Economic Optimism

I’ve mentioned this a couple of times in my write ups of the weekly YouGov/Sunday Times polls, but I thought it worth looking at more closely. Without much comment it appears that people are gradually becoming more optimistic about the economy (or given the net figures are still negative, less pessimistic). There are there regular polls on economic optimism – the YouGov ones for the Sunday Times (actually YouGov do several different trackers on economic optimism, but they are all showing the same pattern), Ipsos MORI in their monthly political monitor and a monthly poll by Gfk NOP for the European Commission. All three are shown in the graph below:

As you can see, the three lines show slightly different results (they ask different questions, and NOP calculate their net figure a different way), but the trends are broadly the same, and all three show a uptick in May this year (though the NOP uptick is less dramatic than the YouGov and MORI ones).

What remains to be seen is whether it is sustained – the graph show previous spikes in economic optimism that eventually came to nowt, more economic bad news could do the same here. If it is sustained, the question becomes what effect it has on politics. My own view is that some degree of economic optimism and recovery (even if very slight) is a prerequisite for the Conservatives to stand a chance at the next election, though by no means enough on its own.

Worth keeping an eye on.


174 Responses to “Economic Optimism”

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  1. Colin – could not resist, you know that I have expected a modest recovery in the run up to 2015 and its extent and distribution will be crucial in determining the electoral benefit to the Government parties.

    I think the point is that after zero growth net for pushing 3 years some growth is inevitable as pent up demand has to lead to some increase in consumer spending, how it is funded is another question, perhaps the house price numbers are helping.

    I take your point about the trend perhaps 2020-2050 will see 1.0-1.5% rather than just over 2% long term trend.

    For the time being though growth in the next 2 years up to the GE will most likely be judged against the post war average we have been used.

  2. JIM JAM

    I acknowledge that you have expected recovery.

    I don’t think anything was “inevitable” when the economy needs to rebalance away from the overweight financial services component.

    One only has to see what has happened in the German economy -there has been a paradigm shift. But those which make it through should be much stronger in the future.

  3. @Leftylampton
    The question re Lib Dems apparently peculiar behaviour is solved if you assume that UKIP has pulled voters out of the ‘Don’t Know / Will Not Vote’ category, meaning that the same number of LD voters now make up a smaller percentage of a larger pool; as an illustration, UKIP taking 5% of voters out of DK/WNV would reduce LD’s percentage by 0.8%.

    This would also explain much of the Labour -> UKIP swing as well.

    Alternatively there could be an increased movement of LD -> Labour plus a larger Lab -> UKIP swing.

    Like you, I would be very surprised at a direct LD -> UKIP movement…

  4. Mrnameless

    “Ed Millband seems to be getting praise all over this morning”

    What channel are you watching is it on free view or is it the Mrnameless, nameless channel.

  5. COLIN
    I have not been able to follow two points which you have made about economic development:
    one is the meaning of rebalancing away from the overweight financial component: do you mean that it is too big in relation to the market for financial services, or that it is too big in relation to other sectors of the economy – in which case should the sector be reduced or other sectors increased?
    the other is the selection of industries regarded as growth industries by the CBI: where on their website do I find this list and how do they value these industries in relation to, for example, the energy sector, transportation, housing or infrastrucrture?

  6. @MrNameless

    “Ed Miliband seems to be getting praise from all over this morning. Tackling worklessness without attacking the workless seems to be a popular approach.”

    The polls suggest that where Labour might get some political traction on this issue is by convincing the electorate that they can combine efficiency with compassion and fairness. In marketing terms, this is their unique selling point as a party and it went a long way to underpinning the Blairite hegemony. Put simply, it’s where they have a competitive advantage over their political rivals and this is illustrated in most polls. If they can be seen as a party that can deal with cost of welfare while retaining a degree of humanity in the system, then the Tories are in deep trouble. They are, quite simply, not seen as a party that can do both and this is why I think they are very vulnerable to the “hopeless and heartless” accusation. In fact, I think it’s hurting them already.

