Over the past two years, total output has risen almost continuously, but slowly. The output estimate of GDP shows only one quarter (the first quarter of 1982 when production was affected by bad weather) in which output failed to increase. The rate of growth has varied, declining from 2 per cent a year in the second half of 1981 to less than 1 per cent a year over the first three quarters of 1982, then rising again to 1½-2 per cent in the final quarter of last year and the first quarter of this; but throughout it has been low by the standards of previous economic recoveries. By the first quarter of this year, output was only 2½ per cent higher than its trough in the second quarter of 1981 (in contrast to increases of 5 per cent, 9½ per cent and 6½ per cent at the corresponding stage of the three preceding recoveries) and still 4½ per cent below its peak in the second quarter of 1979.

There is no doubt now that the turn of the year was also a turning-point for the world economy, the low point for OECD countries' aggregate industrial production coming in December. In all seven major countries total output rose in the first quarter (if the official seasonal adjustments are to be believed), whereas in all but Japan it had fallen in the final quarter of 1982. But an increasingly marked contrast has emerged between rapid recovery in North America, where economic growth in the US reached an annual rate of 8½ per cent in the second quarter, and what seems to be little better than stagnation after an early weather-assisted spurt in continental Western Europe. Japan and the UK occupy an intermediate position.

The Review has been appearing now for almost twenty five years. The assessments it has contained of the short-term prospects for the domestic economy have become progressively more quantitative and detailed, but have included from the beginning an explicit forecast of total output at least a year into the future.

This article investigates the consequences of alternative fiscal packages by applying optimal control techniques to the National Institute econometric model. Britton (1983) provides an assessment of alternative packages by using ready reckoners derived from simulations of the NIESR model reported in Brooks and Henry (1983). The present investigation may be seen as a more systematic analysis, using the techniques of optimal control. Such an assessment inevitably concerns the measurement of trade-offs between the major objectives of government policy, an issue which has generated much controversy over the last decade. Early interpretations of the Phillips Curve for example tended to regard the empirical finding of an inverse relation between inflation and unemployment as providing a menu for policy choice. According to this interpretation, aggregate demand policy could be used to select the best combination of inflation and unemployment rates available subject to the constraint set by the Phillips Curve. Since that time, parallel developments in the theory of wage inflation, expectations formation, and macroeconomic policy have produced considerable scepticism about the existence of this trade-off, questioning whether the implied choice between alternative combinations of inflation and unemployment is open to governments using aggregate demand policy. Much of this scepticism was coincident with growing dissatisfaction with the Phillips Curve as a statistical representation of wage inflation, but we will not be directly concerned with this aspect of the argument here. Two points however do arise from this debate which are of direct relevance to the subject matter of this article. The first is that a trade-off between inflation and unemployment may exist even if the labour market is not characterised by a Phillips Curve. The second is the central role played by natural rate concepts in the debate on the effectiveness of aggregate demand policy.

Government policy to increase substantially the amount of vocational training and education available to school-leavers in this country raises the issue of how much and what kind of training is provided elsewhere. This article describes the training given in Britain and Germany in five of the more popular occupations: mechanical fitter, electrician, construction worker, office worker and retailing. Comparisons are made of the scope of the syllabus, and the standard reached at final tests. One of the important differences is the greater emphasis on practical (in contrast to theoretical or written) tests in all these occupations in Germany, which are carried out under examination conditions. It also appears that a greater proportion have reached basic and tested standards in mathematics at school; this provides a firmer basis for subsequent vocational instruction. The gap between the two countries in training standards and numbers of trainees is particularly marked for the two occupations catering mainly for female entrants-office workers and retailing. Shortcomings in Britain's industrial performance have often centred as much on delivery delays and poor ‘progress chasing’—which require responsible and competent office personnel—as on technical faults. These comparisons indicate the scope for very substantial advances in both the quantity and the quality of training in this country.