Zombie economy

Labour has no answers to Britain’s economic slump

philmullan Cultural renaissance, Economic growth, Economic policy, Politics, Zombie economy

The government’s long-awaited industrial strategy is a weak rehash of familiar, failed ideas.

After Labour’s first year of chaos and U-turns, the prime minister Keir Starmer managed to keep a straight face when claiming this 10-year industrial strategy provided ‘stability’ and ‘certainty’ for business. Though if any business leaders thought the document offered ‘certainty’ even about taxation levels just four months’ hence in the autumn Budget, they would have been disappointed.

This stereotypical industrial policy announcement prompts three questions. Why did it take them so long to draw up something so standard? Second, why is there such a gap between the widely-perceived scale of our economic problems and this hackneyed set of policies? And, third, more perplexing, why is there still so much support across the political spectrum for the idea of an ‘industrial strategy’, when all these blueprints for change have been so ineffective in shaking Britain out of its economic stupor? 

For answers to these questions, read the full article here.

‘More EU’ won’t save Europe’s economy

philmullan Creative destruction, European Union, Politics, State intervention, Zombie economy

Mario Draghi’s report on the future of European competitiveness, published last month may present itself as a sober economic analysis, complete with proposed policy solutions. But this report – commissioned by the EU and produced by a former head of the European Central Bank – is best understood as a political manifesto for an ever-closer EU, controlled from Brussels.

His report is chiefly concerned with ‘strengthening governance’ – a euphemism for the extension of the European Commission’s power. Stronger governance, he writes, ‘means “more Europe” where it really matters’. And this means less national sovereignty where it really matters, too.

Read the full article here.

Labour and the Tories are wedded to a failed status quo

philmullan Creative destruction, Economic policy, Productivity, State intervention, Zombie economy

All of Britain’s mainstream political parties continue to support the stagnant economic status quo. They propose policies that will keep lower-performing businesses on publicly funded life support. And they continue to shy away from the root-and-branch restructuring that’s needed to get the UK economy growing again.

There is barely a cigarette paper between Labour and the Conservatives on the economy. The truth is that neither of their two near-identical approaches can fix Britain’s economic malaise. In the name of ‘security’ and ‘stability’, Labour and the Tories both aspire to preserve things as they are. Their aversion to risk will discourage the transformative change that our economy desperately needs.

Read the full article here.

The inflation trap

philmullan Economic policy, Inflation, Productivity, Zombie economy

Governments and central banks across most advanced economies are battling to put a lid on consumer price inflation. When at the beginning of the year, UK prime minister Rishi Sunak outlined his five key priorities – halving inflation was at the top. With UK inflation still far above the Bank of England’s two per cent target, its Monetary Policy Committee (MPC) once again decided last week to increase short-term interest rates by a further quarter of a per cent.

The focus on tackling inflation makes sense on the surface. After all, high consumer inflation – say, above five per cent per year – is always a problem for people struggling to pay their bills. However, whatever the immediate trigger, higher inflation is invariably a symptom of deeper problems in the economy and in society. A narrow focus on inflation levels can be a distraction from the real cause of people’s hardships – namely, protracted and anaemic growth in the UK and much of the rest of the West.

The key factor behind today’s economic problems is the post-2008 productivity slump. This was the cause of the wage stagnation during the 2010s. It also underlies the economic fragility that has made it much harder for Britain to cope with the supply disruptions of the past three years, caused first by the pandemic lockdowns and then the war in Ukraine. Indeed, the lockdown-related interruptions to imported supplies were what initially set off the jump in consumer prices in Western countries.

Read the full article here.

This is a financial crisis waiting to happen

philmullan Debt, Economic policy, State intervention, Zombie economy

The collapse of Silicon Valley Bank and Credit Suisse this month ought to be a wake-up call. The fall of these two very different banks points to a deeper underlying malaise in the world’s advanced economies.

Some have blamed the West’s leading central banks, especially the US Fed, for SVB and Credit Suisse’s demise. They claim that central bankers’ decision to delay interest rate rises, only to rise them aggressively as inflation began to spiral last year, made things very tough for the likes of SVB. But blaming these banks’ collapse on an interest-rate hike ignores the deeper problem. The truth is that Western economies have been held afloat artificially since the 2008 financial crisis, courtesy of super-easy monetary policies. And now we’re starting to pay the price.

Read the full article here.