    Miliband has much to do to convince a sceptical electorate on this, but he’s making a start on it today. If he’s successful, then he might just be beating a path to Downing Street in 23 months time.

  7. @NickP

    “Is there a graph somewhere of government approval?”

    http://www.statgeek.co.uk/polling/approval-ratings/government-approval/

  8. Colin,

    “Identifying Industrial sectors with potential & competitive edge is somewhat different.”

    If governments were good at identifying sectors with “potential & competitive edge”, then they wouldn’t struggle so much in picking winners.

    “The idea that the CBI have no idea what these sectors are is amusing. The economy as a sort of lottery in which industrialists & entrepreneurs wait for something good to suddenly appears out of the blue, is an interesting concept.”

    I didn’t say that the CBI have NO idea; just not much at all.

    The economy is more unpredictable than a lottery. A lottery has odds: if there are 100 possible number combinations, then your chance of picking the right one with a ticket is 1 in 100 etc. Economies are characterised by what economists call Knightian Uncertainty: we don’t even know the odds of different contingencies.

    Industrialists and entrepreneurs do wait for opportunities. They also look for them (entrepreneurship, as Israel Kirzner put it, is a discovery process) and also actively developed their discoveries via marketing, investment and so on. However, it’s entrepreneurs who have the incentives to find out where potential is.

    Insofar as there is publicly available information relating to the potential of various sectors, it will already be reflected in stock & bond prices. The main non-publicly available information is the schemes of government e.g. “windfall” profit taxes and subsidies to housing. There, the Coalition decided to tax the oil industry in and hurt Scottish industry, and then bankroll the house purchases of (among others) upper-class English yuppies. It’s enough to make anyone a nationalist.

    “Not very left wing though-how would government decide where to target support?….buy a lottery ticket each week I suppose.”

    I’m not left-wing at all: I’m considerably less left-wing than David Cameron and George Osborne, except when it comes to things like the government stopping people from coming here and contributing positively to our society.

    The government shouldn’t “target support” at all. It should provide general support in terms of good regulations, training programmes for the unemployed, keeping deficits & thereby interest rates/inflation low, and taxes that are low & which keep distortions of the market to a minimum. Let investors take on the uncertainty of reality and leave the taxpayer out of it. If people want to support British industry, they can buy some shares or corporate bonds; the government shouldn’t play investor with taxpayer money and it shouldn’t waste civil servants’ time trying to beat the market in identifying winners.

  9. CNS
    “But there has been a consistent improvement in perception over the last year. You can’t put the entire last 12 months down to good weather.”

    If only we COULD put anything down to consistently good weather.

    You are right that there has been a general trend of reduction in the level of economic pessimism. One would hope that after 3 years of flat-lining, the expectation that things won’t get MUCH worse would be reasonably valid.

    I’ve commented before on how, the longer the permaslump continues, the lower the bar becomes for what qualifies as economic success. Three years into this administration, and 5 years after the crash, the fact that “only” a net 20-30% of pollees think that things will get worse over the next year is seen as good news is about as low a bar as one could set.

  10. @ Turk

    Re Google v Labour Party I don’t think that “tax efficient” donation is quite as extreme as the DT and Osborne are making out. From what I understand Lab gets a regular Dividend income and the tax is ‘dodged’ because they make a loss or break even and therefore no tax to pay on the dividend money. I assume tax would be paid if the shares were ever sold.

    I’m not saying it is totally on the level or desirable (I would need to know more) but it doesn’t seem a million miles out of line of the principle of tax that should be paid when the income is earned.

    I also think the distinction between charity (tax free donations) and political donations is a bit muddled. Basically why should you pay tax on something when you receive no benefit? Obviously with political donations there is some sort of potential for personal benefit as the government you get may, totally above board, be following policies that benefit you whether they relate to lower rates of Income tax, support for the industry you are in etc etc.

