George Osborne: What the Economic Pessimists Are Missing

WSJ op-ed here.

27 replies on “George Osborne: What the Economic Pessimists Are Missing”

“and—most critically—to make sure that we have the best schools, skills and science in the world.”

Where have I heard that before ?

“And that is why I am determined to bring the U.S. shale revolution to the U.K.”
Oil is too expensive, a big problem unmentioned

He didn’t say when interest rates would return to normal either. Why are interest rates so low in the UK ?

“We optimists” is very Bertie as well.
A good effort but the arguments are very fragile.

It worries me that we’re not questioning the sustainability of the recovery. For debts to banks have to rise to keep the system going. When mortgages require two incomes thirty years to repay a milestone has been reached.

In boom and bust alike personal obligations to banks have risen as a percentage of wages in recent times. By 2011, New Zealand household debt-to-income ratios grew by almost two and half times what there were 20 years before. Can we rely on this ratio growing in the future? If not, how well can we expect the debt-dependent system to function?

There’s no sustainable way of reverting this trend. It should be obvious that households cannot raise this ratio forever. To reduce this ratio income could increase. But this is unlikely under a diminishing stock of money which we’ll eventually see when we can’t carry any more debt obligations.

Perhaps debts to banks could reduce in one of two ways. Either we repay the dues in which case we sacrifice money, and by extension income, from the economy. Or we write down the debts and destroy the banks’ wealth in the process. Even if any of these scenarios unfold it makes no sense to reduce these ratios and simply start the process again.

The above said, numbers are infinite and perhaps the figures can grow and grow if we’re prepared to ignore the charade. As the economist Ezra Solomon put it, ‘The only function of economic forecasting is to make astrology look respectable’.

However there are planetary limits to GDP so one way or anyother we’ll have to change the permagrowth attitude at some point.

We’ll have to move towards a more steady state system, but this need not mean diminishing prosperity for all.

George Osborne can’t resist a bit of crowing as his critics had warned of much pestilence but the spending data showed that the cuts at a macro level were not as bad as claimed.

As in Ireland the biggest impact was likely on people who had no collective power in the political process.

Two areas that the chancellor avoided in the WSJ piece are a) the dysfunctional housing market and b) the changing structure of employment.

The UK housing system for decades has been Tories protecting the green belt in the shires (Nimbies) while Labour being happy to see urban dwellers hemmed in in the city wards.

New house completions in 2013 at 109,000 were at the lowest since the 1920s. 268,000 loans were approved in 2013; 568,000 in 2001.

The average price paid for a property by a first-time buyer has risen by 120% in just 12 years, from £85,021 in 2001 to £189,668 last year.

On jobs, from Q1 2008 to Q4 2013, all the net additional employment in Britain of 613,000 was in self-employment and part-time roles.

The number of full-time employees fell by 148,000 while there was a rise of 251,000 in part-time workers and a surge of 510,000 in the number of self-employed.

About 70% of the rise in self-employment is in the 50+ group.
Unless pay rises, the initial recovery spurt in growth could soften and it’s safe to say that a lot of the newly minted ‘entrepreneurs’ are scratching out an existence.

In Ireland Prof John FitzGerald in the ESRI’s quarterly commentary today says in relation to the Q4 household survey that for the first time in sixty years that reliable sectoral employment figures are not available.

Self employment without employees is back to boom times in 2007 but just as we can reasonably say that 27,000 farming jobs or a 34% rise, were not added in 2013, we can also say that others in self employment may well be doing some nixers while looking for real work.


David Smith in the Sunday Times has been writing for a long time about the problems with official statistics on growth in the UK and how they seem to have decoupled from other data in important ways. And also the enormous revisions to GDP figures that happen many years after the fact (revisions which are given little attention by the media).

What is going to drive the UK economy forward for the next 20 years if North Sea oil is running down and house prices can’t keep growing forever ?

So George practices a bit of Pop psychology, “secular stagnation” as well as being full time Chancellor of the Exchequer. This idea of banks being an essential part of the “monetary transmission system” is just a variant of the “too big to fail banks” argument. In reality they are a transmission system for political votes aka his Conservative parties “Hope to Buy (votes)” scheme. I was reading last week that he UK foreign reserves are astoundingly depleated. Gold was sold by Gordon Brown and UK debt both balance sheet and OBS has climbed stratospherically so this new Nirvana of growth could be achieved. Oh yes, there is another aspect complements of Mr. Carney. Investment in R&D is no longer on the liabilities side of the balance sheet having been moved to the other side. That research that you put into a failed prescription medicine that can never be sold? Well, it is a valuable asset.

