Monday, August 18, 2008

A Question for Yvette Cooper...

I don't profess to be an economics guru, but there's one thing that puzzles me about the government saying that our economy is in a better state than others to withstand the global economic slowdown.

If that is so, why has the £ plummeted against the dollar and the euro? Surely if we were in such rude economic health the £ would be rising against the currencies in all these other countries with supposedly weaker economies?

Am I missing something, or did my Grade E at A Level economics (Grade A in today's money, no doubt!) achieve something after all?

34 comments:

workrobotwork said...

It's all a load of Balls if you ask me.

Rhetoric Innes said...

no doubt a grade A in todays money!

Andrew Efiong said...

Iain, currencies can go up and down. Don't set too much store in them.

But the "Britain is prepared for the storm" line is a very bad idea. It's reckless:
- British property prices rose more than US prices
- The UK Exchequer is heavily reliant on the City for tax revenues
- The pound wobbles more
- The government stoked the economy during the boom but the hole in the public sector finances now means it might have to choke the economy now, by cutting spending or increasing the tax take.
- Mortgage rates are falling in most countries, they've gone up in Britain.
- A recession looms and some in the Bank of England talk about raising interest rates.
- We have a government on its way out, it risks spending like there's no tomorrow to buy votes and ministers need to give the impression of being "left" to appease party members.

Most economists look and think that the UK is a particular mess waiting to happen. You can look at Spain and Ireland too, France and Italy to a lesser extent.

But the talk of "Britain being well placed" is pure rubbish.

judith said...

It's really quite simple: Ms Cooper says these things because if she spoke the truth, she would lose her job.

Since she (and hubby) are currently making a nice pile out of their positions, but will be losing a major part of their income when they form the Opposition in less than 2yrs time, she must continue to keep her fingers in her ears, singing la-la-la for as long as possible.

Hamish Hunter said...

Although it was meant as a witty aside, your comment that an A grade at A level (in a subject as respectable as Economics) today is equivalent to an E grade of yesterday completely devalues the hard work, effort and achievement of pupils who gain As. After all, grade inflation is not their fault. Apart from being below you Iain, that comment did rather stink of sour grapes.

Laurence Boyce said...

Ha, that’s nothing! I failed Latin A-level! Thanks for putting my article up Iain!

Colin said...

I never bought into the myth that brown and his acolytes were economic gurus. Over the past eleven years or so a succession of serious economists have pointed out that brown and his cronies were storing up problems for the future. Unfortunately their words of caution and warnings were drowned out by new labour media cheerleaders or ignored by a cowed, compliant or ignorant lobby press.

The one cunning thing brown did was to create a very noisy and mind boggling fiscal environment, partly through the reckless encouragement of a massive consumer credit and house price boom and partly through an addiction to Enron style accounting practices. As result and as long as people could borrow what they liked and house prices continued to rise, nobody gave a shit.

Now things have become very binary. The noise is clearing and the toxic wreckage of the so called brown economic miracle has been exposed. The state and large numbers of the citizenry are in real financial trouble. Unlike in the late 80's and early 90's, people do not have savings to see them through. Private pensions have been decimated and unprecedented numbers of families are living very close to the financial edge.

If brown had any cards to play, you can bet your last pound that he would have played them at the first whiff of fiscal cordite. The truth is, there's virtually nothing left. They can't raise taxes, they can't cut public spending without risking serious union driven unrest and they can't borrow much more without doing serious, strategic long term damage to the country.

The labour government has run out of ideas and money.

I just hope we're not entering another cold war, that would finish us...

Anonymous said...

Well done Iain, you've exposed yourself as the latest in a long line of people who try to make up for their own inadequacy at A-level by trying to make out that your exams were oh so much harder than the ones that face young people today. For the record, someone who got an A when you took your exams was better than you then, and someone who gets an A now is better than you today. End of.

Iain Dale said...

Clearly the word irony is lost on some people. Let me add in an exlamation mark to make sure they dont continue their sense of humour failure.

But please don't tell me exams are harder nowadays. In my day 1% got 3 As at A Level. Now it's 10%. I dont think today's kids are ten times as clever as we were. Do you?

