Scottish Economy Watch

Oil and GDP Growth

The Centre for Public Policy for Regions (CPPR) yesterday produced an important comparison of UK and Scottish GDP growth in 2011. The analysis uses the latest Scottish Government GVA data for the 4th quarter of 2011, which were published on 18 April.

A key finding of the CPPR analysis is that a comparison of overall GVA between Scotland and the UK in 2011 provides a distorted comparison of the relative performance. This is because overall GVA includes all of North Sea Oil and Gas production in the UK figure but only includes on-shore activities in the Scottish figure. A more correct comparison is to compare GVA for the two excluding the extraction of oil and gas.

Normally this matters little if the performance of oil and gas is not much out of line with overall performance. But during the past year oil and gas production fell by 18% and 22% respectively, which has affected UK GDP and export performance as I noted here and here.

The effect of this fall is to dampen UK growth relative to Scotland.

In 2011, overall GVA grew by 0.5% in Scotland and 0.6% in the UK. But when oil and gas extraction is excluded the unfavourable gap between Scotland and the UK widens, with Scottish growth of 0.5% and UK growth of 1%.

I have taken CPPR's analysis further and extend the comparison back to the start of the recession and subsequent recovery. The performance of overall GVA is given in this chart:

And GVA performance, with oil and gas extraction excluded, is given in the next chart:

The charts reveal the dampening of UK growth relative to Scotland when overall GVA is considered. When oil and gas extraction is excluded the Scottish position is broadly unchanged but the UK recovery is stronger.

The main conclusion from this analysis is that the Scottish recovery from recession is quite a bit weaker relative to the UK than many might have believed.

Alternatives to Austerity

There is increasing evidence - see here and here - that austerity policies have been a failure in promoting an expansion of GDP as well as reducing high levels of government deficit and debt. These findings are buttressed by academic research - this blog by Simon Wren Lewis - that suggests that high government debt levels should be cut slowly.

The logic of this evidence is that a reversal of austerity policies, for a temporary period at least, should be introduced to encourage actual GDP to recover. Only, when GDP is expanding at trend or above and the economy is close to its NAIRU, or 'natural' rate of unemployment, should policies to reduce government's structural deficits and hence debt be introduced. Even then the speed of adjustment is still critical.

An objection to this approach reflects a fear that the financial markets would turn against the sovereign state that started to do this. The markets might refuse to buy its bonds or seek an ever greater risk premium. Hence, the fear that long-term bond yields would rise and the costs of financing government debt become punitive. But this view assumes that current low bond yields reflect financial market confidence in austerity policies. In fact, the evidence - see Jonathan Portes here - suggests that yields are low because the UK economy and the recovery is weak.

Moreover, financial markets also know that states that are monetary sovereigns i.e. have their own currency and a central bank able to print the currency, will not default on their debt unless by choice. This is one reason, at least, why the UK and the US are in a very different position from France and the periphery countries of the Eurozone.

Despite this, the concern about rising government debt levels has led many commentators to seek alternatives to debt financed fiscal expansion as the basis for their "Plan B".

Simon Wren Lewis makes clear here and here that in such a situation a balanced budget multiplier approach is an appropriate solution. Here a temporary increase in public spending is financed by an increase in taxes of equal amount. In simple economics, an increase in public spending of £1 raises demand by £1. Aggregate demand is raised because taxpayers draw some of their increased tax payments from savings as well as reduced consumption. The taxpayer pays more in taxes but this is offset by higher income. The balanced budget multiplier equals 1 and can be greater than one when interest rates are stuck at zero - as in current conjuncture. This is because any rise in expected inflation due to the demand stimulus will lower real interest rates and so stimulate activity further.

Indeed, as Simon further argues a stimulus effect can be secured without an increase in taxes as well as without further borrowing.

There is the option of tax and transfer switches, within a given tax burden, whereby taxes are cut/raised or transfers raised/cut for those groups with high/low marginal propensity to consume. Re-directing transfers in favour of the unemployed or those in receipt of benefits would be one possibility as I noted here. Simon also suggests ways in which a tax increase can be avoided: a debt financed stimulus can be reversed by lower public spending in the future and not by higher taxation.

A fiscal stimulus can also avoid higher taxes and increased borrowing by a monetary sovereign financing the temporary expansion through new money as Brad DeLong makes clear. I believe this would require legislation in the UK. But it seems to me that it would be a lot more effective than the current programme of quantitative easing (QE). The Bank of England could use sales of securities to lower the money supply once recovery was under way and the obstacle - to monetary policy - of the zero interest rate bound removed as rates rise.

