A word about forecasting now that the OBR has had its third attempt to plot the economic progress of the British Economy. Like accountants before them the OBR is useful in recording the past but well-nigh useless in forecasting the future. We live in a time of extreme economic turbulence and uncertainty when at any time wars, earthquakes, worldwide pressure on resources and the stupidities of the human race can turn nice judgements into inanities. Yet still we persist. It will be better in the future: the economy will grow, employment will rise, inflation will come down and real incomes will rise again. The OBR at least has the common sense to admit that all its forecasts are subject to great uncertainty. Well yes, they say, it may not turn out like this but we hope it will.
I commit myself to several judgements, First, the attempt to eliminate the budget deficit in a five year Parliament is doomed to failure. At best the Coalition may complete the Parliament having achieved what Labour continues to promise: the deficit could be halved. We have in the Coalition a group of supply side fanatics who have always maintained that growth must come through a smaller state and greater productivity, who are antagonistic to public administration and welfare and suspicious of the state as pump priming anything. Come back Milton Friedman, all is forgiven. Economists have an adage that you can lead a horse to a trough but you cannot make it drink. The IFS has remarked that the numerous supply side intiatives announced in the Budget do not amount to a row of beans. They will add nothing to aggregate demand. What is needed is the pump priming of capital investment in rail, roads and building construction and a real (rather than imaginary) attempt to raise skill levels. Of course the Government is aware of these needs. It is doing something – but too little.
The central issue of George Osborne’s budget is a judgement of whether this Government at this time is right in believing that it is possible to eliminate the budget deficit in five years. If it is right in its belief it will go on to the glory dreamt of by our Dave and Nick. The objectives of financial probity and economic sucess will be achuieved and electoral success will be the reward. If it is imposible for Britain (and I suspect Greece, Ireland and Portugal) to do anything of the kind when will the game be up? I suggest the Budget of 2012 will be the time of reckoning. The Parliamentary rules now make it difficult to get rid of a Government – but not impossible. And at this time who might be leading the Labour Party. Might events work in favour of Ed Balls? The electorate love a winner. Watch this spot!