John Miles said...

I don't profess to be an economics guru, but there's one thing that puzzles me about the Conservatives saying that our economy is in a worse state than others to withstand the global economic slowdown.

If that is so, why has UK's growth rates remained in postive territory for the last year? Surely if we were in such terrible economic health the UK's GDP would be falling like other countries in supposedly better economic health?

http://www.labouroutlook.com/2008/08/uk-growth-outstrips-europe/

http://snowflake5.blogspot.com/2008/08/gdp-growth-among-our-competitors.html

PSJ said...

I agree that one should not pay too much attention to short-term movements in currencies. Also, it is at least to some extent a dollar recovery rather than a sterling fall. Nevertheless, having been strong for more than a decade, the pound will I think spend the next few years as a weak currency, as the markets adjust to the ruination of our economic prospects by NuLab.

For those with degrees in economics, this will arise in the following way: the supply-side calcification caused by excessive taxes and bureaucracy has reduced the economic growth rate, and hence the "neutral" interest rate, meaning that investors in sterling assets will expect to receive lower returns, reducing the demand for those assets and hence for sterling. Given the Dornbusch overshooting effect, it is likely that this loss of confidence will be overdone. Additionally, we have suffered a terms of trade shock over the last couple of years, with the commodities which we import becoming more expensive, relative to the goods and services which we export. The financial, legal and accounting services have suffered an adverse shock because of the difficulties in financial markets over the last year.

So all in all, the question is not why the pound has fallen, but in fact why it hasn't fallen further. Perhaps because a Tory win in 2009 or 2010 is expected?

Also, a lower exchange rate is what our exporters need after a decade of a mighty currency.

Anonymous said...

'In my day 1% got 3 As at A Level. Now it's 10%. I don't think today's kids are ten times as clever as we were. Do you?'

Yes. I happen to believe the standard of education has significantly improved since 'your day' Iain. As a result of the masses of extra investment from the Labour government. I'd be disturbed if attainment hadn't improved.

PS Humour bypass? Sorry, you're just not that funny.

Anonymous said...

And actually, only 3% of students attain 3 As at A-level. Get your facts straight Iain!

Noelinho said...

I'm no expert either, Iain, but the fluctuation we're seeing now will be down in part to the fact that America started going through their bad period earlier than we did, so we're not going through the same stage at the same time, if you see what I mean. How much of a difference that would make I have no idea, though. I suspect you have to wait until both come through the other side to see the real answer.

So I guess I'm about as clueless as you!

Anonymous said...

"Although it was meant as a witty aside, your comment that an A grade at A level (in a subject as respectable as Economics) today is equivalent to an E grade of yesterday completely devalues the hard work, effort and achievement of pupils who gain As. After all, grade inflation is not their fault. "


Hamish Hunter

You are absolutely right to challenge this. It was such an unfair comment. An analysis of last week's results showed that over the last 15 years there has been grade inflation of only 2 grades so an A today is the equivalent of a C in olden days (not an E).

And of course its not the fault of the students.... but we would also be deceiving them if we didnt make it clear what a poor service they have had.

Shirley Williams started the rot and Labour then quickly followed behind driven by dogma and class hatred. Now we have reached the point where the Government cant even manage to get the bloody papers for SATS marked.

grumpy old man said...

Iain. On the subject of Economics. To most young people in State schooling, your Grade E or whatever would be a pearl beyond price. The Maths A level has been so down-graded that Economics is not taught because the Maths knowledge is no longer available to the teaching staff. This is why "Management Studies" is so popular in State education, and why the majority of economics "A" levels are attained in private schools.
Anonymous. You are a Buffoon.

Laurence Boyce said...

Hey Iain, that’ll teach you not to make a joke!

Labour Matters said...

Assuming it wasn't a rhetorical question Iain, it's because the City expect interest rates to be cut to fend off recession rather than increased to fend off inflation.

Two posts in as many days on Cooper? Remind me, who was it said "first they ignore you, then they laugh at you, then they attack you. And then you win."? That is a rhetorical question!