At this point it seems appropriate to dismiss an "alternative" to austerity proposed by George Kerevan in the Scotsman on Friday. Kerevan notes that the Bank of England through its QE programme has built up large holdings of long-term UK government securities through secondary purchases from the private sector. He contends that

If the Treasury and the Bank of England agreed to cancel these bonds, the national debt would fall miraculously to a mere 41 per cent of GDP – very low by any standards. Plus government spending would be slashed by £18bn a year. That would cut this year's planned borrowing by 15 per cent. Alternatively, it could provide precisely the fiscal boost needed for growth – without adding to borrowing.

Unfortunately, it won't do anything of the sort. First, before QE, the interest payments of £18bn were being paid to the private sector, so redirecting them is not going to have that much expansionary impact unless it is along the lines of the tax/transfer switches noted above. Secondly, after QE, the £18bn interest or dividend payments are paid to the Asset Purchase Facility which is indemnified by the Treasury and is part of the public sector. The situation was clearly stated in the speech on QE by Charles' Bean, Deputy Governor of the Bank of England, in October 2009:

Any profits on the Asset Purchase Facility are passed to Her Majesty's Treasury, while any losses are also indemnified by the Exchequer. The accounts are therefore not consolidated with the Bank's own accounts, as the Bank has no economic interest in the fund.

.... gilts held in one part of the public sector, the Asset Purchase Facility, are just a liability of the rest of the public sector. In the accounts for the rest of the public sector, there must therefore be offsetting interest flows, as well as corresponding capital gains or losses,

.... whether the Treasury ends up with a profit or a loss from the Asset Purchase Facility represents only a small part of the picture. Gilt yields will be lower than they would otherwise have been during the period that they are held in the Asset Purchase Facility, so reducing the cost of financing a given budget deficit. This needs to be factored into any calculation of the implications for the public finances.

There are alternatives to austerity. There are alternatives to a debt financed stimulus and there are alternatives to tax financed stimuli. But there is no 'novel solution' to debt finance along the lines suggested by George Kerevan.

The Language of Growth

It is now being suggested that proponents of pro-growth policies are gaining the upper hand against the austerity advocates in Europe and elsewhere. But proponents of "growth" policies need to be careful. The problem we need to address is not a "growth" problem per se but one of a deficiency of aggregate demand. As I noted in this earlier post, in the context of the Scottish economy, the problem:

is a deficiency of overall demand for goods and services and hence jobs in the Scottish economy given the available quantity and quality of resources of the current workforce and the stock of plant, machinery and buildings. ..... the problem is not about "growth" in the strict sense of the term. Growth and growth policy is about increasing the quantity and quality of available resources in the Scottish economy. This is what economists call the 'supply potential' or 'supply capacity' of the economy. The current problem is not supply potential. There is plenty of that. .... (M)any of the criticisms made of the Scottish government and much of the response from the Scottish government are about policies that might improve the long-term supply potential or 'growth' of the economy. They are not about ways of improving the utilisation of existing capacity.

Advocates of "growth" policies in the present juncture need to watch their language.

UK GDP: don't panic, yet!

The latest UK GDP figures for the first quarter of this year revealing a fall of -0.2% should not lead to panic. Yes, we are now in technical recession after a fall of -0.3% in the final quarter of last year. The latest change is largely driven by Construction with Services contributing positively to growth and Manufacturing neither contributing positively or negatively. Production made a small negative contribution but this was due exclusively to a fall in Mining and Quarrying output of -3.6% due largely to the fall in oil and gas extraction. The contribution of broad sectors is shown in this chart:

The latest GDP data from the ONS are likely to be revised upwards because they reveal a much weaker picture than revealed by UK business surveys. The latest PMI construction surveys stand in marked contrast to the ONS data as this chart shows:

Business surveys generally appear to suggest that the slowdown noted at the end of last year is beginning to turn round see here, here and here. We should see some positive growth in the second quarter.

But it is going to be a hard slog.

None of this detracts from my view that we are enduring a weak recovery largely because of the UK Government's austerity programme. Gavyn Davies' recent FT blog charts the weakness of the UK recovery against the other G7 countries and the contrast is quite marked see chart:

Source: Gavyn Davies

He is more sanguine that the current UK policy mix favouring a much looser monetary and exchange rate policy than elsewhere but tighter fiscal policy may start to generate growth dividends in the future. I am much less sanguine because with interest rates close to zero - the zero bound - monetary policy effects on demand and growth are much weaker than in normal times.

