Some obvious points first. We are still in a pandemic, and so support measures for employees, the self-employed and businesses should continue. The chancellor should also, belatedly, increase sick pay substantially. The success of the government’s COVID strategy will depend on persuading those who otherwise cannot afford to isolate to do so. The following remarks are based on the assumption that the government’s strategy works, and there is no return to NHS crises and lockdowns. Contrary to the perception you get from the media, encouraged by the government, it is far from certain that their strategy will work as planned. In addition, what I’m proposing here is what a Conservative Chancellor could conceivably do, rather than the budget I would enact if I was Chancellor. For… [Read More...]
Two types of recovery from the COVID recession, or how you cannot effectively fight plutocratic populism by returning to the recent past.
I don’t normally talk about forecasts, but last week’s IMF World Economic Outlook illustrates a point a number of people have made. While both the UK and EU countries are prepared to gradually return what they believe as their non-inflationary level of output from below, the approach in the US is to overshoot, running the economy slightly hot for a period. This table from the Outlook shows expected GDP growth. The key figure is the last column, which shows overall growth from the start of the pandemic to when the recovery is largely complete. It shows how focusing on just 2022 growth, as I’m sure many in the UK and Europe will, is completely misleading. IMF Economic Outlook April 2021 Forecasts GDP growth 2020 2021 2022 2022/2019 United States -3.5% 6.4% 3.5%… [Read More...]
Why do some find the economics/health trade-off so hard to get? Because it’s like the Phillips curve.
The distinction between the short run and long run traditional Phillips curve (not the New Keynesian variety) is so ingrained in economists that it seems obvious to us. We sometimes forget that it took many years for policymakers to understand it. I think something similar is happening with the economics/health trade-off in this pandemic. There is undoubtedly a short term trade-off between imposing greater restrictions (in extremis, lockdowns) to improve health outcomes (a good) and the negative effect that has on the economy (a bad). In much the same way as there is generally a short term trade off between expanding the economy to reduce unemployment (a good) and getting higher inflation (a bad). But in both cases that is not the end of … [Read More...]
COVID, the US election and media balance
I want to start with my last post. It contrasted a minority of countries that were good, were not too bad and the majority that were terrible at handling the pandemic. What surprised me was how willing people were to believe that each of the good countries had some special attribute that explained their superior performance, rather than accept the more obvious explanation that they had more practice at handling pandemics, or just had better governance. These countries that have handled the pandemic well knew that you needed a good TTI operation, you needed to keep case numbers low, you needed strong border control and in most cases that if you lose control of case numbers you lock down quickly and hard. The UK has failed on… [Read More...]
Fiscal policy during and after the coronavirus pandemic
This post was partly inspired by this recent seminar, but also by thisexcellent paper from The Resolution Foundation. Apologies for the length, but there is a lot to cover. This post is in five parts. The first looks at how our understanding of fiscal policy has evolved over the last decade or so. It is an essential background to how fiscal policy should be employed during the pandemic. The second looks at fiscal policy support during the pandemic. The third looks at what could be quite a short period between when the pandemic is effectively over as a result of mass vaccination, and when the economy has fully recovered. The fourth asks whether, once the economic recovery is complete, we should attempt to gradually reduce the debt… [Read More...]
Trump tries to incite a putsch, and his UK cheerleaders reveal their own contempt for democracy
It appears as if the Facebook ban on referencing this blog has been lifted. Many thanks to all those who complained to Facebook. I doubt I will ever know who persuaded them to ban it. Would be democratic dictators, elected heads of state who want to ensure they can never lose an election, should know the first rule to staying in power. It is to control a sufficient amount of the media. Convincing your faithful that the mainstream media is fake news is not enough. What that sufficient amount is will depend on many factors, including the voting system for President. It may be, for example, that given the advantagesa united right wing socially conservative party has in the UK, control of a majority of newspapers and … [Read More...]
Why vaccines alone are not enough, how the UK government could mess things up again and which European country will eliminate COVID first?
Why has the UK government decided to apply serious travel restrictions to incomers because of COVID now, almost a year after the pandemic began? What took them so long, and what has changed? The obvious answer to the second question is vaccination and mutation. We don’t know how much the vaccines so far approved will stop people passing on the infection to others, but what evidence we have suggests there will be at least some dampening effect. Israel is likely to provide the first firm evidence on this. That will reduce R, the number of people one infected person passes the illness on to. What vaccines will certainly do is substantially reduce the chance of people getting ill from COVID. The danger is that, as vaccines are… [Read More...]
