Criminogenic environments like the City of London


On the Daily Politics and the Sunday Politics recently, Andrew Neil has referred to how journalists do not report on the financial sector.  That he feels this to be a lack was also suggested by his treating Max Keiser with much respect.  The online community is relatively familiar with the Keiser Report but amongst academics, Professor Bill Black is a rare creature…  a former financial regulator and now, Associate Professor of Law and Economics at the University of Missouri-Kansas City. This post presents some of his findings about the abundance of fraud in the financial sector, and a video clip of his recent speech in Davos.

What is a criminogenic environment?

Criminogenic environments produce such intense and perverse incentives that they generate epidemics of control fraud. (1) 

Large, individual accounting control frauds cause greater financial losses than all other forms of property crime – combined.  Accounting control frauds are weapons of mass financial destruction.  Epidemics of accounting control fraud drove the national crises that produced the Great Recession.  We have reliable information on this in the United States, the United Kingdom, Ireland, and Iceland…. These accounting control fraud epidemics drove crises that caused a loss of over $20 trillion in wealth and cost roughly 20 million workers their jobs. (1)

How do we know that the City of London is a criminogenic environment?

Most of the major financial and banking scandals have originated in London.  Incredibly, the belief amongst neoclassical economists and the World Economic Forum is that

‘Malfeasance and outright fraud [in finance] are extraordinarily damaging but also, fortunately, extremely rare.’(1)  

Without evidence, the markets are assumed to be ‘self-cleansing’ and therefore, ‘self-regulating’.. hence, it is argued that there is no need to have regulation and supervision.

However, Akerlof & Romer explain why deregulation encouraged control fraud:

“[M]any economists still seem not to understand that a combination of circumstances in the 1980s made it very easy to loot a financial institution with little risk of prosecution. Once this is clear, it becomes obvious that high-risk strategies that would pay off only in some states of the world were only for the timid. Why abuse the system to pursue a gamble that might pay off when you can exploit a sure thing with little risk of prosecution?” (Akerlof & Romer 1993: 4-5). (1)

In fact, the dishonest practices of some institutions, invited a ‘race to the bottom’.  It is very difficult to ‘honestly’ compete with a dishonest broker… so effectively a ‘market’ was set up as to who could be the most successfully ‘fraudulent’.  The inevitable corollary was the pressure to remove as much supervision and regulation as possible:

The “race to the weakest supervisor” did not occur only within the U.S.  Brooksley Born and a former senior SEC official have confirmed to me that UK regulators directly pitched U.S. financial firms to relocate operations to the City of London in order to obtain weaker supervision.  “Fed lite” supervision was a competitive response to the FSA’s “reg lite” system of deliberately weak supervision.  The City of London became the most criminogenic environment in the world for financial fraud, which is why so many UK banks and units of foreign banks located in the City have caused the major scandals in the UK and globally. (1)

I have quoted extensively from Professor William K Black’s articles on New Economic Perspectives because they are essentially the keynote speech that he gave at the ‘Public Eye’ shame award in Davos.  As he says in the video clip below, economists know nothing about fraud and law students very little.  Of course, anyone familiar with Max Keiser will also be familiar with the levels of ‘decriminalised’ fraud that Bill Black describes in the financial markets.  For example, 40% of the mortgages issued in the US in 2006 were ‘liar’s loans’ in which the lenders deliberately chose not to verify the borrower’s income.  90% of ‘liar’s loans’ have been shown to be fraudulent, but the incentives offered to the agents were huge.  In the UK, 45% of the mortgages at that time were also ‘liar’s loans’.

This year, the annual “Public Eye” “shame prize” was awarded to Goldman Sachs for its abuses.  Bill Black writes:

The shame prize award was made in Davos during the World Economic Forum as a counter-WEF event.  Shell also “won” a shame prize, but I spoke on Goldman Sachs, the role of epidemics of accounting control fraud, and the WEF’s anti-regulatory and pro-executive compensation policies.  I explained that the anti-regulatory policies were intended to fuel the destructive regulatory “race to the bottom” and why the executive and professional compensation policies maximized the incentives to defraud.  I also explained that WEF was a fraud denier.  Collectively, these three WEF policies contributed to creating the intensely criminogenic environments that produce the epidemics of accounting control fraud driving our worst financial crises.