In the meantime, UK GDP now stands at 4.3% below its pre- (2008) recession peak, austerity continues and the situation in the Eurozone has worsened again.

HBOS and Scottish Banking

14 December 2006, HBOS statement reported by Market Watch:

Our strategy of focusing on both revenue growth and tight cost control continues to deliver good earnings momentum ... Growth in lending for the group, at the upper end of our anticipated range, is being delivered with modest margin impact.

12 June 2007, Market Watch reports HBOS statement:

In corporate banking, HBOS said that loan-origination growth has been strong and that its investment book will make a strong contribution to profits

15 June 2007, HBOS Group Finance Director at Goldman Sachs Conference (Link now removed from web - cited here page 9) said that the company was seeking to become the 'Tesco of UK banking' with an emphasis on sales growth and cost efficiency. The company firmly believed that such a strategy was not at the cost of additional risk:

The combined ratio of cost and impairments to income has … fallen over time at HBOS … despite a period of worsening impairments in the UK unsecured market.

9 March 2012, the Financial Services Authority (FSA):

Between January 2006 and March 2008, Bank of Scotland's Corporate Division pursued an aggressive growth strategy that focused on high-risk, sub-investment grade lending. ... Its portfolio was high risk with highly concentrated exposures to property and to significant large borrowers. This strategy was highly vulnerable to a downturn in the economic cycle, yet the Corporate Division continued with the strategy even as markets began to worsen in 2007. Rather than re-evaluating its business as conditions worsened, the division set out to increase its market share as other lenders started to pull out of the market. In addition, its internal culture was focused on revenue rather than assessing the level of risk in transactions. .... The Firm did not take reasonable steps to assess, manage or mitigate the risks involved in the aggressive growth strategy.

The mind boggles at the cost to the reputation and credibility of the Scottish banking system that may be the consequence of this inglorious episode.

Music for the weekend: Julie Fowlis - Gaelic Folk Song

Julie Fowlis supported by some fine musicians including Jerry Douglas

Scottish Exports: how strong is the recovery?

On Wednesday the Scottish Government published it latest data on Scottish manufacturing exports for the final quarter of last year. These data reveal that export growth faltered in the quarter with zero growth but volume was up by 4.8% over the year. The chart below shows that Scottish manufacturing exports still have a long way to go before they get back to their pre-recession peak. That was in the second quarter of 2008, three and one half years ago to the latest data point.

Export volumes are still nearly 6% below their pre-recession peak, with growth flat for most of last year. This begs the question: how does the Scottish export recovery compare with elsewhere?

Fortuitously, today saw the publication by the Netherlands Bureau for Economic Policy Analysis (CPB) of its World Trade Monitor: February 2012. This publication reveals that there was a slight fall in the growth in world trade in February but overall world trade volumes are now nearly 5% above their pre-recession peak in the fourth quarter 2008. That casts the Scottish export performance in a poor light. However, matters are more complicated than that. There is a clear division between the trade performance of the advanced economies - OECD countries excluding Turkey, Mexico, Korea and the Central European countries - and the emerging economies of Asia, Central and Eastern Europe, Latin America, Africa and Middle East. The figure below charts the difference:

Some interesting issues are evident from this CPB data.

First, it is generally considered that global financial imbalances were a key factor in causing the Great Recession. Many emerging economies such as China were running current account surpluses and lending their savings to advanced economies such as the US and UK who were running current account deficits. But it looks from these data that the current account imbalances worsened as the recession developed because exports fell faster/slower than imports in the advanced/emerging economies. The contraction in both exports and imports was greater in the advanced economies too. Advanced economy export volumes fell by nearly 23% from peak to trough. Contrast Scotland, where manufacturing exports fell by a little over 13% in the recession.

Secondly, the recovery in trade has been much stronger in emerging than in advanced economies. Emerging economy exports now stand around 15% above their pre-recession peak. Advanced economy exports, in contrast, are 3% below their pre-recession peak, with imports 5% below. The latter might be expected given the extent that demand has been depressed by fiscal austerity amongst other influences in the advanced countries.