    Whatever way you read it if Google avoid tax they are making more money for themselves and their shareholders. If the donor/Labour Party avoid tax on the donation the Donor has certainly gained nothing and the Labour Party have gained money to spend on elections etc but not gained financially (although I guess they could put all their salaries up!)

  11. BILL
    Are there not two areas, at least, where Government does have a role in the link between the market and industry: one that of market information, for example in respect of crop or other commodity prices; another that of job opportunities, both for job seekers and for the training sector and conversely manpower and skills for industry? And does that information and promotional role not extend to international trade and investment?
    On my previous post to Colin, I was not trying to goad, but genuinely puzzled by the lack on the CBI website of any apparent product of their proclaimed role in identifying industrial development potential; lots of self-proclaimed virtue and value to industry and the economy, but not much hard data; or am I wrong?

  12. Amber’s friend Mark Sewotka on DP-not impressed with EM and Byrne at all.

  13. This is a good time to test policies. It’s not too late to change emphasis – whilst sticking to the core message – if the economic or political winds change.

    Economic optimism is, IMO, helpful to Ed Miliband. Building a 1N economy which works for the workers is a much easier message than austerity for all.

  14. Presumably the best outcome for EM is winning the election just as things begin to improve, then taking all the credit as well as having the money to do everything he’d like.

  15. John Pilgrim,

    Helping job-seekers, yes: since the state takes on responsibility for the unemployed, it’s in the taxpayers’ interests to get people off the dole and into work.

    In commodity prices, I don’t think so. Information that is profitable to obtain will be obtained. The primary affect that governments have on commodity prices is to distort them with taxes and regulations, e.g. a very high proportion of household energy prices and petrol prices is due to the government rather than supply & demand. Of course, the government is quick to pass the blame to private industry when these prices go up! Then, naturally, they come in to “rescue” the consumer they’re attacking…

    “And does that information and promotional role not extend to international trade and investment?”

    I don’t think so. There is no economic reason to favour existing export industries over any other business, though there are obvious political advantages in doing so. It should not be the job of the Royal Family or the Foreign Secretary to go around as an unpaid employee of British businesses, just so that more established businessmen will donate to the Labour party or the Conservative party. Ditto state export-promotion schemes.

  16. @ Colin

    Amber’s friend Mark Sewotka on DP-not impressed with EM and Byrne at all.
    ————
    Mark Serwotka is always well worth listening to but, I’m sorry to say, I missed DP today & can’t respond properly to your comment, Colin.

  17. Amber Star,

    I remember being criticised by one or two Labour-supporters on here when I said the same thing. That was a few days before Ed Balls laid out a few new ideas, after which a consensus suddenly developed that now IS a good time to test ideas! Clearly, I persuaded Ed Balls as well as Labour-supporters on here…

  18. JOHN PILGRIM

    BRiefly responding :-

    The Financial Sector IS reducing. It has lost 132k jobs since 2008. After the crash , a permanent hole in tax revenues was identified as resulting from unsustainable/unrepeatable FS sector pre-crash activities-£50 bn or so from memory?

    CBI :-

    http://www.cbi.org.uk/media-centre/press-releases/2012/11/champion-sectors-to-secure-the-uks-industrial-future-cbi/

    and

    ht t p://www.cbi.org.uk/media/1821466/cbi_industrial_strategy_report.pdf

    RE Your second post- to respond in detail would be lengthy & tedious & wouldn’t really get us any further I think.

  19. LEFTY

    I tried to facebook friend you with “ole lefty – russia” but it didn’t work.

    Have you moved recently?

  20. SHEVII

    @” From what I understand Lab gets a regular Dividend income and the tax is ‘dodged’ because they make a loss or break even and therefore no tax to pay on the dividend money. I assume tax would be paid if the shares were ever sold.”

    On DP there was an exchange between Jacqui Smith & AN on this.