William K. Black’s speech at the Public Eye Awards 2013 World Economics Forum

Published on Jan 25, 2013  greenpeaceCHgreenpeaceCH·167 videos

In  New Economic Perspectives Bill Black writes:

The central point that I want to stress as a white-collar criminologist and effective financial regulator is that Goldman Sachs is not a singular “rotten apple” in a healthy bushel of banks.  Goldman Sachs is the norm for systemically dangerous institutions (SDIs) (the so-called “too big to fail” banks).  Impunity from the laws, crony capitalism that degrades democracy, and massive national subsidies produce exceptionally criminogenic environments.  Those environments are so perverse that they produce epidemics of “control fraud.”  Control fraud occurs when the persons who control a seemingly legitimate entity use it as a “weapon” to defraud.  In finance, accounting is the “weapon of choice.”  It is important to remember, however, that other forms of control fraud maim and kill thousands.



The Tory/LD Coalition Ministers and MPs never miss an opportunity to blame the last New Labour government for the ‘mess’ that they say they inherited.  However, they blame Gordon Brown for overspending on public services, when his real fault was to leave the City of London to become ‘the most criminogenic environment in the world for financial fraud’.  Needless to say, David Cameron and George Osborne have not taken the actions against financial institutions which would be necessary to protect the UK and the rest of the world from another financial crash .. Max Keiser predicts that it will occur this spring, perhaps April.

Gordon Brown Did Not Spend All the Money. The Banks Did.

“Fraud by false representation” is defined by Section 2 of the Act as a case where a person makes “any representation as to fact or law … express or implied” which they know to be untrue or misleading.

“Fraud by failing to disclose information” is defined by Section 3 of the Act as a case where a person fails to disclose any information to a third party when they are under a legal duty to disclose such information.

“Fraud by abuse of position” is defined by Section 4 of the Act as a case where a person occupies a position where they are expected to safeguard the financial interests of another person, and abuses that position; this includes cases where the abuse consisted of an omission rather than an overt act. 



Myth Busting: The Coalition Cut the Deficit by a Quarter


Myth Busting: The Coalition Cut the Deficit by a Quarter

by MarxistNutter

First posted on Politics Worldwide January 28 2013


As the economic failures of the coalition government become more and more apparent they are driven to hide behind increasingly dodgy claims. The most common of these is that they have cut the deficit by a quarter. Having been disappointed  by others’ attempts to bust this myth, I have decided to have a go at explaining exactly why this is such a disingenuous claim.

The coalition are already being called out on one of their claims: That they are ‘paying down the nation’s debts’ – an absurd claim that they will no doubt be forced to retract; however this post will focus on the equally misleading claim that they have reduced the deficit by a quarter’. I sketched out the broad contours of this argument elsewhere:

 It is true the deficit is down by a quarter if you are very selective about how you present the data. In order to make this claim the government pick a point where tax receipts were at rock bottom and were already climbing. Tax receipts were climbing, in no small part, due to the stimulus package delivered towards the end of the last administration. So the government had spent money at a time when tax receipts were low (the exact opposite of what Osborne has done) which meant there was a large deficit; but this spending helped generate  five consecutive quarters of growth that the coalition cannot really take credit for.

Since writing this I came across an attempt by Jonathan Portes and also by Full Fact to deal with this issue. In addition an article also appeared in New Statesman (today) attempting to debunk the ‘deficit down by a quarter’ myth. These explanations are correct but also deficient as they only deal with one side of the equation.

