Productivity

This is worse than the IMF-bailout crisis

philmullan Debt, Economic policy, Politics, Productivity, state , , ,

Economists and other commentators have been warning that Britain is heading towards a 1970s-style debt crisis – that is, at some point soon, bond investors might stop lending to the government. Critics claim we could be looking at a situation similar to that which faced James Callaghan’s Labour government in 1976, when it had to resort to an International Monetary Fund (IMF) bailout. But in some ways, Britain finds itself in a much worse state, economically and politically, than it did in the 1970s.

Productivity growth is much weaker than in the 1970s. The decay in productivity growth over the past half-century underpins the incapacity of the state, and the degradation of public services and infrastructure. Indeed, it is the problem of productivity growth that has produced the government’s most pressing economic challenge: how to deal with the unprecedented peacetime expansion in public indebtedness.

If productivity decline is a result of economic constraints that have been built up over time, the grim state of the public finances is different – it is primarily a political problem. Since the 1980s, successive governments of all political stripes have side-stepped the reality of the productivity slowdown. Instead they have acted as if ‘money is no object’. This is a matter of bad political choices, not economic fate.

Whatever you think of the politics and policies of the Callaghan-Healey team in the late 1970s, their robust political leadership shows up the timidity and ineffectiveness of Starmer and Reeves. Unlike Labour in the 1970s, Starmer and Reeves have no plan or clue how to steer the UK from disaster.

Read the full article here.


 

The economic case for mass migration has never looked so weak

philmullan Cultural renaissance, Democracy, Economics, Politics, Productivity

Earlier this month, Professor David Miles from Imperial College Business School intervened in the UK’s most contentious issue – immigration. In an essay published by the Common Good Foundation, Miles argued that ‘there are serious problems with the idea that [immigration-driven] faster population growth can consistently alleviate fiscal problems’. He urged the government to prioritise getting British people into work, rather than relying on migrants to solve the nation’s economic problems. 

For a long time, the conventional economic wisdom was the opposite – that immigration benefitted the economy. This argument would be routinely trotted out to justify denouncing anyone who questioned immigration levels as, at least, idiotic, probably ‘far right’ and certainly not worth debating.

Miles’s essay shows that the establishment is changing its views on immigration, thanks in large part to popular pressure. For far too long, successive governments have reduced what should be publicly debated political decisions – on the public finances, on infrastructure projects, on immigration and so much more – to technical economic questions. An honest public debate on immigration that breaks away from simplistic economic pros and cons is certainly long overdue. 

Read the full article here.

The myth of America’s economic exceptionalism

philmullan Economic growth, Economic policy, Productivity, State intervention, The longest depression

What sort of economy is the returning president Donald Trump inheriting? In otherwise polarised and uncertain times, a consensus stands out: the belief in US economic exceptionalism. America’s recent growth out-performance and its ever-climbing equity markets seem to make the country the exception to economic stagnation across the west. But America’s underlying productive decay is not that different to the other mature industrialised nations. The staying power of the narrative of ‘US exceptionalism’ points not to the US’s exceptional vigour but rather to some peculiar forces for resilience in the face of its long-running productive decline. These US-specific factors reveal America’s superior capacity to offset its moribund tendencies.

Read the article here.

The myth of the population time bomb

philmullan Demographic change, Economic growth, Productivity

In Britain and most other countries today, the birth rate has fallen below replacement levels – usually defined as 2.1 babies per woman. Fertility in Britain first fell below replacement levels in about 1973, and since 2010 has fallen steadily to about 1.55 babies per woman.

These trends are now prompting a lot of doom-laden commentary from demographers, economists and politicians. They claim that an ageing population, with ever-fewer working-age people supporting ever-more retirees, is creating an unsustainable burden for society.

The irony is that such alarmism about ageing and low fertility is aggravating the very anxieties and uncertainties that are contributing to falling birth rates. Thus, it is important to dispel the misconceptions and myths about ageing populations.

We take three here: that falling fertility leads to economic impoverishment; that we are running out of people; and that changing age-dependency ratios are too much to bear.

Read the full article here.

Unshackling Europe’s Economy: what holds us back?

philmullan Creative destruction, European Union, Politics, Productivity, State intervention

Here is a video of the talk I gave at the conference ‘Unshackling Europe’s Economy: what holds us back?’, organised by MCC Brussels on 24 September 2024.

My talk critiqued Mario Draghi’s recent report, The future of European competitiveness – A competitiveness strategy for Europe. I explained that this is not a neutral report on economic policy with new ideas to boost productivity within European countries. Rather it is a political manifesto motivating an ever-closer European Union controlled from Brussels. Europe’s real productivity slump is used as another instance of a ‘crisis’ – in Draghi’s words, an ‘existential challenge’ – in order to justify extending the powers of the EU to the detriment of national sovereignty and decision-making.