The key point, though, is that the performance of the advanced economies, on average, is quite different from Scotland. Exports fell by more and recovered faster than they did in Scotland. Scotland has along with the UK had the possibility of benefitting from a lower sterling exchange rate. But it has not been sufficient to drive the recovery in export performance over much. Moreover, fiscal austerity by depressing domestic demand has not produced the switch in favour of exports that the UK government hoped for. Indeed, by weakening company performance it might have damaged their capacity to compete internationally.

There is little doubt that the performance of Scottish exports is a continuing cause for concern.

Scotland's fiscal position

Yesterday (18 April) the Scottish Government published along with its latest quarterly GDP figure a long-run series for Scottish and UK GDP in current terms going back to financial year 1980/81. The novelty of the series is that the GDP estimates for Scotland include a population and geographic share, respectively of North Sea oil production (technically a share of extra-regio activities). These data can be combined with the data on Scotland's and the UK's net fiscal balance going back to 1980-81, which were published on 7 March of this year. It is worth noting that the data are classified as 'experimental' as part of the Scottish National Accounts Project (SNAP) and so do not carry the Office of National Statistics (ONS) 'kitemark'.

With these new data it is now possible to compute an estimate of Scotland's fiscal balance since 1980-81 and compare with the UK. I have done this for the case where Scotland is allocated a population share of oil production and revenues and for the case where Scotland is allocated a geographic share of oil production and revenues. The estimates of the geographic share are based on the methodology and modelling of Kemp and Stephen (2008). For a sample of their earlier work on North Sea oil see their 2001 and 2005 papers.

The charts for the two cases are below

There is something in these figures for both proponents of Scottish independence and those who advocate staying in the UK union.

The table below tries to draw some conclusions on the fiscal balance by first taking averages for the whole period up to the start of the Great Recession in 2007-08. The period after 2007-08 is excluded because I assume that it is untypical. It is clear that with a geographic share the Scottish position is far superior to the UK. Both are above or better than the 3% deficit which is the limit set out in the EU Stability Pact. This is the figure that would probably be demanded of Scotland as the limit of its deficit within a sterling union. But Scotland's favourable position is seen to depend on oil revenues. When Scotland is allocated a population share of these revenues the fiscal deficit deteriorates to -5.3%, clearly above 3%.

The second set of estimates is based on the period 1990 to 2007. This excludes the initial rush of oil production as the North Sea boomed and oil revenues were exceptionally high in real terms. On this basis, even with a geographic share, the Scottish fiscal deficit is averaging slightly above 3% and above 6% if only a population share of revenues is allocated. The UK remains under 3% in both cases.

Fiscal balance as % GDP		Sco average 1980 to 2007		UK average 1980 to 2007	Sco average 1990 to 2007	UK average 1990 to 2007
Geographic share oil revenues		1.5		-2.4	-3.6	-2.6
Population share oil revenues		-5.3		-2.4	-6.5	-2.6

Of course, production of oil and gas in the North Sea is set to decline. There is a question mark about the rate of decline because it depends on oil prices and the extent of new discoveries. The best estimate is provided by Kemp and Stephen 2011 and is based on a real oil price of $70 per barrel and a gas price of 40p per therm - the oil price will be higher than $70 in nominal terms because of inflation. This scenario has for them the greater probability than a $90 and 60p combination.

The time profile of hydrocarbon production is shown below

Of course, we don't know what this implies for oil revenues because it also depends on the tax rate, as well as the price of oil and gas, and levels of production.

The main conclusion would appear to be that an independent Scottish government cannot rely indefinitely on oil revenues to ensure that it remains below the 3% deficit benchmark over a sustained period. But it can probably do so for a reasonable period. In the longer term, other sources of tax revenue will need to be found and/or public spending shares reduced.

The Economist and Scotland's Seven Strengths

The Scottish Government's response to the infamous Economist article last week was to assert seven key strengths of the Scottish economy. They were clearly right to do this because there is no doubt that the Scottish economy is one of the strongest parts of the UK economy both in terms of GDP per head and employment. In any event the Economist article was more balanced than implied by the silly map mock-up on the cover of the magazine. See here

The cover was clearly more about marketing the article than an objective comment on the Scottish economy either now, or post independence. But it did downplay some of the strengths of the Scottish economy. Hence, the justification for the Scottish Government's response.

The key strengths as seen by the Scottish Government are:

1. Overall Wealth: An independent Scotland would be ranked 6th in the OECD in terms of GDP per head, compared to the UK's sixteenth place (in 2010).

2. Oil: There is up to 24 billion barrels remaining in the North Sea. Such a figure equates to a wholesale value of some £1.5 trillion in today's prices.

3. Renewables: Scotland has around 25 percent of Europe's potential offshore wind and tidal energy, and a tenth of Europe's wave power potential.

4. Food & Drink: The latest food and drink export figures show exports are at an all time high of £5.4 billion, and growing.

5. Public Finances: In terms of our public finances, Scotland is better off than the UK as a whole to the tune of £510 for every man, women and child in Scotland in the most recent year (2010/11).

6. Education: Scotland has five of the top 200 universities in the world.

7. Inward Investment: Scottish Development International are an award winning agency, with major companies continuing to locate in Scotland.

 

The problem is that the list looks as if it has been cobbled together in a hurry and some of the so-called "key strengths" appear more another marketing exercise to sell independence to the Scottish people than real economic strengths. And where there are doubts, qualifications and questions to be raised about such 'strengths' they are, not surprisingly, ignored.

Strength 1 is disingenuous to say the least. The difference between the 6th position of Scotland and the 16th position of the UK is due to the addition and subtraction of oil GDP to current Scottish GDP and UK GDP. But most of this additional income is not income for Scottish residents it is paid in profits to the oil majors and other multinationals headquartered outside Scotland. For countries, with a high multinational component in their GDP the better estimate is GNP - or GNI - which is GDP plus/minus net income from/to abroad. If the Scottish GDP/GNP ratio with oil GDP added was similar to the Irish ratio of around 0.84 - see Justin Doran here - (There is no published estimate of Scotland's GNP) - then Scotland's ranking would fall from 6th to 18th between Iceland and France. Incidentally, Ireland would also fall from 8th to 19th. For most of the other states in the top 20 of the Scottish Government's table the use of GNP shouldn't change the rankings over much since net income from/to abroad is relatively small in relation to GDP. And for some small countries such as Switzerland GNP is greater than GDP.

Strength 2, oil, is certainly correct but no mention is made that oil production from the North Sea is in decline that there are no more big fields like Brent and Forties still to be discovered even west of Scotland.

Strength 3, renewables, is also correct. But Scotland has a lot to do to capitalise on its potential in renewables and there is a great risk that renewables may not be the driver of the re-industrialisation of Scotland as the Government hopes. And, as Peter Jones has explained this is an industry that enjoys many benefits from the Union, particularly subsidies financed by UK consumers, which are likely to be lost if Scotland becomes independent.

Strength 4, food and drink, and particularly the whisky industry, appears to be a major asset to the Scottish economy. But the performance of whisky is dangerously over-hyped and much of the sector is now owned by foreign companies where there is significant profit outflow - the GNP issue again. As Colin Donald in the Herald has argued, the success of the industry and its contribution to the Scottish economy is not beyond question. And he cites the eminent economist John Kay, and ex member of the Scottish Government's Council of Economic Advisers, who contends that

Value added from Scotch whisky is reported as around £3 billion – about 2.5% of Scottish GDP – but this figure reflects essentially arbitrary transfer prices and export valuations. Wages and salaries and purchases of goods and services used in whisky production amount to only about £400 million. To this should be added the returns to beneficial Scottish ownership of whisky-related assets. With retail sales of whisky around the world totally perhaps £25bn, the Scottish economy appears to derive modest benefit from its most famous product. (Chapter 2 in Scotland's Economic Future 2012 (ed. Sir Donald Mackay)

Strength 5, public finances being in a better state than the UK as a whole so that Scottish families are better off, is a major distortion of reality. As I demonstrated in this post this is not money in the Scottish peoples' pockets, or the annual fiscal dividend from independence. Rather it is that an independent Scotland's fiscal deficit would have been slightly less worse than the UK if in 2010-11 it had received its geographical share of oil revenues. But a large deficit is still a deficit.

Strength 6, education and the excellence of Scottish universities, is a clear strength of the Scottish economy. But to support this statement by the claim that the Scottish universities are benefitting from unprecedented funding is only a half truth. It omits the fact that the charging of fees in England, for better or worse, is raising the funding of universities south of the border to a level which will make it increasingly hard for Scottish universities to compete in both research and teaching excellence. Moreover, there are real concerns about the extent of knowledge transfer from the Scottish universities to Scottish firms and whether economic development policy is properly capitalising on the strengths of the universities.

Finally, strength 7, inward investment and the success of Scottish Development International in attracting companies to Scotland is not to be disputed as I noted here. But there are real issues about the nature and significance of inward investment policy in Scotland as the recent debate about the role of Amazon has demonstrated.