Portes Argues

[M]ost deficit reduction – about two-thirds – has come from cutting investment. Given that even at the peak investment spending was only about a tenth of total government spending, this is astonishing. Moreover, it’s getting worse. Last year more than three-quarters of deficit reduction came from cutting investment. Indeed, the current deficit – excluding investment – fell hardly at all, from £102.5 billion to £99.5 billion.

Indeed. Full Fact, Portes and the New Statesman are obsessed with cuts to spending. It is as if they have been taken in by right wing rhetoric which equates the deficit to public spending. I think we need to remember what the deficit actually is. The deficit is the difference between government spending and government revenues (mainly tax). It is the revenue side which seems to be overlooked. This is strange considering (contrary to popular myth)  the budget deficit of 2008/9/10 was driven primarily by a fall in revenue than by too much spending, as the graph below shows:

What is most awkward for me here is that what I am about to argue is a defence of Labour’s economic policy – not being a huge fan of the Labour party this leaves a somewhat sour taste in the mouth – but still in the interests of getting to the bottom of this, I’m afraid the truth is, if anyone deserves credit for reducing the deficit (and I’m not sure anyone really does), it is Labour.

Full Fact point out that the government’s figures come from  public sector net borrowing which ‘stood at £159 billion in 2009/10 and fell to £121.5 billion by 2011/12 – a fall of 24 per cent (revised down from 25% as the figures stood a month ago).’ As I have already said, this involves picking a time when the deficit was at its peak and most likely to start coming down anyway and comparing it with a time when the government had only been in power for a short time. I have also pointed out that according to the ONS the deficit increased in 2012 under the coalition’s watch.

According to the government’s claim, they reduced the deficit by £37.5M between 2009/10 and 2011/12. The deficit did indeed fall in this time; but how much of it was down to the coalition is debatable. The coalition came to power in May 2010 and their spending review was in October. The majority of  their spending policies did not really come into effect until April 2011. Therefore any deficit reduction between April 2009 and April 2011 would be more attributable to Labour policies than coalition polices.

As you can see in the Graph above the deficit went down by about £20M during the period where Labour spending policies dominated. Therefore about half of the government’s 25% deficit reduction claim can be attributed to more to Labour policy than the coalition. Now the coalition’s spending policies would have had an immediate effect on the deficit but their polices would have taken longer to impact on growth. Thus it is fair to say that economic growth between 2009/10 and 2010/11 would be driven more by Labour policy than by the coalition’s austerity  With the exception of a dip in growth at the end of 2010, this was a period of slow but steady growth and with this came rising tax revenues. In fact tax revenues increased by £38.7M between 2009/10 and 2010/11 (nearly double the increase between 2010/11 and 2011/12). This increase in revenues brought about by growth that is more attributable to Labour policy than coalition policy, would have had a huge impact on the deficit. It is at this point (after Labour policy had started to stimulate growth and increase tax revenue) that the coalition’s spending cuts would come into play. These cuts combined with the growth caused (at least in part) by Labour policy would have further reduced the deficit. It is this dynamic which accounts for the 24% reduction – a combination of Labour stimulus and coalition cuts. However Labour cannot receive all the credit. Part of it was simply natural economic bounce back from the dramatic loss of revenue (caused by the 2008/9 crash, noted above). As already stated the coalition chose to measure the reduction in the deficit from a period when it was at its peak, when tax receipts had taken a massive dip, and compare that with a period that had enjoyed a mild recovery caused, in part, by Labour’s stimulus measures. It is also true that (as others have noted) coalition cuts to infrastructure spending played a part in reducing the deficit too. These cuts combined with the knock on effects of Labour’s stimulus had a powerful impact on the deficit; but – crucially – this could only work in the short-term.  As the cuts started to impact on growth, the effect became less pronounced and has even gone into reverse.  Hence, as has been widely acknowledged, coalition policy has led to a double dip (maybe even triple dip) recession and stagnant growth. This explains why the deficit has increased recently under the coalition. This is why (as Full Fact point out) the coalition emphasise what is now a very dated measure, rather than admitting that recent data show that the deficit is rising again.

