. </span></div>
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<span style="color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">So what was the real goal of UK immigration policy in the 2000s? It was hardly a secret. </span><span style="color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">To state the obvious, policy-making in the Treasury, as on other policy issues, prioritised overall UK economic welfare, for which - being a quantitative department - it tends to regard GDP as being a pretty good indicator. Now, many people would argue that for immigration policy, which affects the level of population as well as that of GDP, GDP per capita is a better measure (and I'd agree) - although the Treasury tends to point out that in the short term it's GDP that matters for the public finances. In any case, politicians, media and the public focused on UK GDP - as they still do - as the most important indicator of the Treasury's success. Not surprisingly, so did and does the Treasury, nothing if not a political department. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The result was that within Whitehall the Treasury, with its focus on growth and hence the economic gains from immigration, waged a continual battle with the Home Office, whose raison d'etre was immigration control. Meanwhile, many outside - including David - criticised the government, and especially the Treasury, for seeing immigration through an exclusively economic lens, without thinking enough about social cohesion and wider cultural impacts. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">These are perfectly legitimate debates, which I won't go into further here; but certainly they were live both in the Treasury and around Whitehall, as well as outside, in the 2000s. </span><span style="background-color: transparent; font-family: Arial, Helvetica, sans-serif;">Indeed, you only have to read the now notorious 2001 Cabinet Office paper (I was the lead author) "<a href="http://library.npia.police.uk/docs/homisc/occ67-migration.pdf">Migration: An Economic and Social Analysis</a>", which was the basis for policy development for the rest of the decade, to see the tensions even then. That concluded that the overarching aim should be "</span><span style="background-color: transparent;"><span style="color: #333333; font-family: Arial, Helvetica, sans-serif;">to promote sustainable growth and a stable, secure and tolerant society". </span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">But the point is that no-one - and I mean no-one, in any Department, regardless of their views on immigration policy - ever propounded the view that the interests of the UK and its economy and society should be anything other than paramount. DFID would occasionally make the case from the sidelines that we should at least think about the global impacts, positive and negative, of remittances, brain drain and circulation, but in this area its influence was marginal. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">David may not like the fact that immigration policy in the 2000s was driven primarily by the benefits, actual and perceived, to the UK economy, rather than by the cultural concerns that he thinks should be paramount and which he believes argue for a more restrictive policy. But to suggest that they were actually the result of a policy that prioritised Burundians over Brummies is not just a dream - it's a fantasy. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">PS. If anyone is interested in a rational, well-researched and evidence-based account of how immigration policy developed in the 2000s (done using proper research methods and published in a respected, peer-reviewed academic journal), then I suggest <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-856X.2009.00384.x/pdf">this</a>, by Alex Balch, of the University of Liverpool. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">David Goodhart tweeted me shortly after this was published, saying:</span></div>
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<span style="color: #333333; line-height: 18px; white-space: pre-wrap;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>"What a silly thing to say of course I don't believe, or say, that UK policy was run for benefit of Burundi - dotty non-sequitur"</b></span></span></blockquote>
<span style="color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px; white-space: pre-wrap;">and</span><br />
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<b><span style="color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">"</span><span style="color: #333333; font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 18px;">I certainly did not say that the treasury ran immigration policy for the benefit of Burundi etc this is babyish"</span></span></b></blockquote>
