Mon Jan 5th, 2015 at 04:13:22 AM EST
I have finally gotten around to reading the Autumn Statement from the UK's Office of Budget Responsibility. You can download the whole smash here, but for brevity's sake, I'll stick to the Overview and Executive Summary. I'll say up front that the Statement is a tour de force of alternately covering and kissing butt, but I believe the real importance of the Statement is the insight it provides to the "reality" the OBR is expected to manufacture to support the Coalition Government's policies.
Starting with the Overview, with reference to the numbered paragraphs:
1.1 Straight out of the gate OBR is playing fast and loose. The only reason the UK has a 3% increase in GDP for 2014 is because it adopted ESA10 effective 30 September. It's amazing how good you can look when the rules change in your favor in the middle of the game. OBR notes the implementation of ESA10 in the Executive Summary but strives mightily to hide the results in plain sight, especially in Table 1.2 and accompanying paragraphs, and spends most of its time pretending the 3% increase is real.
OBR is playing pretend with the unemployment figures as well. The raw percentages do not reflect that the "recovery" in the UK is mirroring ours here in the US: Real job growth is overwhelmingly concentrated in the top quintile, jobs in the other four quintiles are of declining quality, and more people are reporting themselves as self-employed, which would be more accurately labeled, "I'm still desperately looking for work, but I can't put on my resume that I haven't had a job since 2007." This employment reality has effects OBR is compelled to admit in the rest of the Statement: Wage growth is nonexistent, so the Government can not expect increased revenues from income taxes and VAT to help meet its budget targets.
1.3 OBR is revising trade growth with the EU downward. For anyone living honestly in a reality-based universe, this should be a red flag. The EU, after all, is attempting to be austerity central, with Household Financial Genius Merkel holding whip hand. But the EU just can't seem to perk up. That should cause a reconsideration of the whole austerity-and-balanced-budget-in-the-face-of-a-crappy-economy dogma, but such heresy will only get you roasted at Smithfield.
1.4 OBR expects real wage growth to resume this year. And that is based on? Absolutely nothing. Oh wait, it's based on "the long-awaited return to sustained productivity growth." First, so long as the fruits of productivity growth flow almost exclusively to the rentier class, there will be no productivity growth. Second, so long as "productivity" is defined as "your contribution to blowing the next bubble", someone just ought to pull the plug on our civilization and keep us from wasting any more resources.
1.5 A budget surplus in 2018-19? Right. See the poll below. Someone should tell someone that a budget surplus is a good thing only when the economy is expanding. Oh wait, we're in a recovery, so everything is awesome.
1.7 OBR starts planting the big hedge. In describing the budget cuts necessary to make Parliament's pipe dream a reality, it invokes the "s" word : severe.
1.8 In the face of a GDP that is not growing in any meaningful fashion, government spending as a percent of GDP will drop to a level not seen since the Great Depression. This is actually the goal of the Coalition Government.
1.9 Ultimately the government will borrow only for investment purposes. In other words, public debt is fine if it flows to the rentier class but is an unspeakable sin if it flows to those who can't get by any other way.
1.11 This is a train wreck. Each of the three, major parties claims to be power chugging Austerity Kool-Aid.
The Executive Summary expands on the Overview topics and covers additional ground:
1.7 The burden of balancing the budget going forward will fall "overwhelmingly" on public services operating budgets. So not only is the pie going to get smaller, but the percentage of it available to ordinary people is going to decrease as well.
1.17 The economy is going to lose momentum this year. But in paragraph 1.4, real wage growth was supposed to return this year. How does that work?
1.18 The economy is within a percentage point of sustainable full capacity, and demand is outstripping supply (Because of lack of productivity. The denizens of our modern sweatshops just can't crank it. Perhaps we should reinstitute floggings.), but there's no inflation to be seen. It's a miracle!
1.26 The hedging starts getting thick. Translation: Whatever else we're saying, just figure GDP growth of 2.1-2.2% with significant risk of downward revision. Relate this back to the £14.5 billion extra cut referred to in 1.6, and what you have OBR telling Parliament is, "Even if you accept all these assumptions that we've mostly pulled out of thin air, you guys need to come up with significant, additional cuts to meet your targets. If our assumptions prove to be bogus, you don't have a big enough ax to make the cuts you need to get there from here. And we won't mention the effect those cuts will have, because you probably don't care."