What is strange to me is that the deficit was caused by a drop in revenue, not by excessive spending, yet even the Left have bought into the myth that spending is all that matters. Thus even when the left wing commentators such as Jonathan Portes and George Eaton try to debunk the coalition’s deficit claims, they fail to convince, as only half the equation is considered. This is perhaps the most worrying aspect of all this for me. Not that the government manipulate the data to make themselves look good – this is to be expected – but that even left wing commentators seem to have bought into the dangerous logic that the budget deficit is all about government spending. This is the logic behind austerity and cuts….this is the path to the dark (supply) side; not a path that the Left should even consider walking down.

Also by Marxist Nutter:  Ideology and Discourse in ConDem Policy

Related posts:

Cameron and Osborne dwell on Bullshit Mountain, UK

Osborne and Cameron’s Big Deficit Myth

How to be a Deficit Owl

Labour’s deficit problem.

Why does the Structural Deficit remind me of LIBOR?


If Keynes is good for China – what about the UK?


Gove Driving Backwards


First posted SUNDAY, 27 JANUARY 2013

Gove Driving Backwards

By Liam Carr

Considering the sweeping changes that he is implementing, Michael Gove is not often in the news. (1)  He quietly goes about his business making our education system more suited to a Britain that does not exist anymore.  He is scrapping measures like modular exams and going back to end of year exams.  This will penalise students who, though no fault of their own, have chaotic home lives.

Exams are already rigorous, especially in core subjects.  If harder exams were his true aim then there are ways of implementing them that would be less costly and require fewer reforms.  It would be simple to work with exam boards to ensure that all exams, even in other subjects, are as testing as those in English, Maths and Science.

Breaking the link between AS and A2 (the first and second year of A Levels) is a bizarre move.  At present most students take four AS levels and then choose to take three on to A2. The current system is fairly inflexible in comparison to other systems.  In the US students do a High School Diploma and don’t specialise until the first year of University. Students studying the International Baccalaureate take six subjects; three at higher level and three at standard level.  Gove plans to go back to a system where two years work is assessed at the end of the course for both AS and A2.  It is a backward step that makes no sense at all.

Gove has given one of his friends a peerage.  This person will lead Gove’s reforms in the Lords and have some influence on education policy.  Gove has not chosen a former teacher for the post, but a venture capitalist who has donated over £288 000 to the Tory Party and has a financial interest in free schools. (2)  Gove, like Cameron, surrounds himself with sycophantic posh boys who will act in their own interests. (3)

Skilled politicians can be effective ministers even if they have no knowledge of the area they take charge of, as long as they create a knowledgeable and diverse team around them and are willing to listen to advice.  Gove has done neither.  He is out of touch and, thanks to his popularity in the Tory party, he is out of control.

Gove is not reforming for the sake of it.  His reforms are just as poisonous as the NHS reforms.  Both aim to give a slice of government funding, that should be spent educating children or healing the sick, to the shareholders of private companies.

The darling of the Tory party is not looking to take education forward.  His wife wrote in the Times:  “My husband is the worst driver in England, possibly the Western world…  It took him seven attempts to pass his test.”  He is stuck in the wrong gear, driving state education back to a time of inequality, and reversing years of progress.




The Bedroom Tax: The Unkindest Cut of All?


by Jim Grundy

On 1st April 2013, a little under 1,000 Ashfield District Council tenancies will be subject to the new ‘Under-Occupancy Charge’, more commonly known as the ‘Bedroom Tax’. It is difficult to imagine a worse policy, even from a Government that appears short of everything except bad ideas.

Any council or housing association household of working age with one or more ‘spare’ bedrooms and in receipt of Housing Benefit will receive a cut to that benefit of up to £20 per week.

The stated aim of the new tax on the poorest is to increase the supply of larger accommodation and to cut the Housing Benefit bill by moving people into smaller properties. Does that stand up to scrutiny?