<span style="color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">Here are the first three paragraphs of his <a href="http://www.dailymail.co.uk/news/article-2297776/SATURDAY-ESSAY-Why-Left-epic-mistake-immigration.html">Daily Mail article</a>. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">"Among Left-leaning ‘Hampstead’ liberals like me, there has long been what you might call a ‘discrimination assumption’ when it comes to the highly charged issue of immigration.Our instinctive reaction has been that Britain is a relentlessly racist country bent on thwarting the lives of ethnic minorities, that the only decent policy is to throw open our doors to all and that those with doubts about how we run our multi-racial society are guilty of prejudice.And that view — echoed in Whitehall, Westminster and town halls around the country — has been the prevailing ideology, setting the tone for the immigration debate."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">He refers to Whitehall and Westminster here, but specifically to the Treasury later. And, obviously, as the quotes above show, it was David, not me, who decided for some reason (mainly alliteration, I suspect) that Burundi was the appropriate poster boy (in both his press articles) for this particular supposed worldview.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">If this doesn't imply directly that people in the Treasury and elsewhere in Whitehall and Westminster wanted to "throw the doors open" to Burundians, I don't know what does. I agree that the idea that UK policy was run for the benefit of Burundi is indeed completely dotty - but I leave it to readers to decide whether it was mine or his. If you think I might be guilty of selective quotation, please do read both his articles in full. </span><br />
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Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0tag:blogger.com,1999:blog-7997981344777920857.post-80827229554431027002013-03-24T11:26:00.001-07:002013-03-25T07:46:10.037-07:00A Socratic dialogue with @ToryTreasury<span style="font-family: Arial, Helvetica, sans-serif;">Yesterday I spotted a tweet from <a href="https://twitter.com/ToryTreasury">@ToryTreasury</a>, who describes him/herself as <span style="background-color: white;">"<span style="line-height: 18px; text-align: center;">Official CCHQ voice for all things Treasury".</span></span></span><br />
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<span style="background-color: white; color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px; white-space: pre-wrap;"><b>Ed Miliband's spending plans he repeated today would mean £33bn more borrowing this year - driving the deficit back up to double-digits.</b></span></blockquote>
<span style="background-color: white; color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 18px; white-space: pre-wrap;">I tweeted back</span><br />
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<b><a class="twitter-atreply pretty-link" dir="ltr" href="https://twitter.com/ToryTreasury" style="color: #0084b4; font-family: Arial, Helvetica, sans-serif; text-decoration: none; white-space: pre-wrap;"><s style="color: #66b5d2; text-decoration: none;">@</s>ToryTreasury</a><span style="font-family: Arial, Helvetica, sans-serif; white-space: pre-wrap;"> </span><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;"><span style="font-family: Arial, Helvetica, sans-serif;">Out of curiosity, what multiplier are you using?</span></span></b></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;">I wasn't looking for an argument. I certainly wasn't endorsing (or opposing) Labour's </span><a href="http://www.labour.org.uk/plan" style="line-height: 18px; white-space: pre-wrap;">"five point plan for jobs and growth"</a><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;">; in particular, as I've said numerous times (eg </span><a href="http://www.huffingtonpost.co.uk/2012/12/04/jonathan-portes-george-osborne-autumn-statement_n_2236720.html" style="line-height: 18px; white-space: pre-wrap;">here</a><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;">), I'm not at all enthusiastic about a VAT cut in current circumstances. But NIESR's views, or my own, weren't the point at all; I was genuinely curious about ToryTreasury's methodology.</span></span><br />
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<span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;">Now, in order to assess the impact of a so-called "plan for jobs and growth", it is obviously necessary to assess the impact of tax and spending changes, how much it boosts "jobs and growth", what that does to tax and spending, and hence the impact on borrowing. That is exactly what the Office of Budgetary Responsibility (OBR) does with the government's tax and spending plans, as it has just<a href="http://cdn.budgetresponsibility.independent.gov.uk/March-2013-EFO-44734674673453.pdf"> done </a>in the Budget. The OBR has not done the same for Labour's plan; nor has NIESR. </span><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;">But apparently CCHQ and/or the Treasury had; I assumed that they had used some version of the OBR methodology, albeit</span><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;"> presumably in a cruder fashion.</span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;"><br /></span>
