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Chapter I. The Home Economy
Published online by Cambridge University Press: 26 March 2020
Extract
The February issue of the Review was affected by the energy situation as to both length and the need for special treatment of the oil situation. Much material of the kind normally included in the pre-Budget issue was therefore omitted. For this reason the current issue contains rather more material than usual on the domestic economy in the form of a review of economic events over the last 12-18 months. A general review (pages 9-14) is followed by an assessment of various forecasts of the economy in 1973 (page 14) and then some discussion of the behaviour of prices and incomes since the introduction of the counter-inflation policy in November 1972 (page 17). Balance of payments developments are discussed on page 22. An analysis of trade and other developments since the United Kingdom's entry into the EEC begins on page 24 and the normal short-term forecast appears on pages 28-45.
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References
page 10 note (1) For a fuller discussion see National Institute Economic Review, no. 66, November 1973, pages 24-33.
page 10 note (2) Males are chosen because, on becoming unemployed, they are much more likely to register (in order to obtain benefit) than women, so that the unemployment and vacancy figures are probably more comparable than those for women.
page 12 note (1) Some of the factors behind the commodity boom— the combination of a world boom (including the USSR and Eastern Europe) with supply difficulties and speculative activity as a result of international monetary uncertainties— were discussed in National Institute Economic Review, no. 67, February 1974, pages 24-26. The index in chart 2 is mea sured in terms of a mixture of dollars and pounds; the changes in exchange rates during the past three years may have had some purely automatic effect on the figures, though the precise amount is difficult to judge.
page 12 note (1) Little of the rise in oil prices will be contained in this figure—probably only a relatively small part of the first rise in October.
page 14 note (1) In our own case, on the advice of the CSO, who were suggesting that output was the most reliable estimate, we had added to compromise GDP a further amount, thus raising further the discrepancy to be allocated. See National Institute Economic Review, No. 64, May 1973, pages 7-8.
page 15 note (1) Especially as most of the shortfall occurred in the first half of the year.
page 16 note (1) On ‘fast growth’ assumptions.
page 16 note (2) ‘Prospects for Economic Management 1972-76’, Statistical Appendix, Table 9, Cambridge Economic Policy Group, Department of Applied Economics, Cambridge.
page 17 note (1) The apparent slowdown in the fourth quarter must be discounted because the base from which it is measured was inflated by the anticipatory rush of settlements a year previously.
page 19 note (1) See National Institute Economic Review, no. 66, November 1973, pages 20-23.
page 21 note (1) This method can only be approximate; for example, the weights probably understate the contribution of national ised industry subsidies to export prices. However this only serves to strengthen the conclusion.
page 27 note (1) Reuter report in the Financial Times, 15 January 1974, p.31.
page 27 note (2) Reported in the Financial Times, 31 December 1973, p.15.
page 28 note (1) ‘Entry into Europe and the British Farmer’, European Community, No. 12, December 1973, p. 10.
page 28 note (2) Reuter report in the Financial Times, 15 January 1974, p. 31.
page 30 note (1) A deficit which is a part of the $50-60 billion total which will necessarily be incurred by the rest of the world with the oil exporting countries until such time as the latter are able to spend all the increase in their revenues or give them to countries which can. Any attempt to reduce consumption of oil in the industrial world to a level which would quickly eliminate the deficit with the oil producers would require a huge, and politically impossible, reduction in economic activity.
page 30 note (1) Though it should be stressed that the public sector deficit is not something which can be set accurately in advance like the standard rate of income tax; a correct forecast of it requires a correct forecast of the behaviour and interaction of all the other sectors of the economy as well as the overseas sector.
page 30 note (2) A fuller discussion of the ‘sector balance’ method of analysis was given in National Institute Economic Review, no. 64, May 1973, pages 20-24. The conclusion there was that the method is no more reliable than the conventional ones partly because of large discrepancies in the figures and partly because the overall financial flows mask the complex underlying ‘real’ behavioural relationships which are used in models of the economy such as our own. The financial balances are influenced by the economy as well as influencing it.
page 38 note (1) The import content (direct and indirect) of consumers' expenditure is estimated in the 1968 Input-Output tables to have been about 16 per cent.
page 44 note (1) See Financial Statement and Budget Report, 1974-75, HMSO.
page 44 note (2) Some details were published in the Sunday Times Business News of 21 April, 1974.
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