    JS kept on about Labour’s tax position-which , as AN failed to make her understand, is not the point ( IF there are dividends from this PRIVATE company-Labour will pay tax on them-like every shareholder does )

    The issue is the tax saving of the Donor, who said that the gift of shares was very tax efficient for him.

    JS would not concede any equivalence between a legal use of the Tax Codes to avoid tax by Google & by the Labour Party Donor.
    Indeed she suggested that donations for political purposes carried a virtue which should justify a tax saving.

  21. AMBER

    Thanks-wasn’t expecting you to.
    But I thought of you as MS responded on Byrne’s explanation of the new Labour policy announcement.

    The whole thing was somewhat muted by LB’s inability to say , how the structural Welfare cap would operate, what would be covered by it, and what would be cut in the event of the cap operating.

  22. AMBER

    From the PCS website :-

    “”Labour urgently needs to offer a clear alternative to Tory despair, one that will inspire people and repair the serious damage being done to our communities and our economy by this government.
    “We do desperately need investment in housing, jobs and our economy, but Labour continues to set this in the context of austerity, parroting the Tories’ divisive striver versus skivers rhetoric, and it is exactly these policies that are failing.”

  23. turk

    “Mrnameless

    “Ed Millband seems to be getting praise all over this morning”

    What channel are you watching is it on free view or is it the Mrnameless, nameless channel.”

    Its funny but it genuinely seems to concern you if someone thinks they have found good news about ole Ed. Since it makes no practical difference to anything I find that slightly odd.

    Not quite sure of the “free view” barb either – don’t they do proper news?

  24. Tactically EM is doing the right thing to get in to Downing St.

    The coalition is unpopular and the Tories look divided with UKIP hurting them more than Labour. Add to that Labour beening ahead in the polls and the LibDems still on half there GE support.

    Q. What could go wrong?
    A. The economy stupid.

    Q. With the economy both the publics top concern and Labour seen as less capable than the Tories what do you do?

    A. Hold on to Cameron’s belt. By mirroring Tory policies on the economy cuts and welfare you prevent them from attacking you.

    Good politics for returning a Labour government, but it will be a New Labour government, economically, socially and politically much like Blair’s.

    That will keep middle England happy but hugely disappoint the Labour left.

    Still the Labour left don’t matter because unlike retired Tories with UKIP the Ambers of this world have nowhere else to go.

    For them it’s Labour Lite or nothing, so they’ll turn out to vote convincing themselves as they did with Blair that he is only saying these things to get elected but will turn left once in office.

    Peter.

  25. “Amber’s friend Mark Sewotka on DP-not impressed with EM and Byrne at all.”

    Looks like Ed’s onto a vote winner then.

  26. ‘Still the Labour left don’t matter because unlike retired Tories with UKIP the Ambers of this world have nowhere else to go.’

    The Green Party once again failing to remind voters it exists, then!

  27. Len McCluskey & Dan Hodges are both praising EM’s speech so it must have been great if he has succeeded in pulling those two into the same position !

  28. Colin,

    I think JS understood AN’s point but kept going back to Labour paying tax on dividends as a way of avoiding his main challenge of hypocrosy ref Google etc.
    Also – I think JS said in passing that there is a debate to be had about whether donating to parties should be tax deductable.

    You are right about the lack of detail from LB but the direction of travel emerging in the last week from Labour is clear and that is the important thing.

    I did chortle at JS calling MS conservative as he opposed no change.

    I am biased of course but though she did well as did Margaret Curran yesterday. I think Labour people will be pleased to be able to talk about some, albeit vague, policies at last rather just opposing and this will improve their media performances.

    Peter, unlike with nu-Labour i do sense a philosophically different approach from EM the post-Thatcher consensus but it will take time for this to be apparent in specific policy area.

  29. If I have got it right watching the Speech from EM between interventions regarding crucial news such as a Teacher is still allowed to work and the weather is nice I think the gist of what Ed was saying was the central point in the welfare issue is shifting the mentality of all people, so that they once again take as much responsibility as they can for supporting themselves. That will still leave many people who are in genuine need and we should continue to support them.