Robert D said...

John Miles

A major reasons that UK GDP appears to continue to grow despite visibly tougher times is an artifact of the way in which national income statistics treat government spending. Since the output of much of government doesn't have a market in which it can be measured, government contribution to GDP is measured in terms of the value of the inputs used rather than the output generated. Since Brown and Co continue to pump in ever higher levels of government spending it appears that the economy is growing, even if the real value of the output is less than zero. Mor prudent countries are cutting back on the growth of government spending which shows up as a drop on growth in GDP.

Windsor Tripehound said...

Anonymous said...
Well done Iain, you've exposed yourself as the latest in a long line of people who try to make up for their own inadequacy ...
End of.


Well done Anonymous, you've exposed yourself as the latest in a long line of people who try to make up for their own inability or reluctance to defend their argument by closing it with “end of”.

P.S. Looks like your sense of humour bypass was successful.

A victim of Gordon Brown's 'prudent' economic policies said...

Exams have got easier over 40 years, not just the last 10 years. I did my 'O' Levels in 1974 - my physics teacher got our class to do a 1964 paper one day. We were all stumped by it! Although I got an 'A' in my 'O' level, I doubt I would have passed the 1964 paper.

As there is now a 98% pass rate for 'A' levels, should we not just give an 'A' level to whoever wants one, but then invite those who feel they can do better than a pass to upgrade by actually sitting the exam?

This would save a lot of time and money!

On the UK economy - I have been made redundant and am finding it difficult to get a new job (I am not being fussy - I am happy to change sectors, take a large pay cut etc).

I am also trying to sell my late fathers flat - 1 year on the market. Back to what he paid for it 7 years ago. Still no takers.

So my personal experience is that the economy is totally f****d.

Anonymous said...

Hamish Hunter said...
"Although it was meant as a witty aside, your comment that an A grade at A level (in a subject as respectable as Economics) today is equivalent to an E grade of yesterday completely devalues the hard work, effort and achievement of pupils who gain As. After all, grade inflation is not their fault."

Surely the point is that grade inflation devalues all the hard work, effort and achievement of pupils and teachers in previous years who got lower marks than their equivalents today ?

Paul said...

Re: grade inflation - yeah it's unfair on those who've gone before. And it's unfair on that top 1% who do get multiple As at A-Level too. It's even unfair on those who get straight As and find themselves totally out of depth in a university program.

However, people don't seem to recognise the main reason for grade inflation. It's modular retakes. The vast majority of students these days retake their AS level exams in their second year in the hope of edging up their points... particularly in Maths.

I took Further Maths in 2003 and any exams I did poorly in my first year I got to retake and vastly improve second time around.

Before modular retakes it was all or nothing on one exam - poor exam performers were undermarked. Now those people can improve on their marks second time round (you keep your best score).

It says a lot when someone who got grade E in A-level economics is more competent than the man in charge of the treasury for 10 years.

Anonymous said...

Hamish Hunter said...

"Although it was meant as a witty aside, your comment that an A grade at A level (in a subject as respectable as Economics) today is equivalent to an E grade of yesterday completely devalues the hard work, effort and achievement of pupils who gain As."

Still true though. As for the poor little darlings with worthless bits of paper from an evr-more worthless nulab 'education' system, they will just have to get used to it.


Labour Matters said...

"Remind me, who was it said "first they ignore you, then they laugh at you, then they attack you. And then you win."? "

A lunatic.

twobsandacin83 said...

"Unlike in the late 80's and early 90's, people do not have savings to see them through."

Colin, you are joking aren't you? I know htere's a lot of sense of humour by-passes, so forgive me if i missed the irony laced into your comments

Your whole post applies entirely to the Lawson Boom and Bust.

Then, whole streets were up for sale. Now, the BBC website has to photoshop for sale signs to give the impression we're stuffed.

Look at the rental market. people aren't selling their houses in droves, they're letting them, and where necessary, renting new ones themselves.

You're either ignorant or have a finer sense of humopur than mine!

Roger Thornhill said...

