Wednesday, November 30, 2011

Danger, experts at large

Created in 2010 "to provide independent and authoritative analysis of the UK's public finances", the Office for Budget Responsibility (OBR) has supposedly been George Osborne's secret weapon, keeping him in touch with what is happening in the real world.

There is no doubt the man-child needs such a facility, with 21 percent of his less than adoring public marking him down as "out of touch". However, as The Independent helpfully points out, the OBR has problems of its own.

Its main task, supposedly, is to provide Osborne with independent estimates of growth, upon which the chancellor can base his fiscal policy. But it is here, in its short life, its performance has been somewhat lacklustre. It has now had to downgrade its growth estimates four times. The latest came with yesterday's Economic and Fiscal Outlook, published alongside Osborne's Autumn Statement.

At least though, the OBR points out its own shortcomings (chart above), where its June 2010 forecast for growth was 2.8 percent of GDP, when the outturn was actually 1.7 percent – an error of over 40 percent.

This, however, pales into insignificance against the forecast for private consumption, the OBR putting it at 0.9 percent growth as against an actual shrinkage of 0.5 percent, an error of over 150 percent.

Similarly error-strewn was the OBR's prediction for government consumption, suggesting a drop of 0.2 percent against an actual increase of 0.5 percent – a whacking 350 percent error.

Excusing its own piss poor performance, the OBR says that higher than expected inflation was the culprit. High prices reduced real incomes and dissuaded people from shopping. And businesses did not invest, according to the OBR, because the public weren't spending.

As to whether this is convincing, The Independent agrees that high inflation is unlikely to have helped the economy, but notes that the experts in the OBR didn't even consider the possibility that the Chancellor's own pledges of draconian austerity last year might have helped to undermine consumer confidence.

On the issue of government consumption, one only had to see the unabated flow of non-jobs, the rush of over-generous salaries, and the continued public sector profligacy, to realise that any idea of a reduction was pie in the sky.

But if the experts can't see these things coming, when most bloggers and even MSM sources could, one wonders why we have the OBR to waste our time and money. And if this is what Osborne is relying on, no wonder he is out of touch.