In short, “no”.

But let us first consider the kind of work-shy benefit scroungers that are to be affected by the Bedroom Tax.

Firstly, let us think of a scenario where a family with a severely disabled child under the age of ten has, on medical advice, to have their own, specially adapted, bedroom. According to this new legislation, the young boy or girl would have to share with a sibling or the family would have to pay the penalty charge.

Then there’s the example of a middle-aged couple, who have to sleep in separate rooms because one of them suffers from pressure sores and whose room is full of medical equipment. Despite the medical necessity for that couple requiring two bedrooms, the legislation does not recognise that and they would be penalised.

Another example could see a discharged soldier suffering from post-traumatic stress disorder (PTSD) whose wife has died and whose child is pondering whether to go to university for fear that the Bedroom Tax will leave their father unable to cope.

But current members of the armed forces are affected too. Current government defence policy places greater reliance upon part-time reserve forces. Yet an absence of 13 weeks – rather less than the average tour to Afghanistan – from a council or housing association tenancy would see the family of that member of the military subject to the charge too. They might be serving their country but that won’t protect them from the Bedroom Tax.

Not excluded from the charge either would be a disabled household who rely on regular stop-over visits by friends or family to help them continue to live independently. They, too, fall foul of the new legislation.

Others guilty of the crime of under-occupation will include those affected by domestic violence and families with a spare room offering to foster children, some of whom will have come from very troubled backgrounds. Nevertheless, those who are prepared to take them in, to offer protection to vulnerable children, are not excluded from the new tax.

Less emotively, let us consider the simple example of an individual with no family, who is not disabled, living in a two bedroom council property (and who obviously has no ambition to have a family of their own). If there is no alternative accommodation within the council stock they would be obliged to move into the private rented sector. Inevitably, renting from a private landlord would prove more expensive than from a local authority, so the aim of saving on the Housing Benefit bill would be completely compromised.

I started by saying that the Bedroom Tax will neither release larger accommodation nor will it save Housing Benefit. Moving people into the private rented sector will add costs, not save money, that much is obvious, but is there the supply of smaller accommodation within the council stock to move people around, even if there were no other considerations to be taken into account?

Again, the answer is clear and it is an overwhelming ‘no’.

With nearly 1,000 tenancies to be affected by the Bedroom Tax, within Ashfield there is no scope to transfer any more than 40-50 households each year into a home where they wouldn’t lose out to the Bedroom Tax.

It would take, therefore, around 20 years to place people into smaller homes, assuming no-one’s circumstances changed over the next couple of decades.

So the social consequences of the policy are dire. It penalises some of the most vulnerable people. It even punishes those serving their country in war zones.

But the crowning irony, the final insult and a further example, were one even needed, of the gross hypocrisy of the Coalition Government is the fact that Lord Freud, the minister leading on this policy, has 11 spare bedrooms of his own, including eight in his own country mansion.

So tax the chronically sick; tax the serving solder, but for heaven’s sake don’t tax a millionaire in his mansion.

Other posts by Jim Grundy:

Ungentlemenly Conduct: The 1881 Nottinghamshire Cricket Strike?

Plebgate: Andrew Mitchell and the Gift That Keeps on Giving

If… The Clegg Version (with apologies to Rudyard Kipling)

How can pay rise be unfair when mega-rich get tax cut?

The Unnatural Death of Affordable Housing

Planning to Blame Immigrants? Get Your Facts Straight & Get Rid of Your Prejudices, Nick Boles

Arguments that every Liberal Democrat would do well to hear

“We Take Care of Our Own” or What Labour Needs to Remember if it Wants to Win.

Softly, Softly, into Slums: New Law permits Councils to turn Homeless away

Cut out Cuts – Leave the Eton Mess Behind



First posted on Tuesday, 22 January 2013 at Socialist Economic Bulletin

Productivity Crisis in the British Economy

By Michael Burke
The Office for National Statistics reports that productivity has fallen again the 3rd quarter of 2012, the fifth consecutive quarterly decline in productivity.

