A Budget forecast

Here's a Budget forecast. There are two issues Brown won't mention today.
1. It's doubtful whether government policies can increase long-run economic growth. This paper says: "There are few, if any, feasible policies available that have a significant effect on long run growth rates."
The Treasury actually seems to largely agree here. It reckons trend output growth from now on will be 2.75% a year, compared to 2.43% between 1986 and 1997 (table A2 of this pdf), but all this extra growth comes from faster population growth.
2. Extra spending on education doesn't greatly improve results; Eric Hanushek gives evidence in this pdf.
Between 1997-98 and 2006-07, UK spending on education rose from £37.2bn to £70.6bn, an increase of over 50% in real terms. (Tables B18 of this pdf and C19 here). How much has the quality of education improved?
Not only will Brown not mention these issues, I doubt if commentators on the Budget will either.
But then, we're not dealing with causal expected utility here, but with symbolic utility. Analysis of the Budget should be done by literary critics, not economists.

Comments

[Mark Wadsworth]

Fantastic post, I can't add anything to that!

[dearieme]

Or a theatre critic?

The lead was as overcast as a wet weekend in Kirkcaldy. He ran the gamut of emotions from Arse-angry to Braggart-boastful. His volume control lacked subtlety and his cadence fell regularly into monotony. His lines carried no conviction. The casting of Princess Toni, his on-again, off-again love-hate obsession, was also unsuccessful, more Peter O'Toole than Bambi.

Of course, "carried no conviction" may not remain literally true of the New Labour coterie.

[Paulie]

"Analysis of the Budget should be done by literary critics, not economists."

If I recall the last one, that's exactly what does happen.

Unless Nick Robinson is an economist on the quiet?

[AntiCitizenOne]

> Unless Nick Robinson is an economist on the quiet?

More of a onanist.

[Jack]

I take the point but it's quite sweeping and I'm not sure what would be preferable.

The chancellor could scupper growth pretty easily if he wanted. The current situation is what you would expect if the policy was nearly optimal as far as growth is concerned.

As for education I can't see where £70.6bn comes from in table B18 but I'm not sure these figures present a like for like comparison, especially looking at the change from 05/06 to 06/07.

Even within education the bill includes significant expansion of pre- and post- school education both of which are expensive. Also in Hackney at least education has indeed improved proportionately.

There are a couple of baseline issues too. We don't have the flat spending outcome at our disposal. Education suffered a lot from the teachers strike with many slow impact effects such as recruitment difficulties and early retirement.

Also there is no reason to think that CPI provides a good index for the cost of something intensive in skilled labour. Private education and wages for the appropriately educated would be better benchmarks. Property is the other major input!.

[Mark Wadsworth]

Jack, that is the point, the Chancellor can scupper growth, or stifle it, as the present one likes to do. But there is little he can do to INCREASE it, in other words, the less a Chancellor does the better.

[Shashank Garg]

brown is on course of acquiring number 10, tax cut both for consumer and professional by marginal rate is an effort to woo these two entities..and Blair has already left the building...

[Jack]

Mark,

If the present chancellor likes to stifle growth he then does in fact have the ability to promote growth by stopping stifling it. Either he's already behaving in a near optimal manner or he does have scope for promoting growth[*].

[*]He could I suppose be intent on stifling growth but powerless to do so but then it wouldn't really matter what the chancellor did, in particular we would be no better off if he did less