    We should also do all within the power of a government to discourage redistribution for the poor to the rich in the form of high rents and subsidising low paid jobs.

    Frankly it is difficult to see much wrong with this attitude and it should appeal to LD’s and some moderate Tories as well.

  30. Chordata,agree about McCluskey,but wary of Hodges.”I come to bury Caesar
    Not to praise him” springs to mind.

  31. Colin
    In most countries contributions to a political party are deemed the same as those to charities.If you consider political parties essential to democracy then I feel this is reasonable.

    It does strike me as little odd that a party who has some huge donations from various non dom or ex non dom backers should raise the issue of the morality of donations to the Labour Party.

    Osborne must be more confident of the status of Tory Party contributions than could by any reasonable standards be expected in doing so.

    I wonder if it will come back to bight him in the contributions?

  32. PC:

    Aye. I’ve gone Caracas.

  33. JimJam,

    “Peter, unlike with nu-Labour i do sense a philosophically different approach from EM”

    Do enlighten us.

    I thought that Blair was philosophically vacuous and all the New Labour and third way stuff just Madmens spin;

    “They don’t like old labour otr the Tories so we’ll rebrand as new Labour”

    ” The don’t like the way we did it or how the Tories are doing it so we’ll offer a Third Way”

    So far apart from some wooly stuff about “one Nation” I haven’t come across anything from EM that comes close to a philosophical underpinning so in that respect I am seeing Blair mark 2.

    For me freezing the Benefits budget is little more than;

    “Tough on welfare, tough on the causes of welfare”.

    I think we’ve been there before.

    So as you have detected something I’ve missed, exactly what is this philosophical difference?

    Peter.

  34. @Ann in Wales

    Crikey, if Dan Hodges liked the speech, if I was Miliband I’d go back and re-check what I’d just said!!

  35. @ AIW

    Agree with you re Hodges. What I can’t understand with him is what he wants. If the Tory right cause ructions within their party it is very clear what they want doing.

    Hodges strikes me as someone who doesn’t think Beckham should be in the team and then criticises everything he does and then says well anyone could have put that in from 40 yards out!

    @ Colin
    Thanks for the response. The implication that the donor has in some way ‘gained’ out of this is obviously not right. If you give something away then you haven’t gained you have just been able to make a bigger donation than you would otherwise have done. I’m sure it is Labour who is gaining just not sure that it is naughty.

  36. @JIM JAM

    “I think JS understood AN’s point….Also – I think JS said in passing that there is a debate to be had

    “You are right about the lack of detail from LB….I did chortle at JS calling MS conservative.”

    Yes, but what did XZ say about QP and is UV a Conservative? Or is WW right about KV?”

    Eh?

  37. @ Colin

    The whole thing was somewhat muted by LB’s inability to say , how the structural Welfare cap would operate, what would be covered by it, and what would be cut in the event of the cap operating.
    ————
    I expect that when the claim count exceeds the budget he’ll send people a jokey letter saying ‘there’s no money left’ :-(

  38. Re Labour party donation.

    This from the Telegraph.

    A spokesman for the Electoral Commission said that Mr Mills’s gift of shares was unique among major political parties and had not broken any rules.

    He said: “The Labour Party did contact the Electoral Commission prior to accepting the donation and we advised them that they could accept the donation subject to carrying out the necessary permissibility checks on the individual.

    “Political parties can only accept donations from an individual who is on the UK electoral register.

    “A political party must ensure that a donor is permissible as defined under the law, therefore, a party can accept shares, as long as the donor is permissible.”

    It seems the Labour party did everything right and other than partisanship I don’t see a problem.

  39. Peter – I probably should not have raised the issue and don’t want a wider debate but I do think EM has is not Tory-Lite in the way Nu-Labour was.
    To be cheeky he has attacked Rupert for example while some other party leaders have cosied up.