<span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;">The first step in such an assessment, as the OBR makes clear, is the "multiplier"; what's the impact on growth of tax and spending changes. The OBR commendably sets out its assumptions on multipliers and hence the impact of tax and spending changes on growth. For example, it has <a href="http://budgetresponsibility.independent.gov.uk/pubs/March-2013-EFO-44734674673453.pdf">stated</a> (paras 3.22 and 3.23) that its best assessment, recognising the uncertainties, of the impact of the government's fiscal consolidation plan - tax rises and spending cuts - is that it has reduced GDP by about 2.4% up to and including 2012-13. It would be easy enough to apply a similar approach to Labour's tax changes if, as ToryTreasury clearly had, you make assumptions about the cost and timing. </span></span><br />
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<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">ToryTreasury seemed rather reluctant to answer the question, but eventually the reply was: </span><br />
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<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif; line-height: 18px; white-space: pre-wrap;"><b>@jdportes OBR multipliers. They don't see any evidence to justify the higher multipliers you assume</b></span></span></blockquote>
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif; line-height: 18px; white-space: pre-wrap;">Well, that's a perfectly good response. It made absolutely clear, I thought, that ToryTreasury had indeed done exactly the exercise I outlined above. And while I have in the past <a href="http://notthetreasuryview.blogspot.co.uk/2012/10/more-on-multipliers-why-does-it-matter.html">argued</a> (along with the IMF and many others) that I think the OBR's multipliers are underestimated, I wouldn't expect CCHQ or the Treasury to agree. </span></span><br />
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<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif; line-height: 18px; white-space: pre-wrap;">Using OBR multipliers, of course, implies that "Labour's plans" (for tax cuts and spending increases, or at least slower spending cuts, relative to the government's plans) would increase GDP (especially any increased investment, for which the OBR assumes a multiplier of 1). So I asked how much, and this is where it gets interesting:</span></span><br />
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<b><span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://twitter.com/jdportes">Jonathan Portes @jdportes</a></span></b> <b><span style="font-family: Arial, Helvetica, sans-serif;"> You are using OBR multipliers! Excellent. So what's the increase in GDP that results from the £33 bn?</span></b></blockquote>
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<b><span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://twitter.com/ToryTreasury">Tory Treasury @ToryTreasury </a> @</span></b><b><span style="font-family: Arial, Helvetica, sans-serif;">GDP would plummet due to a spike in interest rates and a loss of confidence in the UK, as peter mandelson warned this week</span></b></blockquote>
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<b><span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://twitter.com/jdportes">Jonathan Portes @jdportes</a> so you're not using OBR multipliers! But you just said you were. Did you apply OBR multipliers or not?<br /><br /><a href="https://twitter.com/ToryTreasury">Tory Treasury @ToryTreasury</a> you really are a fantasist if you think £33bn more discretionary borrowing this year would not lead to a loss of market confidence<br /><br /><a href="https://twitter.com/jdportes">Jonathan Portes @jdportes</a> We're not talking about me! Positive multiplier on the £33 bn (as OBR), negative, or zero. Just answer..<br /><br /><a href="https://twitter.com/ToryTreasury">Tory Treasury @ToryTreasury</a> yr simplistic approach to multipliers ignores reality of market risk + loss of confidence - why yr recommended policy so dangerous<br /><br /><a href="https://twitter.com/jdportes">Jonathan Portes @jdportes</a> You're back to talking about me! Simply asked whether your explicit statement that you used OBR multipliers was true or not?</span></b></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">I ha</span><span style="font-family: Arial, Helvetica, sans-serif;">ve omitted some of my other duplicative tweets, which simply firmly but politely repeated requests for an answer to my question; was ToryTreasury's tweet saying that they had used OBR multipliers true or not? ToryTreasury was neither prepared to reaffirm the original tweet, nor to withdraw or correct it, although their subsequent tweets make it clear that it was not in fact correct. </span><br />
