Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why UK Treasury Economic Models are Out of Date, and Wrong

Economics / Economic Theory Apr 12, 2010 - 08:53 AM GMT

By: John_Cardy


Best Financial Markets Analysis ArticleI had a superb session on Budget Day last month with Joe Nellis, Professor of Economics at Cranfield, and he gave us some of his forecasts for economy in the next few years. The forecast could be summarized as that we would recover, but slowly.

It was interesting to see later, during the budget, the Treasury forecasts and compare, and as the papers have said today, 'Expert' forecasters think Darling is a bit optimistic.

But, as a non-expert, I think they are ALL wrong. I think there are some factors that their models cannot build in because they have no history.

Firstly, we have had 60 quarters of unbroken growth before this recession. It was the longest period of growth since 1945, so any modelling of recession behaviour is based on previous recessions, which happened a very long time ago. So much has changed in the 15 years since the last recession, I don't think the models will be forecasting correctly.

What are the changes?

1. Labour Movements. In the last few years we have seen political pressure over the number of immigrants here, most from EU countries that have the right to be here, and come in uncounted. No-one really knew how many were here, or what they were doing. I also think that no-one knows how many have gone home. So, labour was able to increase in the good times, and decrease in the bad times, without the government or economists really noticing. This has never happened in any previous recession, so is not in the model.

2. Communication. The world is now connected like never before. No-one really understands the impact of this, but you can bet that it's not in anyone’s model. What it does mean is that if I want to recruit a new web designer, he can be based in Delhi or Lahore, not in Oxford or London. It's easy to do, and to manage. Now, I can increase capacity cheaply and at low risk, without UK employment laws. So, as we come out of recession I can invest in new ideas and new projects without necessarily increasing the headcount. This makes me take more risk earlier in the cycle, increasing the likelihood that we recover faster.

3. Globalization of production. Much is being made of the lack of employment in this recession. But so much of our UK products are now made abroad, many of the lost jobs are not here, but in China, Indonesia or India. Even where production is not abroad, components or some processes are often made in the Far East, so the effect is the same. And in the Far East, they are flexible. So, as we increase confidence, we can increase production faster than ever before. You can bet that this is not in anyone’s model.

4. Types of Work. In the early 1980's we had plenty of people working in traditional, hard-working jobs like Mining, Steel etc. They went. So did most proper production. What is now called manufacturing is often assembly, employing far fewer here, but lots in the Far East. Consider the people you know. The parents at school. The people in your street. What jobs do they do? A huge proportion do jobs that did not even exist in the last recession. Computing, and the Internet has transformed the work we do, and that's not in the models. These jobs make it easier to recover from a recession. You can be more flexible in the hours you work. You can invest time in your own projects, increasing your IP, ready for when the upturn comes. Many people working in these have spent the recession re-investing time (and therefore money) in their businesses. When the recover comes, they will be stronger. This is the modern equivalent of investment, but I bet it's not counted in the models. When you switched off a machine it stayed switched off, and the people went because they did not have the skills to do anything else. Ask around, your friends have been doing things in the recession that will help the recovery to be faster.

So, overall I believe that it's very possible for us to recover quickly, more quickly than ever before. Whilst it was the deepest recession in modern times, the 'experts' also say it has not been normal. It was deeper than most expected. Given the depth, it was also shorter than most expected, and many 'experts'' say they do not fully understand why. In twenty years time, they will define 2010 as the new 1945, the new date where everything changed. We have not had any times like this before, so trust no-one who tells you the know what will happen next.

In twenty years time, Economists will have researched all this and will be agreeing that things changed in 2010.

John Cardy is a Director of a UK based Outdoor Toy manufacturer, selling Trampoline Products and Climbing Frames.  He writes a blog about life running a small business in the UK. He believes that people running real business have a more instinctive and instant view on what is really happening day to day and a better grasp on what the issues are than expert economists and politicians.

© 2010 Copyright John Cardy - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in