You are not missing something. For the £ to stop losing value we need to control and then limit the amount in circulation (not just notes and coin) and that means removing the ability for private banks to create it at will and lend it (albeit temporarily).

The £ drops when the rate of increase in its number is higher than the perceived value of the economy and/or (these are linked) demand for £.

p.s. In my day 1% got 3 As at A Level. Now it's 10%. I dont think today's kids are ten times as clever as we were. Do you?

It does not work like that - you could have a vast number of people getting 3 B's just below the pass mark for an A and a marginal drop in exam difficulty could create 3 A's. I am old fashioned - an A should represent a certain percentage of each year to compensate for a paper being easier or harder or the teachers being better or worse - the objective is the relative potential of the student IMHO, as they will eventually be competing for jobs and that too is a relative matter, not absolute (i.e. you don't get a job just because you are capable of getting it, but if you are perceived to be better than all the others who can do it).

Arthur said...

A few doubts have been aired on the significance and implication of a weakening exchange rate which do too much to let Labour off the hook.

1. First, despite short term fluctuations, the value of a currency is the best measure by which we value our country (economically). A weakening currency is little more than the rest of the world telling us that we are not so valuable as we thought we were and this is largely down to Labour policies.

2. Second, for those that think a lower exchange rate is a good in itself because it helps our exports should remember that lower exchange rates are a symptom of a weak economy. With a lower exchange rate, we also import inflation. The attitude we need to take is that lower exchange rates is a bad thing because it signifies weakness, usually on the supply side, of our economy. If we allow lower exchange rates to disguise this weakness, we simply fail to address these supply side problems, hence letting Labour off the hook.

Ken said...

@John Miles

Actually Snowflake's numbers are difficult to understand because they are quarter on quarter.

An easier to understand comparison of economic activity is the year-on-year comparison for Q2 2008:

EA 15 +1.5%
USA +1.8%
Jpn +1.0%
UK +1.6%

Germany is up 1.7% (thanks to a large rise in Q1) France only up 1.1%, Italy flat year-on-year.

On this basis we can see that the UK outperforms the Euro area but not by much and that the US is doing best.

The real problem for these types of comparison is that they are backward looking (and subject to significant revisions). For those saying "hey things arent so bad", they would do well to observe the year-on-year numbers for Ireland.

Over the past three quarters, Ireland's GDP growth rate has been +3.9%, +5.6%, -1.5%. The term "brick wall" comes to mind.

OK. So on to the question of whether the UK is well placed to meet the challenges. On a most basic level, the UK economy has benefited from a flexible workforce with a low level of unemployment (albeit with a high level of workers on disability). All following numbers taken from the eurostat and are for 2007.

EA 7%
Germany 8.4%
France 8.3%
US 4.6%
Jpn 3.9%
UK 5.3%

This has very little to do with the Labour government, except that it has not interfered with flexibility too much. A gift bequeathed by the Tories.

Interestingly the one area where we can be certain that the Labour government have contributed is that of youth (under 25) unemployment:

EA 14.8%
Germany 11.1%
France 19.4%
USA 10.5%
Jpn 7.7%
UK 14.3%

So the UK here is barely better than than the Euro area average and lags the Germans, Japanese and Americans. The Blair government targeted this area and did see it fall from 13.7% in 1997 to 11.7& in 2001, but it has subsequently crept up. This failure is one of education and training and gives the lie to ever rising exam marks. So the UK here is about average.

What about room for government action? A spending splurge to get the UK out of difficulty? There are two measures here, the general government deficit (a flow measure) and the government debt (a stock measure)

Deficit as % of GDP

EA -0.6% (peak in 2003 was -3%)
Germany 0% (peak in 2003 -4%)
France -2.7% (peak in 2003 -4.1%)
UK -2.9% (peak in 2004 -3.4%)

Debt as a % of GDP

EA 66.6%
Germany 65%
France 64.2%
UK 43.8%

So the flow numbers are bad and government deficits have not recovered even as the wider economy recovered after the bubble bursting in the 2000/01. This is one of the problems that isnt understood by the Labour bloggers -the UK did avoid recession in the dotcom bust, but it managed it by a massive expansion of public spending. Nor is it clear that the spending was particularly well targeted. (See the youth unemployment numbers above.)

