How to bring about a high-wage economy

According to some pundits, the empty petrol stations and gaps on supermarket shelves are a forewarning of another ‘winter of discontent’ – a reference to 1978-9, when widespread strike action brought the UK to a standstill.

In the energy crisis, some see a return to the oil crisis of 1973-4, when OPEC imposed an oil embargo on the likes of the UK and the US because of their support for Israel during the Yom Kippur War.

And, as prices rise across the board, there is a great deal of speculation about a return of 1970s-style ‘stagflation’, when economic stagnation co-existed with sharply rising prices, precipitating a cost-of-living crisis.

As evocative as these trips down economic memory lane are, they do not help us understand what is going on today. The general fashion for reaching for old labels, such as new New Deals or new Cold Wars, to describe the present often obscures what is distinctive about the contemporary moment – and this certainly applies to our current economic situation.

Read the full article here.

Shutdown: the end of an economic era?

Particular crises rarely change everything by themselves, but they can amplify what was already underway. This is how economic historian Adam Tooze approaches the Covid crisis in Shutdown: How Covid Shook the World’s Economy. He presents it as an event that brought pre-existing trends to the surface.

Shutdown is one of the first extended economic histories of the pandemic. It covers a single year, from Chinese president Xi Jinping’s public acknowledgment of the outbreak of a novel coronavirus in January 2020 to US president Joe Biden’s inauguration exactly 12 months later. The bulk of Shutdown is a comprehensive month-by-month commentary on the progression of the pandemic, the varied government responses to it and the economic, financial and political fallout.

Read the full review here of Adam Tooze’s new book Shutdown: How Covid Shook the World’s Economy.

Inflation: another symptom of the zombie economy

In both the UK and the US, the monthly inflation figures released this week came in well above the forecasts. These announcements have added to fears from many economists that we could be seeing a return to inflation rates not seen for 40 years.

Led by Jay Powell, chair of the US Federal Reserve, most central bankers believe that the current high levels of inflation are ‘transitory’, and will fade away once the lockdowns have been fully lifted. Meanwhile, critics say any delay in monetary tightening will simply force the central banks to slam on the policy brakes harder at a later point, resulting in even greater economic disorder and perhaps an even harsher recession.

So who is right? The inflation hawks or the apparently dovish central bankers?

Read the full article here.

A post-Covid boom? Not so fast

Some pundits are getting a little carried away by the signs of a rapid economic bounce-back. The uniqueness of the past year has distorted the data, creating a misleading impression of our economic prospects. We would be well advised to be more sceptical than usual about the economic stories being told.

The biggest worry is that politicians will overinterpret the contemporary statistical fog in a way that allows them to evade the deeper, more substantial economic issues they should be addressing. We have been complacent for too long about the state of the Western economies. If we get too excited about high growth rates and other anomalous data, we are much more likely to waste the opportunity for real change thrown up by this crisis.

Read the full article here.

A ‘rebound’ to the Old Normal is not good enough

At the end of April, Barclays boss Jes Staley was forecasting that 2021 would see the strongest boom in Britain since the aftermath of the Second World War. The emerging consensus among economists is only a little less ebullient in anticipating the fastest pace of growth since 1989. The Bank of England’s chief economist, Andy Haldane, captured the upbeat mood: ‘As I’ve been saying for months – drawing on the economics of coiled springs, and crouching tigers, and “Chicken Lickens” – I do think more likely than not we are [set] for a rapid-fire recovery. That is coming, and I think that is coming soon.’

The upgraded forecasts for Britain’s economic growth this year and next from the likes of the IMF and the EY ITEM Club are quite feasible. However, it is short-sighted to think a rapid bounce-back over the next year or so will mean a robust long-term recovery. Moreover, talk of a ‘great rebound’ could also reinforce the tendency of successive governments to abandon their economic responsibilities to help the private sector create new growth sectors with enough decent well-paying jobs for people.

Read the full article here.