Figure 1

13 01 22 Figure 1

The fall in productivity is a function of rising hours worked and stagnant output.  In the last 5 quarters output has risen by just 0.6% while hours worked have risen by 3.4%.  Falling productivity is extremely unusual coming out of recession, as firms usually begin increasing output long before they increase hiring or hours.  It has sparked a widespread debate on the ‘baffling productivity puzzle’.  On this measure, this is the worst performance of all recessions since the 1990s.

Figure 2

13 01 22 Figure 2

A trend fall in productivity would have very serious negative consequences for long-term growth prospects.  While the effect of austerity policies is to transfer incomes from labour and the poor to capital and the rich, a decline in output per hours worked would reduce the overall level of national income, or require an increase in hours worked simply to avoid economic contraction.

But the decline in productivity may be less mysterious than is widely suggested.  George Osborne promised to preside over a ‘march of the makers’ but as Fig.2 below shows services output has been a gently rising incline. It is manufacturing output that has fallen.

Figure 3

13 01 22 Figure 3

Productivity, in terms of output per hour worked is significantly higher in the manufacturing and production sectors than in the services sector.  The decline in manufacturing output would tend to lower the total productivity of the whole economy.  In addition, energy extraction has a far higher productivity rate than manufacturing or the economy as whole, 12 times greater.  Energy extraction has fallen by 7.9% over the last 5 quarters.

However manufacturing has been in a long-term decline.  Even when all components of production are taken together, manufacturing, energy, utilities and construction account for less than 23% of all output in the British economy.  The relative fall in manufacturing output cannot account for the fall in productivity for economy as whole.

Hoarding Capital

SEB has consistently argued that the source of the current crisis is the investment ‘strike’ by firms.  The refusal of firms to invest accounts for the entirety of the fall in output since the recession.  But this has a corollary, which points to how the crisis might be resolved.  Firms have been hoarding capital, not investing.  This increase in the savings of the corporate sector could provide the resources to fund an increase in investment.

In a normally functioning market economy private firms borrow to invest.  But hoarding capital means the corporate sector has reduced its borrowing and increased its net savings.  The chart in Fig.4 below shows the net savings of the non-financial corporate sectors, that is firms except banks and financial institutions.  The corporate sector has been saving throughout the crisis.  In fact, this saving is the counterpart of the refusal-to- invest [which] is the cause of the crisis.

Figure 4

13 01 22 Figure 4

The ONS reports that one-third of all private sector firms are maintaining higher levels of employment than they needed in order to meet production.  Firms who refuse to invest are holding onto to workers in expectation of an upturn, although employment is increasingly part-time and casualised.  Real wages have also fallen continuously since 2008.  Labour is becoming cheaper and more instantaneously disposable.

Reducing the outlays on employment, by firing workers or placing them on short-time is clearly easier and less risky than reversing an outlay on major capital investment.  Firms can also fund higher levels of net employment because of capital-hoarding.  But clearly this is not sustainable and firms’ savings may already be falling.  Without a sustained upturn in output, the risk must be that unemployment will rise sharply or that real wages and full-time employment will fall further.  The fall in productivity highlights the central importance of the investment strike.

(emphasis added)


Other Michael Burke articles reposted on Think Left:


The Autumn Statement and long-term Austerity

Investment Slump Greater Than Whole Loss of British GDP


The new recession is directly made in Downing Street



Are we heading to an economic crash in the next few years?


Quote of 2013 – “Marx was too optimistic about banking”

Why? Because although he described banks as parasitic, Marx believed that they would eventually evolve such that they would:

‘make productive loans to finance industry. The aim was for banks to do something new, that no economy had done in the past: make loans not merely to ship and market goods once they were produced, but to finance new capital investment by manufacturers and producers, as well as by the public sector to build infrastructure. The idea was for these investments to create profits out of which to pay the interest and the principal back to the lenders.  This was defined as productive lending.’