The government does retain some room for manoevre since its stock of debt is not that high relative to the EA, USA or Japan (not shown above, but USA above 60%, Japan above 180%).

So if one was willing to countenance a massive expansion of deficit spending, the UK is better placed to do so. However, this needs to be seen in the light of the economic storm that is coming. People looking at the historic economic numbers should reflect on the threat of a rise in unemployment of 300,000 that the British Chambers of Commerce are saying WILL occur. The fall in house prices will impact consumer spending and bonuses in the City were good this year, but will be awful next year. The government will face a tax shortfall of tens of billions of pounds as stamp duty, income tax and even VAT fall. Thus the government deficit will rise from a fall in tax revenues and from a surge in unemployment benefit etc. The UK is very dependent on services and financial services. No one thinks that the financial services area is going to be a very pleasant place in the next year or two, do they? Nor will housing. This will knock on to the rest of economy as will the gradual tightening of the belt on government expenditures.

The storm will hit towards the end of the year, beginning of the next year. The currency simply reflects the view that the US is bad, but the UK is now going to be worse. Economic fundamentals are indeed reflected (some of the time) in currencies - so andrew efiong is right and wrong - sometimes the currency tells us a great deal. BTW the euro is overvalued. The ECB is fighting inflation (unlike the US and the UK) and will probably be too slow to react to the general slowdown. To some extent they dont have any choice, some areas such as Germany are strong, while others such as Ireland and Spain are slowing, and I don't know what the Greeks are doing, but like the Italians, they risk having to leave the euro at some point. Holidays in Europe will be cheaper in dollar and pound terms next year.

Gordon spent our tax money wildly and badly back in 2001-3 and "saved" the economy from recession. Unless he is willing to throw caution to the winds he doesnt have the room to do it again.

In the medium term, the economy is better adjusted for many of the challenges ahead, such as the rise of China up the value added scale (threatening manufacturing heavy Germany and Italy), but the level of the UK education system remains awful (see all the global surveys) and continues to produce an elite and a huge tail of illiterate and innumerate that slow economic progress. Better placed? In some ways. But Labour cannot claim credit for what advantages the UK has.

Anonymous said...

I got Latin, English and French A levels in 1956, my 3 sons passed A levels in a combination of History, Greek, Latin, Physics, Maths., Chemistry, biology,and English in the 80s and I took another A level in History of Art in 1999. I taught French and Latin to A level for 30 years and I can assure you that standards are much lower now. As one of your commenters has said, it's due to the module system and also to the academic content being much less. I actually retired early because I could no longer stand in front of a class and allow them to assume that the syllabus had my imprimatur.

Pogo said...

Anonymous at August 18, 2008 11:45 PM said...

"Yes. I happen to believe the standard of education has significantly improved since 'your day' Iain. As a result of the masses of extra investment from the Labour government. I'd be disturbed if attainment hadn't improved."

Strange... I don't remember universities having to give remedial classes to their first-year students in "the good old days".

Hamish Hunter said...

I think all this talk of A grades is actually missing the point somewhat. The country's educational problems aren't too many A grades at A level, but the thousands of 16 year-olds who leave school without basic reading, writing and numeracy skills. They are the people who have been let down, and it is this issue, not a surfeit of A grades, that we should all be talking about.

Hamish Hunter said...

Also, the reason for fewer failings at A level is down to the AS/A system which acts as a reality check after a year of the course. If you do abysmally in your AS you will not go onto take the full A level and fail. In this way, possible failures have been taken out of the qualification and the pass rate has gone up legitimately

19 year old said...

Did my a levels last year; 4 A's (Science and Maths !) were a doss. Sadly every other wanker applying to unis I wanted to go to had the same so it did me little good.

Colin said...

twobsandacin83...

I'm certainly not ignorant. The point I was making is that nowadays, people are much more highly leveraged and therefore much more vulnerable to changes.