There are other strengths that the Scottish Government appears to have ignored. Stephen Boyd tweets that it is surprising that no mention is made of financial services. I agree with him. The Government may be ashamed of the banks but financial services accounts for a rising share of 10% of GVA with more than half in non-banking such as asset management, pensions, and life assurance. Then there are the other industries that Scottish Enterprise sees Scotland as having major strengths: creative media, enabling technologies, business services, life sciences, and tourism. None of these is mentioned.

Added to this is the evidence that Scotland has high levels of social capital: trust, mature institutions, which make Scotland a 'good place to do business' and which are increasingly seen as a critical ingredient in economic growth. Finally, there is the evidence of Scotland's high amenity where, for example, Edinburgh ranks high as 'place to live'.

All of these are key strengths of the Scottish economy and will influence its future growth.

So, why were they ignored?

A cynic might say that they have little to do with the case for independence. Maybe that is going too far. But the Scottish government can do a better and more accurate job of documenting Scotland's economic strengths than the heavy dose of spin that it offered in response to the Economist.

Amazon Again

Stephen Boyd provides a thoughtful and sincere critique of my last post on Amazon and the Scottish Government. Even though I disagree with him I urge readers to read his post. The Easter break has prevented me from responding sooner.

Stephen's main point is that

the Scottish Government should not subsidise Amazon because it is a bad corporate citizen and one that has demonstrated little sign of changing its ways. Its business model undermines the kind of economy/society the Scottish Government tells us (explicitly through its target regime and National Performance Framework) it wishes to create. Amazon's business model (brazen avoidance of taxation, poor quality insecure employment, predatory pricing and squeezing of suppliers ..... undermines stable long-term growth. Far from an unmitigated boost to productive activity, the growth of Amazon may well exert a long-term extractive impact on the economy.

My point is that the attraction of inward investment is important to a small open economy such as Scotland. If the Scottish government sought to pick and choose according to whether the company has a business model that it likes or not, then it will make the attraction of inward investment that much more difficult. Once one company is rejected that will very likely lead to spillover effects on the willingness of other companies to come here. Companies whose business model and practice the government views more favourably may now not be willing to come here and the decision to reject the less favoured company will not have led to a change in its business model.

Providing the company observes existing Scottish and British laws on inter alia health and safety and employment practices, I don't think economic development policy can seek to apply further ethical standards if it wishes to compete for investments on the global stage. If it did so then the Scottish government would be applying a different standard to an inward investor such as Amazon than it would to any Scottish company investing in Scotland. By all means ensure that there are better employment practices, which might mean less inward investment than would otherwise be the case. But don't pick and choose between investments on some arbitrary notion of a good or bad employer because that will promote uncertainty and damage inward investment much more.

As I said in the original post from the standpoint of economic development policy,

whether Amazon should have invested in Scottish activities with Scottish Government support depends on the estimate of the net contribution of activities to the Scottish economy.

Stephen suggests that "Amazon may well exert a long-term extractive impact on the economy." I take it he is using the term "extractive" as applied in the research of Acemoglu, Johnson and Robinson (2001 AER) and as popularised in Acemoglu and Robinson's latest book Why Nations Fail. Here extractive institutions are those whose main purpose is to facilitate the extraction of resources and their transfer to (in the case of colonial governments) the imperial power. In other words he sees the long-run contribution to the Scottish economy of Amazon as negative as destroying actual and/or potential output. I don't think there is any evidence for that.

Finally, Stephen dismisses the jobs created by Amazon in Scotland too readily. In one of his tweets he states that that any reduction of unemployment from the job creation is "trivial". But people who seek to work for Amazon do so voluntarily. There must be a net financial benefit to them even if they were on state benefits so there will be secondary spending or multiplier effects, which Stephen seeks to deny. If Amazon is such a bad employer then when more jobs are created in the economy they will move to those jobs. But in the meantime if Amazon is, as Stephen says, one of "the world's worst employers" it would appear that working at Amazon is preferable to unemployment.

As Chris Dillow recently noted, research shows that unemployment is more conducive to long-term unhappiness than either divorce or bereavement. Moreover, this is not simply a result of idleness since well-being rises when the unemployed move into retirement, suggesting that it is the felt stigma of unemployment that is a key issue. Against that background, I for one am prepared to put up with the Amazon's of this world if they help mitigate the scourge of unemployment.