Marx never envisaged General Pinochet and Margaret Thatcher’s ‘Pension Fund Capitalism’ as being a way to exploit the workers’ wages.  Under Defined Pension Plans, the workers know what they pay in but not what they will get out because the pensions are all invested in the casino financial sector and profits skimmed off for the financial elite.

‘The turning point was in 1980, when the Reagan Administration was elected in the United States, right after Margaret Thatcher led Britain’s Conservatives into office and began the big privatization sell-offs at enormous, unprecedented commissions that made the financial sector richer than ever before. Drexel Burnham led the practice of turning the stock market into a vehicle for banks to emulate their real estate loan departments by creating credit for corporate raiders to take over companies, load them down with debt and extract profits to pay out as interest. This was done by downsizing the labor force, shifting over to non-union labor, and where possible, renegotiating employee pensions downward or simply grabbing the pension funds or Employee Stock Ownership Plans (ESOPs) to pay creditors. So corporate finance became destructive instead of productive.’

“The idea is that you can make money without  producing an economic surplus… so the economy will shrink and shrink… We need a renewal of classical economics.”

Are we heading to an economic crash in the next few years?

Published on Jan 11, 2013

Dr. Michael Hudson, Institute for the Study of Long-Term Economic Trends, joins Thom Hartmann.

The United States is the only developed nation in the world that doesn’t guarantee paid holidays, paid annual leave, or paid maternity leave. They’ve taken away our sense of safety in the workplace – as safety laws and regulations are continually getting watered down. Heck, they’ve even taken our money by flattening our wages during a time of increased productivity. And in New Hampshire – Republicans are doing the bidding of Corporate America to get rid of our lunch breaks. This is nothing short of theft – and pretty soon, we’ll be handing over the shirts on our backs, just so our bosses can squeeze out whatever profits they can. It’s also symptomatic of a larger war being wages on not just working people – but entire cities and even our federal government by the financial elite.




First posted Monday, 14 January 2013 at Socialist Economic Bulletin


By Michael Burke

The Office for National Statistics (ONS) reported the latest data on industrial production as:

‘Production rose by 0.3% between October and November. Within production mining and quarrying rose by 8.7%’.

Both statements are factually correct.  But this is very far from an accurate presentation of the data.  Economic data provide the main navigation data for conducting economic policy.  The ONS’ reporting of the latest production data invites us to admire the view while we are heading for the rocks.

The index of industrial production (IP) for November rose to 97.3 in November, from 97.1 in October.  In September it was 97.9.  The chart below shows the index of industrial production from 1992 to the most recent data.

Figure 1

13 01 14 Figure 1 Industrial production

The base date for measuring output is 2009 when the IP was set at 100.  This means that in each of the last 3 months, industrial production has been below the level seen in 2009, which was the deepest recession in Britain since the 1930s.

Prior to George Osborne’s Comprehensive Spending Review in October 2010 the IP index for in the 2nd quarter of 2010 stood at 102.7.  In the following Budget he promised a ‘march of the makers’.  Yet economic policy has overseen a complete reversal of the modest rebound in activity under Labour after it adopted a stimulus programme.  Output has fallen by 5.3% from the 2nd quarter of 2010 and is now 1.8% below the low-point recorded in the recession.

The startling fact is that, as the chart shows the last time industrial production was lower than the most recent reading was in May 1992.

According the National Institute of Economic and Social Research GDP shrank by 0.3% in the final quarter of 2012.  There will be much discussion about the unprecedented ‘triple-dip’ recession that the Tory-led Coalition has presided over.  The criticism is entirely justified.

But the medium-term picture is even more grave.  The British economy has slumped to levels of output last seen 20 years ago, at the depth of the ERM crisis.  That too was another failed Tory experiment in the necessary ‘disciplines’ to curb wage growth and so restore profits.

This is a chronic failure of economic policy. A radical reorientation is required to halt the crisis.