Another crisis wasted

At El Alamein in 1942, British forces secured their first military victory of the Second World War. Winston Churchill assessed that Britain and its allies had ‘perhaps’ just reached the ‘end of the beginning’ of the war. But that didn’t stop him and other Western leaders starting to plan for life after the war. In Britain the government’s Beveridge Report was published in November that year, paving the way to the expanded welfare state that became a hallmark for the postwar domestic settlement. Less than two years later, with Allied armies only weeks into fighting their way across Europe and still heavily engaged in the Asia-Pacific theatre of war, their countries’ representatives convened in New Hampshire’s Bretton Woods. There they charted out what became the postwar international economic and monetary architecture that operated for the ensuing quarter century.

These ambitious initiatives remind us that huge crises, such as our coronavirus pandemic, used to be seized as opportunities to undertake radical longer-term planning. Judging by this week’s UK Budget package, this is not the case anymore. Times like this demand bold economic thinking. Rishi Sunak has squandered that opportunity.

Read the full article here.

The economic transformation we need

One legacy of the pandemic has been to bring government activism out of the shadows. Whether you criticise or support how governments managed the pandemic, it is indisputable that their actions and inactions were of huge consequence to our lives and to the economy. So far, though, this acknowledgment has yet to unmask the myth that the past 40 years has been a period of state economic inactivity. Until this is understood, the current debate about state economic intervention will be misleading, when what we really need is a state-led shake-up of the failing status quo.

Read the full article here.

The coronavirus cash crunch

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

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.

Beyond the 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.