Zombie economy

How not to grow the economy

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

Despite the many legitimate criticisms of the short-lived Liz Truss administration, it did leave one exceptional legacy. It put the question of economic growth, and the importance of raising productivity, back on the mainstream political agenda.

It took an extraordinary triple whammy – the pandemic lockdowns, the post-lockdown disruptions to global supply chains, and the war in Ukraine – to finally force the British political class, in the shape of the Truss administration, to acknowledge the dire state of the economy.

Hence, over recent months, Conservative and Labour front benches have been talking about the importance of growing the economy. In January, prime minister Rishi Sunak announced five key pledges to address people’s ‘priorities’. The following month, Labour leader Keir Starmer countered with his ‘five missions for a better Britain’. A commitment to economic growth was at the centre of both parties’ five-point plans.

Both plans have been criticised for vagueness. But there is a deeper problem with Labour’s and the Tories’ approach to the productivity slump. While both parties have bought into the new economic consensus – that is, the belief that low business investment is at the root of lacklustre growth – they also share the belief that businesses need more state financial support. In today’s circumstances, though, this would mostly act to entrench the low-growth quagmire.

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Britain’s zombie economy stands exposed

philmullan Debt, Economic growth, Economic policy, Politics, Productivity, Zombie economy

Britain is in the grip of financial turmoil. Over the past week, the pound has crashed and rallied, as has the bond market. Pension funds, at one point, looked to be on the brink of collapse, prompting an emergency intervention from the Bank of England. All this has followed last week’s now globally infamous mini-budget, unveiled by prime minister Liz Truss and chancellor Kwasi Kwarteng. While there is no doubt that this incoherent budget acted as a trigger, it is not the underlying cause of Britain’s woes. It simply brought the UK economy’s underlying fragilities to the fore. There’s more to this market meltdown than Truss and Kwarteng’s hapless ‘mini-budget’.

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Inflation: another symptom of the zombie economy

philmullan Covid-19, Economic policy, Inflation, Zombie economy

In both the UK and the US, the monthly inflation figures released this week came in well above the forecasts. These announcements have added to fears from many economists that we could be seeing a return to inflation rates not seen for 40 years.

Led by Jay Powell, chair of the US Federal Reserve, most central bankers believe that the current high levels of inflation are ‘transitory’, and will fade away once the lockdowns have been fully lifted. Meanwhile, critics say any delay in monetary tightening will simply force the central banks to slam on the policy brakes harder at a later point, resulting in even greater economic disorder and perhaps an even harsher recession.

So who is right? The inflation hawks or the apparently dovish central bankers?

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Another crisis wasted

philmullan Economic growth, Economic policy, Productivity, The longest depression, Zombie economy

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.

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The economic transformation we need

philmullan Economic growth, Economic policy, State intervention, Zombie economy

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.

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