Wednesday, October 15, 2008
As you may recall BOM has revived the Misery Index - the arithmetic sum of the unemployment rate and the RPI inflation rate. It was developed back in the 70s specifically to monitor the misery delivered by Labour governments.
Today's rise in unemployment pushes the index up to 10.5 (RPI = 5%, unemployment = 5.5%). That compares to the 9.6 inherited by Labour from those hopeless boom and bust Tories in 1997. And just so we know, in the pit of the last recession, immediately following Black Wednesday, the Misery Index stood at 13.5.
So how bad will it get?
The outlook is grim.
Unemployment is ramping up ominously, even before the wholesale job cuts coming in finance. We could easily get back to 10% unemployment, last seen in 1993.
And on the inflation front, everyone is hoping the fall in international oil and food prices will mean we've seen the peak. But not so fast. Commodities are priced in dollars on world markets, so the price we pay depends on what happens to sterling. And sterling has been weak. Over the last year it's fallen by 15% against the dollar, 10% against the Euro, and an astonishing 26% against the yen.
On top of that, the bank rescue - although essential in the circs - increases future inflation risk. The world's central banks are flooding us with cash, and as every A Level Economics student surely knows (well, used to know anyway), more money sooner or later means more inflation. Central bankers hope they will be able to pull the cash off the table again before we pay that price, but just how lucky do you feel?
Once the immediate crisis has passed, higher inflation remains a big risk. As the 70s showed us only too clearly, economic weakness and high inflation can easily go hand in hand.
More things to be miserable about:
1. NHS dentist contract fiasco continues - we've blogged the lunacy of the new dental contract many times (see posts gathered here). The government has now finally admitted that dentists are "playing the system" - they're carrying out far too many check-ups simply in order to make money. Wow! Who'd have guessed if you incentivise people to behave in a certain way, they are likely to do precisely that? Once again, the commissars have shown they simply do not understand how incentives (aka the real world) work (HTP HJ)
2. £1.75m NHS yacht - up in Hull (yes that Hull) the NHS is spending £1.75m on a yacht and sailing academy for disaffected local youths. It's classic nanny state - the kind of thing that's kept Hull dependent and underachieving for the last 50 years. And it's costing the rest of us money we can longer afford (HTP PS)
3. SATs U-turn - so Balls has finally admitted the madness of those school tractor production stats and scrapped the age-14 SATs. As we've blogged many times (eg here), the state SATs tests are both disruptive and useless: they are widely gamed and focused almost entirely on meeting commissariat targets. So good riddance. But we've still got the other SATs... and we've still got the commissars (HTP Educator).