  40. @Petercairns
    ‘Still the Labour left don’t matter because unlike retired Tories with UKIP the Ambers of this world have nowhere else to go.’

    I don’t think that is quite true.I was a Labour Party member for 27 years until 1997 but have not supported them at a general Election since 1992 because of Blair and New Labour.. As it happens, Labour will be denied my vote in 2015 too because in my constituency – Norwich North – they have selected from an AWS – so I will be voting Green.
    More generally,though, I fail to see the point of electing a Labour Government to carry out policies well to the Right of pre- Thatcher Tory Governments – it’s a complete waste of time! Little more than a change of faces would take place..How is that meant to inspire a deeply disillusioned electorate?

  41. BigFatRon

    I’m sure that UKIP HAVE pulled in some previous non-voters/DKs. But the effect that this would have on depressing the VI of both Lab & LDs can’t explain the features in the graph I posted on the previous thread. The big issue is that BOTH times that Europe has come into sharp focus over the last couple of years (DC’s “veto” and then the UKIP rise following the Referendum decision and their performance in recent elections) Lab’s vote has gone down whilst the LD vote didn’t (or at least, didn’t by the same amount).

  42. Back to the thread topic on economic optimism. If the IFS are right, then there won’t be much gratitude towards the Government flying around come 2015. The economic “feelgood factor”, thought to be the magic ingredient for government’s seeking re-election, is much more about people experiencing rising living standards than any optimism they may have about the future. If the average middle-income family in Britain is likely to be nearly £1,800 a year worse-off by 2015, then that’s not a good backcloth for any government seeking another term of office. Here’s a report on what the IFS have to say: –

    http://www.bbc.co.uk/news/business-22765940

    As a matter of interest, I wonder if there has been any work done on seeing how incumbent government’s have fared at general elections that have coincided with a general fall in living standards? In the good old days, government’s usually timed elections to coincide with upswings in the economic cycle but that’s another card that Cameron and Clegg won’t be able to pay during this Parliament.

  43. Jim Jam and Norbold

    Yes I was struggling a bit, having just tuned in. Pleased to see my economic expertise so gratefully acknowledged too a while back.

  44. @CB11

    “In the good old days, government’s usually timed elections to coincide with upswings in the economic cycle but that’s another card that Cameron and Clegg won’t be able to pay during this Parliament.”

    I think that was the point of the fixed term idea (I personally prefer 4-year fixed terms). It prevents governments from pulling an early one when everything is good. I suppose the downside is that regular electoral cycles will evolve, similar to the US system.

  45. I wonder if the softening pessimism is due to the increased supply of food banks (Liverpool Anglican Cathedral joined now the providers’ list, but they probably acted with the wrong time lag and missed the blooming of the economy). Mind you the customers are unlikely to be open and the government’s policies keep food banks in business, and thus they can look more optimistically into the future.

  46. Jim Jam

    @”I think JS understood AN’s point but kept going back to Labour paying tax on dividends as a way of avoiding his main challenge of hypocrosy ref Google etc.”

    That was my impression too Jim Jam.

  47. Open=voting in previous post

  48. STEVE

    @”If you consider political parties essential to democracy then I feel this is reasonable.”

    I disagree & think it unreasonable.

    @”It does strike me as little odd that a party who has some huge donations from various non dom or ex non dom backers should raise the issue of the morality of donations to the Labour Party.”

    As Jim Jam says-the issue raised is not morality-it is hypocrisy.

  49. AMBER

    !! -smileys -good one.

  50. @Colin

    “As Jim Jam says-the issue raised is not morality-it is hypocrisy.”

    I think it might be more accurate to say that the issue raised by Andrew Neil was the one of hypocrisy. Jim Jam can no doubt speak for himself, but I didn’t get the impression from his post that he thought there was anything hypocritical about Labour’s acceptance of the donation. Neil was basically putting to Jacqui Smith the charge made originally by the Tory Party, I believe.

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