<span style="font-family: Arial;"></span><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">So, having established that,contrary to his/her original tweet, ToryTreasury had completely ignored the OBR multipliers and methodology in their calculation, and was adopting a different approach, I tried again to establish what methodology they had used:</span><br />
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<b><span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://twitter.com/jdportes">Jonathan Portes @jdportes</a> </span></b><b><span style="font-family: Arial, Helvetica, sans-serif;">There's nothing wrong with disagreeing with OBR - as you say, I do too -- but you should tell us if you do and explain why</span></b></blockquote>
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<b><span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://twitter.com/ToryTreasury">Tory Treasury @ToryTreasury</a> as OBR say multipliers work OK for small changes in fiscal policy but can't account for market risk - clearly too complex fr you</span></b></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Another error; it is wrong to say that the OBR thinks multipliers work only for "small changes". As I say above, the OBR uses its multipliers to estimate the impact of the government's entire fiscal consolidation programme: a much larger change in fiscal policy than any conceivable interpretation of Labour's plan. It seems highly probable that if the OBR were asked to assess the impact of that plan, they would start with their published multipliers, albeit recognising the uncertainties. </span><br />
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<span style="font-family: Arial;">But it's worse than that. Without a multiplier assumption, ToryTreasury's original tweet is not just wrong, but simply meaningless, because it is not possible to calculate the impact of "Labour's plans" on the deficit. ToryTreasury's actual argument is "any discretionary borrowing would be catastrophic because of [the credit rating agencies/Greece/bond vigilantes/the confidence fairy]." Now I <a href="http://www.ft.com/cms/s/0/82bd5d22-4b54-11e0-b2c2-00144feab49a.html">pointed out</a> the flaws in this argument two years ago; and the empirical evidence since then has overwhelmingly confirmed my view, as the IMF, for example, <a href="http://notthetreasuryview.blogspot.co.uk/2012/09/what-explains-low-long-term-interest.html">says</a>. But it's a legitimate, if <a href="http://notthetreasuryview.blogspot.co.uk/2012/11/faith-based-economics-at-treasury.html">faith-based</a>, perspective. What is not legitimate is to claim that it is a basis for quantifying the impact of discretionary borrowing on the deficit. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">In the end, the most succinct and accurate summary of ToryTreasury's position came not from me but from <a href="https://twitter.com/RedEaredRabbit">@RedEaredRabbit</a></span><br />
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<span style="background-color: white; color: #333333; line-height: 18px; white-space: pre-wrap;"><b><span style="font-family: Arial, Helvetica, sans-serif;">@RedEaredRabbit We’re using OBR multipliers but we’ve multiplied them by -1 and it is inappropriate to use multipliers for this anyway.</span></b></span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Where does this leave us? As I said above, I am not endorsing Labour's specific policy proposals; nor do I wish to rehearse yet again here the broader <a href="http://notthetreasuryview.blogspot.co.uk/2013/03/believing-in-miracles-self-defeating.html">case </a>for an alternative fiscal policy. It is perfectly legitimate for ToryTreasury to use whatever assumptions it wants to assess the impact of Labour's plans on growth, borrowing and so on. But making a quantitative statement without any underlying quantitative assumptions; then making incorrect statements about those assumptions (or their absence) and then refusing to correct such statements, means that any such assessment has little credibility. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">[Updated. I have been asked to acknowledge that it's not inconsistent for ToryTreasury to argue, as they have done on twitter, that the positive direct impact on GDP, and hence on the deficit, is exactly offset by the negative impact of market reaction</span><span style="font-family: Arial, Helvetica, sans-serif;">. This is true. There's nothing logically inconsistent about that at all, although it would in my view be a remarkable and economically implausible coincidence. However, if ToryTreasury is claiming that the £33 billion number in the original tweet was based on such an analysis, then they should be able to show their working - that is, explain, in quantitative terms, what both the direct and indirect impact on GDP, interest rates, etc, is, and why that translates to a net impact of £33 billion. If they wish to do so, I'm happy to post it here.]. </span></div>
Jonathan Porteshttp://www.blogger.com/profile/11900237767195255134noreply@blogger.com0