This tweet is from my friend and fellow Mile End Road economist Danny Blanchflower:
Danny has promoted the idea that the public knows better than theoretical economists and central bankers when recessions are on their way and build that into their own forecasting. He calls this the learning from the 'economics of walking about', on which we have both relied in differing ways with his approach most certainly the more formal of the two. As a methodology, it has proved to be remarkably accurate. He explains this in an article in Prospect, here.
If this chart correctly records sentiment then there is trouble ahead in the EU, and beyond. Things are no different here.
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Six month forward call offs for long term contracts in my “group” of companies are now down 10 per cent (UK) 3 per cent (Europe). This is the measure we find is a good leading edge economic indicator.
Also found Chris Gray latest blog thoroughly depressing over the continuing loss of skills in the UK.
I suspect many are seeing that decline
Typically we can “throw money at it” to prevent recession..with inflation running sky high then clearly we cant do that anymore..getting inflation under control remains the priority. And it is insanity to believe the money supply has no impact on inflation…..in any case continuous growth in economic activity is way at odds with the saving the planet..you can’t have it both ways
There is little relationship between money supply and inflation. For example Sterling M3 (broad money) has more than tripled since 2000 (from about £1 trn to £3.5 trn. All the Friedmanite monetarist nonsense got binned in the early 1980s Thatcher government precisely because it did not work. To the extent there is a relationship it is likely the other way round – inflation means economic actors require more money to maintain activity levels and central banks accommodate that. There are various causes of inflation, but they come down to wars, external shocks, supply disruptions and abuse of pricing power (monopoly / oligopoly). Starting inflation requires someone to increase prices and be able to make that stick.
In the present UK we have external shock – brexit and major supply disruptions. War, but most of the effect of Ukraine is still in the pipeline. Abuse of pricing power is definitely there, especially in the oil, gas and electricity markets, but compounded by an idiot’s dream of a UK ‘energy market’ that sees us pay the highest marginal cost in the World that has no relationship to the actual cost of providing UK energy. The cost of UK wind, gas, etc in terms of production has not changed at all. There is also some possibility of feedback from asset market bubbles. So e.g. speculation in commodities markets such as Futures can end up having a real impact on current commodity prices. Producers may restrict current supply if the market is telling them to wait until next year when prices will be much more.
The State has very considerable power to control inflation via fiscal policy, and because it is the largest single purchaser in the economy. At the moment if that is being used at all it is to make things worse (e.g. the NI & VAT increases). Monetary policy is largely ineffective and interest rate changes will only compound the UK problems. Raising rates may eventually reduce inflation but only by causing a severe recession and probably killing the patient!
The current situation is unsustainable.
We have a chronic shortage of real money money in the economy (as opposed to credit); skills are hard to come by – as some might know I work in housing development and we are losing staff to the private sector and cannot recruit on PS pay rates so our affordable housing programme is slowing down – we are not building enough to keep up with RTB or demand. The PS is being routinely priced out of market acquisitions as well for new affordable stock.
Demand BTW is rising at my LA because of households being turfed out of private rented stock or those made homeless by not paying their mortgage.
It seems that I will end my career going at a snail’s pace – and this has a knock on for how fast we can get low carbon into new homes too. Sad.
This is not ‘levelling up’: it’s ‘levelling’ – flattening : just existing. It’s the policy equivalent of Boris’ best friend – Putin – who uses shells and missiles instead to level Ukraine. No dreams, no aspirations – put up and shut up. Accept your lot. ‘Feel the power of my indifference’.
Well I’ve got some good old fashioned British news for you Boris: Up yours’ mate!
Hi Richard,
Danny & Alan have come up with two good indicators there. Keynes gave us an old one that never lets us down – ‘Liquidity Preferences’.
This is from Reuters on March 15th, this year:
“Investors dump stocks, flee to cash as growth outlook hits weakest since 2008 – BoFA”.
https://www.reuters.com/business/finance/global-markets-survey-urgent-2022-03-15/
Professor Blanchflower’s index is heavily bolstered by the current purchasing managers’ index which showed input prices have now been rising for twenty-eight consecutive months (ooh – what happened in January 2001 I wonder?) with the rate of increase the highest in that period.
And this in turn is heavily bolstered (more persuasively than either of those indices, I think) by the current trend in voter behaviour – as well as the council by-election in Gove’s constituency that you mention in your timeline there have this week been quite sensational drops in Conservative voting share in council by-elections in constituencies represented by hard-right Conservative MPs such as John Whittingdale and Dehenna Davison.
If the Conservative vote drops by as much as twenty per cent in the imminent council elections, which looks quite possible, that would be on top of the seven per cent swing that Corbyn managed against May in the council elections four years ago. I think that would be enough to defenestrate Johnson quite quickly, especially as he is having difficulty distracting us from his corruption and criminality.
If Johnson calls a snap election, which I also think is quite possible, the Conservatives would be slaughtered. The amazing thing is I think this outcome would astonish Johnson.
Being out and about yesterday I saw several contrasts.
The local suburb I walked through yesterday had lots of home improvement works being carried out, extensions, new kitchens etc…
On my way down the motorway, I passed several motorhomes, and more HGV’s than I can ever remember being on the road.
I went through a small town centre, it was a different story, run down, several closed shops for sale/let, the ones left being charity, vape and turf accountants, clichéd yes, but factual, many miserable faces.
I also walked through a nearby “trendy” suburb, off the scale house prices that were, 25 years ago, semi reasonable, but despite this, many “sold” signs.
Even the rental properties weren’t lasting long despite ridiculous rents.
The local café’s and quality pubs were busy.
It seems we really are some sort of two tier society.
In my corner of rural Derbyshire, I’ve seen around 10 or so really large new houses (almost like stately homes) built within the last 6 years – complete with illuminated electric gates, drives, grounds and other kit, commanding views – go up. The temptation to scrawl ‘Obscene Wealth’ on the perfectly constructed walls is profound I can tell you when I know there are families housing their young (some with babies of their own)n in their roughly converted garages and sheds because they cannot afford housing in the area.
Some one is earning good money somewhere that’s for sure in Johnson’s malfunctioning England.
I know the High Peak area of Derbyshire very well.
Had many a walk over the likes of Kinder Scout, Mill Hill and along the Peak Forest Canal.
I remember houses in the villages along the A6 between New Mills an Buxton being quite affordable in the early 90’s.
Affordable?
Not any more Ralph – after we got here in 2000, the housing market started to climb.
We’ve been getting lots of Southern households moving up here from the South coast and elsewhere in the south east and we’ve seen house prices go ga-ga here for some time. People are moving around to get more bang for their buck. You can now go to some of our villages and see Chelsea flags hanging out of windows and estuary English being spoken as well the local dialect me ‘ode duck.