@ Paul Ferguson
The only cycle that George is concerned with, is the electoral cycle. QE is one aspect of this recovery, robbing savers of a return on their savings is another and sucking hundreds of thousands of people into unsustainable mortgages, that will reset down the line is another aspect. As MH has observed above, full time jobs have actually shrunk as more and more people are tufted out into the high risk highly volatile “self employed” category.He didn’t say when interest rates would return to normal either.

@ seafóid
Why are interest rates so low in the UK ? Ask yourself, would you like to be a depositor in a British bank? Someone has to pay for the Chancellor’s schemes and the more he can take from savers, the more he can fan inflation, the less money he will have to print to win the election. In the 1980’s here in Ireland there was a grant for building a small family home I think it was something like £3,000 and lots of builders just said, “thanks very much” and increased the price of their contracts to build a small family home by £3,000. They put the money in their back pocket. Later most of these people ended up having to pay thousands of punts to convert their attic spaces, build back kitchen extensions and convert their box rooms to bedrooms. That’s called planning Irish style.

George Osborne has caused the prices of property to rise by use of his “Hope to Buy” scheme, which I believe goes all the way up to £700,000 homes and BTL’s. He has also primed his so called “monetary transmission mechanism” with plenty of QE and low saver rates and low interest rates, all to make these loans available.

This is creating a false boom similar to what happened here, except that Ireland’s boom was being driven by lack of financial regulation, interest rates that were too low as facilitated by the ECB monetary “transmission system” and a government hooked on tax from the property sector to feed Jack O’Connor and the boys. The UK simply prints money Keynes style. It’s trade unions went the way of the dodo long ago our’s are going the same direction and are frantically trying to coalesce around the 300,000 jobs in the government sector.


What contribution do you think North Sea oil currently makes to UK GDP? And house price inflation is a drag on growth, takes money out of the economy. If anything the housing industry and construction in general is set to be a major net positive for the UK as restrictions on building are eased.

Do keep up. NSO got the UK out of the 70s hole and helped st Margaret win a few elections. Credit drove New Lab. What is the new engine ? House prices?

Breaking newz

Ohio earthquakes linked to fracking

State regulators have for the first time have linked earthquake activity in eastern Ohio to hydraulic fracturing, confirming the suspicions of activists pushing unsuccessfully for a drilling ban.

State Oil & Gas chief Rick Simmers said the state has halted drilling indefinitely at the site near Youngstown where five minor tremors occurred in March following investigative findings of a probable link to fracking.

A deep-injection well for fracking wastewater was tied to earthquakes in the region in 2012.


I didn’t see a number in your response. What % of UK GDP in 2013 was from North Sea oil? Presumably you think the number is very large, given that any future fall in the number is going to have serious negative consequences for the UK economy? What would you think if the number turned out to be something like 1.5% for example? Would you say that the downside risks of further falls in production would be quite small? And that your analysis should also consider the likely increase in gas production coming onstream from other sources?

More than $8bn was wiped off JP Morgan on Friday, as the world’s biggest banks missed analysts’ forecasts with its worst set of results since the start of the economic downturn.

Might be a bit early for the Chancellor to declare victory!


NSO is no longer a driver of the UK economy.
What is the new driver of the UK economy in your view ? What is going to bring all this wonder growth ? “Concentration” does not count.
What is it about it that make you so optimistic that the UK is actually going to escape the debt legacy of the great moderation ?


The UK isn’t Saudi Arabia – it doesn’t need ‘a driver’. Growth at the moment is pretty even – construction, industry, services all in positive territory yoy. Manufacturing production is up 3.8% yoy.

@ DO’D: Posted a comment at 09.25 to-day, re your 7.31 of last evening. Seems to have been ‘mislaid’?

Basically, (this is the ‘long-winded’ version’) we are dis-permitted to place our personal used excrement on our own lawns – where the insects and weather would digest it. However, our government and civil administration will permit (and use taxpayers funds) unaccountable public companies to inject very hazardous chemicals into fragile underground strata, whence they will leach their way into our freshwater aquifers. I seem to have missed out badly on something. Maybe it will come to me.

@ JF: The UK economy is not ‘recovering’ – its marooned in an economic bog. Its only floating because the bilge pumps are, for the present, removing the water faster that it is leaking in through the damaged hull.

@ JF

“Growth at the moment is pretty even – construction, industry, services all in positive territory yoy”

LOL. Bertie used to say the same about Ireland.
Looks very much like a housing bubble. Have you been on Zoopla recently ?


The FT today had an article about oil majors cutting down on projects that are too expensive and don’t generate a high enough RoE.
I think we may have passed peak oil.

@ Seafóid: Yep, saw that. These things take a while, but are inevitable. It will be all the rage soon. Look out for the parade of energy ‘experts’ in the various mass media.

@DO’D: Fine. I’ll pass along the Jameson! It’ll kill the taste! What does Herself have? Love the chemistry!



re Osborne’s ‘shale gas revolution’ & H2Oh Oh!


Published on Thursday, April 10, 2014 by The Guardian

Why US Fracking Companies Are Licking Their Lips Over Ukraine

From climate change to Crimea, the natural gas industry is supreme at exploiting crisis for private gain – what I call the shock doctrine

by Naomi Klein

Naomi Klein is an award-winning journalist and syndicated columnist and the author of the international and New York Times bestseller The Shock Doctrine: The Rise of Disaster Capitalism, now out in paperback. Her earlier books include the international best-seller, No Logo: Taking Aim at the Brand Bullies (which has just been re-published in a special 10th Anniversary Edition); and the collection Fences and Windows: Dispatches from the Front Lines of the Globalization Debate (2002). To read all her latest writing visit You can follow her on Twitter: @NaomiAKlein.

@ DO’D: Poster a reply at 21:36, last evening. Gone into the Moderation bin – again! I keep screen prints of uploaded posts.

‘Bout half-way through SD. Very unpleasant stuff. I’d put money on the Ivans. Home advantage and all. They play Chess in Moscow, not Baseball. Though the Brits do play Cricket.

It might be instructive to study the geography and topography of Ukraine. Seems to have an affect on folks’ personalities and behaviours. There is a river system down the middle. Reminds me of our Shannon.

“As the economy starts to recover people are able to spend more money on things like shirts,” says Dean Gomilsek-Cole, head of design and product development at Jermyn Street shirtmaker Turnbull & Asser. “What we’ve found is that as people become more affluent they are able to pick and choose collar styles to better match their face. We are definitely seeing a pick-up in styles such as the tab collar – where the typically shorter points are fastened together by a strip of material, or ‘tab’ – and more extreme cutaway collars, where the tips are literally cut away resulting in a very wide spread.”
“In a recession we all tend to feel much more inclined to fit in,” says Geoff Quinn, chief executive of TM Lewin, which this month unveiled a new rounded-collar collection. “But as the financial climate improves, sartorial confidence increases. ”


Thomas Piketty and Millennial Marxists on the Scourge of Inequality
Capitalism’s new critics take on an economics run amok.

Timothy Shenk April 14, 2014

‘The disasters of 2008 were not quite what Marxists had hoped capitalism’s internal logic would supply—the particular form the financial crisis assumed took almost everyone by surprise—but they were close enough. In the scramble for explanations that ensued, the handful of Marxists who had been writing thoughtfully about economics for decades (David Harvey, Robert Brenner and Giovanni Arrighi in particular) gained credibility for having at least declared that a crisis had been brewing. True, they had been issuing these predictions for some time, and many Marxists had been announcing capitalism’s imminent demise for even longer. Yet when contrasted with the pre-crisis consensus of experts who were supposed to know what they were talking about—economists, politicians and other important people in suits—stubborn pessimism seemed like a bracing corrective. A small but serious Marxist renaissance followed. Capitalism was in question again, and the shock of the emergency had jolted its previously moribund antagonist back to life, if not as a political movement, then at least as an intellectual one.

h/t nakedcapitalism worth a read

Read Next: Is inequality inevitable? On April 16 at 6pm EST, watch live as Piketty joins Joseph Stiglitz, Paul Krugman and Steven Durlauf in conversation at a landmark event organized by the Graduate Center, CUNY, introduced and moderated by Janet Gornick and Branko Milanovic.

[link above]

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