What a fool I have been

When did the UK government’s Plan A (aka austerity) become Plan B? The table below show OBR estimates of UK cyclically adjusted underlying public sector net borrowing from various budget or autumn statements.

	9/10	10/11	11/12	12/13	13/14
March 11	8.9	7.4	5.3	3.7	2.0
Nov 11		7.1	6.4	5.5	4.0
March 12		7.0	6.4	5.7 (4.0)	4.1
Dec 12			6.0	4.8 (3.0)	3.8
March 13			6.0	5.9 (3.6)	5.1 (4.3)
Dec 13				5.5 (3.3)	5.2 (4.4)
March 14				5.3 (3.1)	5.0 (4.3)

Figures in brackets are ‘headline’ numbers, which include the impact of (from March 12) Royal Mail transfers and (from March 13) Bank of England APF transfers.

Here are the same figures for the cyclically adjusted primary deficit, which is a slightly better indicator of fiscal stance. (Unfortunately I cannot find any figures in 2011 documents.)

	9/10	10/11	11/12	12/13	13/14
March 12	-6.9	-4.2	-3.4	-3.1* (-1.3)	-1.6
Dec 12			-3.1	-2.9* (-1.1)	-1.8
March 13			-3.2	-3.3* (-1.5)	-3.1
Dec 13				-2.9 (-1.0)	-2.6
March 14				-2.8 (-1.0)	-2.5

*There do not appear to be any figures excl. Royal Mail and APF before December 2013, so I have just increased the deficit by 1.8% of GDP (the adjustment factor in the March 14 forecast) to get the underlying deficit in the first 3 rows. 2009/10 figure comes from the OBR databank. 

March 2011 was very much Plan A: a sharp and steady tightening of fiscal policy. By March 2014 it looks like Plan B: in 2012/3 and 2013/4 there is very little fiscal tightening.

When did Plan A become Plan B? It is clear that Plan A was in force in 2010/11 and 2011/12: we had significant fiscal tightening in both years. So we need to focus on 2012/3 and 2013/4. The contraction signalled in November 2011 for those years was less than in March, but it is still a fiscal contraction. If we look at the primary deficit, the contraction expected in March 2012 for 2012/13 is modest, but the OBR was still expecting a large contraction in the following year. Only in March 2013 do we find little or no contraction in both years.

This is where I have to own up. As some comments on my last posthave asked, why did I not write about Plan A becoming Plan B earlier than December 2013? I did write a post on the March 2013 budget, but I chose to focus on the statement about monetary policy (given all the speculation about nominal GDP targeting). So why wait until December 2013? I could argue that others, like Jonathan Portes and the IFS, did talk about this in their commentary on the March budget. And I did acknowledge the point before December. I could also claim that I was ahead of George Osborne and Ed Balls. But these are pathetic excuses.

While we are at it, we should follow these same commentators and ask why I failed to forecast the 2013 recovery? I could say I didn’t forecast its absence either, because I do not do that kind of forecasting. Also in a second post after the March 2013 budget I did talk about Help to Buy, and I listed a number of reasons why this could help stimulate the economy. But if I’m not prepared to forecast exactly when economies are going to stagnate or recover, is anything else I say worth serious consideration?

Given these sins of omission I have therefore to acknowledge that anything I said about Plan B is totally discredited. Furthermore, my criticism of the Labour opposition for not taking the line that the plan had changed is obviously misplaced. Ed Balls did callfor a Plan B before the March 2013 budget. But if an academic who has a full time job doing teaching and research cannot write about these things at the right time, how can you expect an opposition Treasury team to be able to notice that their request has been granted.

And I’m afraid this means that all of my criticism of George Osborne has to be retracted too. It is perfectly understandable that he should keep claiming that he has stuck to Plan A, because if it takes a professor of economics one budget statement before calling a change in policy, it is quite reasonable to assume that it will take a Chancellor and the entire Treasury a lot longer than that to recognise what is going on. And if the government is to be excused recognising what is happening to fiscal policy, then we really should also forgive them the effects of the contraction that did take place in the two preceding years.

So in the future I promise to ask myself before I write anything - could I have written this earlier? And if the answer is yes, I know it is best to keep quiet. I now understand that it is best to focus on when things are said, particularly at this time of year.  

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Ditulis oleh AndreSurbakti pada tanggal Selasa, 01 April 2014