It's not too late to change course: Macbeth and fiscal policy

I appeared before the Treasury Committee today to discuss the Budget.  As usual, we were asked about the government's macroeconomic strategy, and the case for a change of course. Two of my fellow witnesses, Jens Larsen and Roger Bootle, said that while they thought that there was a strong case that the government's fiscal consolidation programme was too aggressive - that is that we would be better off now had the scale of fiscal tightening in the first year or two been less - that the risks of changing course now outweighed the benefits.  [Note for the record: I hope I am paraphrasing them fairly; they are both excellent economists, and I agreed with most of what they said to the Committee]. 


I described this as the "Macbeth argument", from the following quote:

"I am in blood stepped in so far that should I wade no more, Returning were as tedious as go o'er."   [Act III, scene iv.]

Budget commentary (from the FT)

My brief commentary on the Budget, from the FT (print edition, but not online) is below:

NIESR's response to the Budget

NIESR's response to the Budget, and commentary on the OBR's forecasts, is here.

Selling off the roads: it's all about pricing

The announcement that the government is considering "privatising" the national road network is potentially an important step that could deliver major economic and environmental benefits - benefits that go well beyond any benefit to the public finances.   But whether those benefits are realised depends crucially on how "privatisation" actually works.

Both Labour's "Real Jobs Guarantee" and the government's "Youth Contract" are welcome, but insufficient

[Updated April 2]


Nick Clegg today launched the government's "Youth Contract".  My earlier blog below explains why neither this nor the Labour Party's alternative is anywhere near ambitious enough, given the seriousness of the issue and the scale of the problem.  

The Economist: fact check fail....

On March 2, the Economist published an article on the government's work experience scheme (see my previous blogs here and here).  Today they published a short letter from me, as follows:

"I was astonished to see you repeat David Cameron's incorrect assertion about the work experience scheme that "half [of those participating] found paid work soon after finishing the scheme" ("Can work, won't pay", March 3rd). About half of the participants stopped claiming benefits, but this does not mean that they found paid work (a substantial proportion of people do not do so). Nor should you have gone on to assert that the scheme was "apparently successful". As yet we have no data to indicate whether participants in the scheme fared better than non-participants.  In my view, work experience schemes have much to commend them in principle; but those who support them should argue on the basis of facts and evidence." 

Unlike the Prime Minister - who was speaking on his feet in Parliament - the Economist has absolutely no excuse; a full week before they published their article, fullfact.org produced a thorough, balanced and accurate description of the available evidence.  I don't know how many people the Economist has covering UK economics and politics, but surely more than fullfact by an order of magnitude.  Basic fact-checking is the least we should be able to expect. 

Fitch joins Moody's in shooting itself in the foot, again

Fitch have now followed Moody's in putting the UK's credit rating on negative watch, with just as little excuse. This may be perceived as somewhat embarrassing for the government, coming as it does immediately after the Chancellor announced plans to take advantage of "market confidence" in the UK to issue a 100 year bond or even a perpetual gilt. 


I discussed here why UK interest rates are indeed likely to rise at some point. But this has nothing to do with the ratings agencies.  As I explained in this post, whatever one thinks of the government's economic policy, their opinions should be ignored by commentators and the public; and will, I believe, be ignored by the markets. For anyone who is tempted even for a moment to take what Fitch says seriously, I highly recommend reading this, from July 2007:

"Subprime mortgage bonds carrying the highest, "AAA," rating have not eroded in quality despite price declines in the securities in recent days, Fitch Ratings said."

Equally, of course, the Treasury's attempts to claim that Fitch's actions in some way vindicate the government's approach fiscal policy defy both logic and economics. We should be making policy on the basis of what's right for the UK, not on the basis of the opinions of completely discredited organisations.