Rewriting history, recession edition

Says Railway Eye, a cynical and Tory-leaning transport blog:

There is certain information that voters and taxpayers might reasonably expect a Government department to know.

Or at least have a reasonable stab at.

Such as just how risky NatEx’s very aggressive bid for the East Coast franchise was; bearing in mind that the previous operator had failed to deliver with a lesser bid.

This is a stupid, nonsensical myth. For one, GNER failed on the East Coast Main Line because its parent company Sea Containers went bust and hence the DfT didn’t have confidence in its ability to meet financial contingency plans – its revenues never fell short.

For two, four companies – the four companies who know the most about the UK railway market – bid similar amounts as National Express for the East Coast franchise.

Up until the end of 2008, I was working as a strategy consultant. I was quite good at it; one area in which I fell down (in management’s eyes) was my pessimism [*] about clients’ projections.

So, on a particular project I ran in Spring 2008, working with our economics unit – one of the most respected that there is, and one of the ones that’s now making doomsaying predictions about government debt (…’which we’ll gladly help you reduce, if you’ll take our advice on cuts’) – I got them to take the lowest possible scenarios for growth that anyone considered vaguely sane, and factor them in as a ‘worst case’ [**].

For the US, that was 0.9% growth for 2009. For the UK, I can’t find the figures, but it was in the region of 1% growth for 2009. UK economic growth is currently expected to be about -4% for 2009.

The point isn’t that my lot were inept. They weren’t; they were reflecting the negative end of what anyone capable of holding down a job at a bank, government, NGO or economics think-tank [***] considered plausible. Hence, for the Treasury, and for National Express, and for every other bugger, to base their expectations on growth in 2009 being a third of what it was throughout the early 2000s was reasonable, and sufficiently conservative that you actually had to fight (senior, older, previous-recession-experienced) people to get that much through.

And yes, it was wrong, and yes, the next few years are going to be painful as a result – but suggesting the decisions made when literally nobody who wasn’t mad thought we were going to have a proper recession were therefore stupid decisions, rather than good decisions that happened to be proved wrong based on information that wasn’t available at the time, is far stupider than the original decisions ever were.

[*] ‘lack of commercial something or other’.
[**] some of the partners had survived prior recessions, so we didn’t actually call it ‘worst case’. Which is probably just as well.
[***] this is not a high bar.

7 thoughts on “Rewriting history, recession edition”

  1. "but suggesting the decisions made when literally nobody who wasn’t mad thought we were going to have a proper recession…"

    I'm still struggling with the multiple-negative. Surely, sensible folk knew that the house price bubble was merely tangible evidence for a credit bubble, and as we know bubbles burst and when a credit bubble bursts it all gets very nasty.

    So do you think that sensible folk were predicting a recession or not? I bumped into somebody recently I hadn't seen since early 2006 and he said that my prediction had turned out to be correct.

    "Which prediction, exactly?" asked I.

    "About the next house price crash and recession", he replied.

    So was I mad, lucky or actually quite astute?

  2. I remember going to a wedding in June 2007 full of City boys (unusually decent City boys, thankfully.) At the time, I was up to my ears in due diligence for the larger end of the commercial property market[1] – it was a big shock to me then that they'd all pulled their own cash out of the sector in recent weeks as the first rumours of the credit crunch were even then starting to circulate.

    [1] and had just kicked off on the most high profile (literally) deal I've ever worked on.

  3. Aye, but there's a difference between 'commercial property will tank and growth will suck for a couple of years' and 'GDP will fall by 4% in one year and growth will look anaemic for another three'.

  4. In my experience, the budgeting process at most places works on the basis on the heuristic applicable 99.9% of the time: Tomorrow = Today +/- a little bit.

  5. Is it right that Railway Eye's blogroll makes me take its content with a pinch of salt (when the content itself isn't doing the same, that is)?

  6. Sorry only just discovered this post.

    How very dare you!

    "Tory leaning".

    Libertarian through and through!

    You City boys may have thought the NatEx bid was reasonable.

    The consensus in the rail industry at the time was that it was "toppy".

    Although admittedly the big bucks didn't come in till later in the franchise when cap and collar also kicked in.

    Not that this does NatEx any good now.

    Of greater interest is the recently signed Southern franchise which expects to see 4% growth in its first year.

    Now that is heroic!

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