Economic policy

The coronavirus cash crunch

philmullan Covid-19, Creative destruction, Debt, Economic policy, Zombie economy

The UK Treasury’s number one priority, with support from the Bank of England, must be to get unlimited money swiftly to businesses and individuals who are losing income because of the government’s coronavirus containment measures. This applies both to providing firms with cash to avoid bankruptcy as well as to ensuring that all their staff – employed, self-employed and gig workers – continue to be paid when they go into unpaid quarantine or are laid off either temporarily or permanently.

But however successful the government is in this vital support task, the British economy is already in recession. And the more extensive the lockdowns are, the deeper the immediate falls in economic activity will be. Long before the Covid-19 outbreak many economists had been correctly anticipating another downturn. Britain, like most other advanced industrial countries, has been in a state of precarious sclerosis ever since the stabilisation which followed the financial crisis. Western economies have been producing too little new wealth for decades. They were only functioning as well as they have been by borrowing from the future. Now this precarious, debt-dependent economic life has suffered a sharp and unexpected disruption. The collapse is largely due to a cash crunch.

Read the full article here.

Break free of the fiscal rules

philmullan Economic policy, State intervention, Zombie economy

In pre-coronavirus days, immediately following the Tories’ huge election victory in December, this Budget was trailed as the thing that would tell us what the ‘levelling up’ mantra really meant. Things haven’t quite worked out that way. Maybe because of the necessary focus on the coronavirus impact, we learnt little new about what ‘levelling up’ means. Or possibly that was because the government is also still not quite sure what the phrase stands for. Sunak was clearly getting a little carried away by his rhetoric when he claimed that this Budget had already delivered – got done – the election promise to ‘level up’.

The government this week flunked one budgetary issue that could have pointed in the desired political direction. No doubt drawing on his hedge-fund experience, Sunak hedged a decision on what to do about the fiscal rules, after much speculation that he would address them in the Budget.

Read the full article here.

Labour won’t transform our economy

philmullan Economic policy, Politics, State intervention

‘Ambitious’ and ‘radical’ were two of the friendlier assessments of the Labour Party’s manifesto plans.

Ambitious? Labour is certainly ambitious electorally. Labour’s manifesto is published with the desperate hope that its green spending plans, an end to student tuition fees, providing student maintenance grants and the offer of free broadband for all can be so appealing to voters that it will camouflage the party’s rejection of the Brexit vote – the very issue that precipitated this election.

But ambitious in transforming society for the better? Definitely not. This is because it is not ‘radical’, either – not in the sense of getting to the roots of society’s or the economy’s troubles. Bashing billionaires might make the Labour team feel they are on the side of ‘the many’, but the plans are no substitute for a necessary programme of economic renewal that could genuinely aid the masses.

Read full article here.

This £1 trillion row leaves voters shortchanged

philmullan Brexit, Economic policy, Politics, State intervention

The squabble over the cost of the Labour Party’s policies, started by the Tories at the weekend, tells us next to nothing about the potential impact of either party’s economic programme. But it does reveal the decrepit state of the parties that were once the two big beasts of British politics.

Spending figures – large or small – do not tell us if either party is planning an economic transformation of the country. In themselves, the numbers even say very little about how profligate or prudent either party is being. When it comes to future economic performance, the impact of public spending has much more to do with what the money is being spent on, and the circumstances in which it is being spent, rather than simply how much.

The row over these figures suggests that both the Tories and Labour have yet to appreciate what this General Election is really about. It also alerts us to how little meaningful distance there is between the two parties’ economic proposals. The huffing and puffing about numbers provides camouflage rather than clarity. … Read the article here

Beyond the zombie economy

philmullan Creative destruction, Economic growth, Economic policy, Investment, Productivity, Zombie economy

The UK’s productivity problem not only long precedes the Brexit discussions. It also long precedes the 2008 financial crisis. Longer-term studies actually reveal that the decline in productivity growth, not just in Britain but across mature industrialised countries, has been pretty relentless since the 1970s. That its slowdown began so long ago means the problem is deep-seated and therefore justifies a substantial strategic response. This is usually presented as an activist industrial policy.

But the big paradox about industrial policies is the contrast between the extensive cross-party consensus on this issue and the lack of headway in reviving investment and productivity. Read the full article here.