Wednesday, April 25, 2012

Back in Recession

I'll excuse all my econ101b students for perhaps not being up at this hour, but 14 minutes ago the Office for National Statistics announced that the UK shrank by 0.2% in 2012Q1, following on from the fall in 2011Q4, which means that officially, the UK is in recession - again.

The Twittersphere is, of course, awash with response.  I had searched for UK GDP and was getting more than 20 new tweets appearing per second:

Does it really matter though? What exactly is this? Recall GDP is the value of final goods produced in the UK over a particular time period - here the first three months of 2012.

The ONS has released information based on 40% of its full data for the UK for the first three months of the year - so it's possible that later the number will be revised as the remaining 60% of the data is used to calculate more precisely how much was produced in the UK over the last three months.

The important thing however is not to jump on these figures, as many will in the Twittersphere, and draw premature conclusions. Yes, the Coalition did embark on austerity, and many did warn a recession may be the consequence (I warned of it but didn't actually think it would happen because so many unexpected events happen). However, many other things are happening - austerity elsewhere, the eurozone crisis, and we as consumers may well have changed unrecognisably over the last few years in response to the crisis.

It is possible that this number will eventually be revised so substantially that it's positive - either way however, what it reveals however is a generally rather bleak picture of economic activity in the UK; as Chris Dillow (@CJFDillow) tweets:

Obsession with small drop in GDP is statistical fetishism. Even if GDP had grown 0.2% in Q1, it would still have been a poor performance.
 There will be plenty of comment on this over the coming days; if you are preparing for the econ101 exam, be careful how you make use of it! Stick to reputable journalistic sources rather than bloggers - FT, Economist, perhaps the Guardian and the Telegraph at a stretch.

Sunday, April 15, 2012


Also now fading from memory is the panic buying of fuel of a couple of weeks back - but as a refresher, it was announced a week before Easter that drivers of fuel trucks may strike, prompting government ministers to suggest panic buying (hard to believe, but true - Francis Maude even suggested filling up some jerry cans and putting them in the garage!).

The result was predictable - panic buying, queues everywhere, shortages and chaos.

So if this was so predictable, why on earth did the government do it?

There's at least two reasons which are quite plausible to my mind. The first is bumping up GDP figures, and the second is managing public opinion.

The first was noted by the Liberal Conspiracy blog (although strangely I can't find the link to it anymore...) - the panic buying happened in the last few days of March, and March being the third month of the year, is the last month in the quarter, and we calculate GDP by the quarter. 2011Q4, the previous quarter, saw negative growth, and hence if this quarter also saw negative growth (and the OECD had said they expected it), then this would mean the UK was back in recession.

Hence if people were to buy lots of petrol, this would count as lots of output sold, expenditure made, incomes earned (the three ways to calculate GDP). Is it possible the government decided it could influence GDP figures to ensure that the UK didn't enter a recession?

A perhaps slightly less far fetched suggestion is that the government was instead trying to manage opinions.

The simple fact is that two sides are trying to bargain some pay agreements, and hence the media management of both sides is to try and get the public onside.  You may have seen blurbs to the following effect on Facebook:

So let me get this right, 2000 tanker drivers are complaining that 45k a year and a final salary pension, is too little for a dangerous job? Yet our boys and girls out in Afghan get 24k or there about to get shot at? Round the 2000 tanker drivers up, send em out to Afghan, then ask 2000 soldiers if they want to earn 45k a year driving a fuel tanker about. Problem solved.... repost if u agree.
On the other hand, the truckers do have a story to tell too, again found via Liberal Conspiracy (a leftie blog which I'd treat with some caution - they don't have the kind of economics tuition you've already got in your first year alone at university).

The government in its announcements led to panic buying and general public resentment against the fuel tanker drivers, hence succeeding in its objective, to get public opinion on their side against any actual fuel strike that might happen. If the representatives of truck drivers realise how unpopular any decision to strike would be, their bargaining position is significantly weakened.

So, both possibilities are very much in the realm of conspiracy theory, but both are interesting and contain a good chunk of economics...


Things have been a little quiet on here of late, although many interesting things have been happening for the keen economist in recent weeks and months, not least the recent panic buying of stamps (alongside petrol), prompted by an announcement that Royal Mail will increase the price of stamps by 30%. Sloman's economics blog comments on this here, and notes the public outrage at the price moves, with the word "profiteering" appearing at least once.

It's quite odd how a loss-making business can be accused of profiteering, but that's another matter.

The bottom line is that there exist other ways of sending information, and perhaps there have never been as many as there are now, and not surprisingly Royal Mail has felt the pinch. The optician concerned about the cost of sending out thousands of mail shots ought to perhaps consider alternative means of getting that information out - emails, phone calls, or even just other mail companies other than Royal Mail.

The reason the stamp price hike seems to great is that before now Royal Mail haven't been able to, because of the regulator restricting how much they can increase prices by. While it might be argued that by keeping the price low, Royal Mail gets more customers, it is clearly the case that folk are not influenced by price alone when decided how to send information - if they were, then Royal Mail wouldn't have been making losses with such apparently attractive prices.

Royal Mail needs the flexibility of not having so many of the things it can do so heavily regulated if it is to adapt and survive in an age of rapidly advancing technology.