The NIESR blog is a forum for Institute research staff to provide an informed, independent view on current economic issues and recent NIESR research. The views expressed here are those of the authors, and are not necessarily those of the Institute.
[This article. by Adam Posen, Director of the Peterson Institute for International Economics, and formerly a member of the Bank of England's Monetary Policy Committee, originally appeared here on the Peterson Institute website. He has very kindly agreed to allow me to reproduce it here as a contribution to the UK policy debate. Obviously the views below are his, not mine or NIESR's, although for what it's worth I am, as readers of this blog will know, in broad agreement.]
I have frequently argued two, related, points. First that, unlike countries in the eurozone, the UK's fiscal policy is not constrained by potential market fears of default; and second, that since the ratings of the credit rating agencies are in principle intended to reflect this non-existent default risk, the UK's AAA rating, and any possible downgrade, is meaningless and irrelevant. For these reasons, paying any attention to the ratings agencies when making policy is a serious mistake.
Just as talk about a "double-dip recession" after the unusually bad second quarter growth figures was overdone, so was the euphoria about Britain "surging out of recession" after the third quarter figures. The official forecasts from the Office of Budget Responsibility today are for growth of 1.2 percent in 2013 and 2 percent in 2014; very similar to NIESR's forecast. These, further downgraded, forecasts mean the economy won't be growing faster than trend until 2015.
The Department for Work and Pensions today published an analysis of the impacts and costs of the Future Jobs Fund. The impact analysis was peer reviewed by Helen Bewley of NIESR; the methodology and approach is very similar to that used by DWP, and also peer reviewed by NIESR, in previous impact analyses of Work Experience and
I, and my colleagues Angus Armstrong and Simon Kirby, gave evidence to the Treasury Committee on Tuesday November 13th. Should you have time and inclination, you can watch. As you would expect, we covered a range of topics: the fiscal framework and fiscal policy, multipliers, the "productivity puzzle", etc. However, I was rather surprised by the tone of the questioning on one topic: why are long term interest rates (gilt yields) so low?
How many illegal immigrants are there in the UK? Unlike other such questions - how many 12 year olds are there in the UK? how many gay Jews? - where, although we don't know the exact answer, either survey and administrative data allows us to make an informed and reasonably accurate guess, we don't know, even approximately. But a new initiative by the Metropolitan Police suggests that the number may in fact be surprisingly low.
Did David Cameron's comments at Prime Minister's Questions - "the good news will keep on coming" - today move the sterling exchange rate? The first estimate of UK GDP in the third quarter of 2012 will be released tomorrow, and he will have seen it this morning; not surprisingly, his remarks have therefore been interpreted as signalling that the numbers will be good. For example, Nick Robinson said: "The PM was giving a strong hint that tomorrow's GDP figures will be positive".
The Department for Business, Innovation and Skills (BIS) asked me (as well as others) to record a brief video on the origins of, and potential policy responses to, the UK's current economic problems. The video, which lasts about 7 minutes, can be seen here. Obviously, the views expressed are my responsibility and mine alone, not that of the Department or government.
New research, undertaken for the Ministry of Justice by Helen Bewley at NIESR, shows that increasing the punitive element of community orders, as proposed yesterday by the Prime Minister, has the potential to reduce re-offending. But there are potential pitfalls: reform needs to be cautious and based on the evidence of what works in reducing re-offending.
Yet more on multipliers; a reply to Chris Giles. Professor Richard Portes (President, Centre for Economic Policy Research) and me in the Financial Times. NIESR will shortly be publishing detailed research on this issue, estimating multipliers and looking at the impact of coordinated fiscal consolidation in the EU (both the eurozone and the UK): watch this space. Meanwhile, here's our letter:
Figures for the public finances vary a lot from month to month, partly predictably, partly not; and they're invariably revised, often by quite large amounts. Hence, I've resisted updating this July post, which explains that while the government's repeated claims that "we've got the deficit down by a quarter" are true if you compare 2011-12 with 2009-10, this was mostly achieved simply by cutting public investment.
On October 15, I spoke in a debate at the Houses of Parliament entitled: "Time for a radical rethink? The economics of deficit reduction".
For the UK, and indeed other advanced economies, the most important point in today's IMF World Economic Outlook is not that it further explodes the myth - repeated again yesterday by the Chancellor - that low interest rates reflect policy "credibility" rather than economic weakness, or that it again emphasises that the UK and others could and should loosen fiscal policy in the face of that weakness.
A junior civil servant makes a coding error on a complicated spreadsheet. Unfortunately, this has direct implications for a hotly debated political issue. When the error is discovered, the Secretary of State apologises and issues an embarrassing correction. Not surprisingly, his opposition counterpart is outraged: