Don’t blame Covid for economic devastation

It is unhelpful to present the economic disruptions over 2020 as costs of the pandemic itself. Claims that it is the virus, and not the restrictions, that is causing today’s devastating economic damage to production and jobs are misleading.

Understanding better how the economy is being hit is important for several reasons. A firmer grasp of all the costs arising from lockdowns and other official social restrictions is necessary for sound policymaking. Making decisions based on epidemiological models without a broader assessment of the costs – social, health and economic – and of how they have arisen is a reckless approach from political leaders.

Moreover, these other impacts from the pandemic measures are helpful in assessing the lessons to be learned in preparing for and managing future pandemics.

Read the full article here.

The tyranny of the EU’s state-aid rules

The esoteric area of European Union state-aid rules has become a focal point in the dragging negotiations between Britain and the EU. Alongside access to British fishing grounds, the question of the UK continuing to adhere to the EU’s rules for state aid is reported to be the big sticking point jeopardising an agreement on future trade terms. On top of this, the same issue of state-aid rules is prominent in the furore over the publication of Britain’s Internal Market Bill. The European Commission’s condemnation of the Conservative government’s proposals to override parts of last year’s Withdrawal Agreement spotlighted the UK’s obligation to notify Brussels of any state-aid decisions that might affect Northern Ireland’s goods market. Why have the state-aid rules attained such importance in the fraught UK-EU relationship? Why are they so crucial for the European Commission (EC)? Read the full article here.

Three myths surrounding Boris Johnson’s ‘New Deal’

Prime minister Boris Johnson’s ‘build, build, build’ speech on 30 June failed to throw much light on what, or if, there is a distinctive Johnsonian approach to economic policy. As many commentators noted, the £5 billion he pledged for various infrastructure deployments is a small amount for a government recovery plan, less than one quarter of one per cent of pre-pandemic annual output. This is like turning up to a battle with a water pistol.

As we assess the substance, if any, of Johnsonomics over the coming weeks and months of announcements, we can start by dismissing some of the fanciful narratives that are doing the rounds, both from the government’s supporters and its critics. The first, and most pertinent, myth is that the economic woes we face are primarily the result of the pandemic lockdown. In fact, they long predate it. The second myth is that we are entering a distinctive era of state economic leadership that marks the rejection of ‘neoliberal’ orthodoxies. And the third myth, given Johnson hails his plans as ‘Rooseveltian’, is that President Franklin Delano Roosevelt’s New Deal ended the Great 1930s Depression.

Read the full article here.

It’s time to transform the UK economy

It is said that crises provide fertile ground for innovation. This is only partly true. The acute pressures, the falling away of pre-crisis norms and the sidestepping of regulations, liberate individuals and teams of people to come up with great ideas about how to do things differently. This fresh thinking can originate better, more effective and efficient ways of conducting existing productive activity, or it can conceive brand new products or services that improve people’s lives.

Certainly in this pandemic and the lockdown crisis, we have already seen lots of inventive deliberation.  But where the saying falls short is that devising creative ideas is not enough for innovation. Innovation represents the implementation of that creativity for social benefit. While crises can be great times for ingenious thought, novel ideas only become innovations when they are applied and are replicated to bring change, improvement and progress to people’s lives.

This conception of innovation brings out the biggest obstacle to seeing much of it happening in the medium-term future. We are not just in a period of crisis, but a crisis within an existing state of economic depression. Depression is not simply an extension to recession, in the way it is being discussed today. It is a protracted phase of economic sclerosis that has become self-reinforcing.

Read the full article here.

The making of an economic crisis

The UK’s Office for Budget Responsibility (OBR) has offered a grim projection of a one-third fall in output in the April to June period. Even without a second Covid-19 wave precipitating another government shutdown later in the year, the OBR anticipated a full-year contraction of about 13 per cent of national output, worse than anything in recorded history. Some economists speculated this scale of collapse could be greater than any since the Great Frost of 1709 (though, of course, no one was measuring anything like gross domestic product then). This shows how unprecedented this government-determined recession really is.

However, at a Downing Street briefing last week, Rishi Sunak, the chancellor of the exchequer, said something that was even more disturbing and, ultimately, economically damaging. Acknowledging the ‘tough times’ flagged up by the OBR, Sunak sought to offer some comfort: ‘But we came into this crisis with a fundamentally sound economy.’ On the back of this he went on to insist that the economy will ‘bounce back’.

The great danger of this false portrayal of the past is that today’s self-imposed and brutal recession could be extended into a self-imposed and much more vicious depression than we have experienced up until now. This is not inevitable.

Read the full article here.