Two paths to controlling COVID with vaccinations
As vaccination is rolled out across advanced economies, the main danger has become mutations of the virus, or variants. We all know about the B.1.1.7 variant that emerged in the UK in September and helped generate the rapid rise in cases in December. We also know about the ‘South African’ variant (B.1.351), which appears to reducethe effectiveness of all vaccines to some degree. But these are just two of the better known variants, which seem to be emergingall the time (see also here). COVID variants are the reason that so many countries have now severely restricted travel (‘almost closed borders’) into their countries in recent weeks. One of these variants could severely reduce the effectiveness of a country’s vaccination programme. It is likely that scientists would… [Read More...]
Labour should start contesting the Tory record in running the economy
I recently wrote a postentitled “Why are the Conservatives so bad at running the economy?”. By bad I meant both in absolute terms (so many home grown crises: monetarism, ERM, austerity), and relative to the last Labour government. My post was hardly contested, and what criticism i received was easy to bat away. Things like ‘Labour left the economy vulnerable to a global financial crisis’, where the post noted that the Tories wanted even less financial regulation before the crisis. However, as I also noted, Labour have for the last decade been well behind in the polls on who is best to run the economy. Labour under Ed Miliband made the huge mistake of failing to contest the Tory lies about how Labour profligacy caused the… [Read More...]
The Royal Family is today’s England
Don’t worry, this isn’t really about that interview. But what struck me most about the whole situation is that the Royal Family had turned down a huge opportunityto revitalise its image, and the main reason it has done this was because of the right wing press, and possibly fear of change, and possibly race. Now I know many reading this don’t spend much time worrying about the Royal Family’s image (neither do I) but please bear with me. Looking at how public opinion about the affair splits by age should be very worrying for a monarchy that wants to survive. If the Palace had embraced the couple, which would have meant publicly defending Meghan against press misinformation and supporting her as much as they could in dealing… [Read More...]
The anti-lockdown crusade gains oxygen from this government’s ineptitude
If anyone still doubts that Brexit was our Trump moment, look at some of the same characters (Tory MPs, newspapers, even voters) who supported Brexit getting behind what has become an anti-lockdown crusade. I use the word crusade deliberately. Rather than religion it is ideology that drives most anti-lockdown proponents. That ideology is libertarian, although to borrow a phrase from Chris Dillowon mask phobia, this libertarianism is just solipsistic narcissism. What the crusade isn’t, for most of the anti-lockdown brigade, is evidence led. That is not to say that some scientists may genuinely believe that lockdowns are never worthwhile. Science shouldn’t be closed to heretical ideas, and there will always be scientists who put forward such ideas. Occasionally the heretical turns out to be… [Read More...]
How governments in the West failed to learn
You would think, after so many countries were taken by surprise by a pandemic caused by a new virus in the Spring of this year, these countries would resolve to never let it happen again. They would be mad, knowing what they now know, to let cases explode in a similar manner to they did earlier this year. In what we call the West we like to think we have reasonably rational governments that listen to expert advice on matters of life and death. Well at least some of us thought that. I am prepared to make an exception of the UK and US. The UK is run by fantasists who thought we would hold all the cards in any negotiations with the EU and there would… [Read More...]
Politicians and experts: austerity, Brexit and the pandemic
I’ll be talking about fiscal policy during and after the pandemic at a Resolution Foundation/MMF event in a week’s time: https://www.mmf.ac.uk/resolution-foundation/ I have written quite a few posts on the relationship between policy and expertise, and between expertise and the media. The better ones are in my book, but they were all written before the COVID pandemic. How does the relationship between experts on the one hand and politicians and the media on the other that we saw with economists over austerity and Brexit play out with medics and the pandemic? All three cases are different from each other. Although the evidence set out in my book suggests that the majority of academic economists opposed austerity (a majority that got… [Read More...]
Brexit may be pointless, but it will be with us for some time
You have probably read a lot of stuff asking what, precisely, are the benefits of Brexit. I’m going to make some points that try and look at this from the point of view of those who supported Brexit, whether we get a trade deal or not. For those who voted for Brexit the main concrete preoccupation was immigration. Here is the latest version of a chart I have shown before (source): Those voting for Brexit because they wanted low migration will have been disappointed (although I’m not sure how many realise this), because the fall in EU immigration has been matched by an increase in non-EU immigration. Net immigration is slightly higher than it was when the referendum took place. Seems to confirm that immigration really… [Read More...]
Why the UK’s COVID crisis should be personal for so many Tory voters
There are around16 million over 60s living in the UK, nearly a quarter of the UK population. They are the most at risk from COVID: catching the virus could be a matter of life or death. To them the government’s handling, or rather mishandling, of the pandemic should be a matter of acute personal concern. It certainly is for me. Around60% of over 60s voted Conservative in the last election. The NHS is currently at breaking point. Tired and demoralised after almost a year of COVID, doctors and nurses find their hospitals are full and we haven’t yet seen the impact of Christmas and New Year. Whereas Johnson acted in March to save the NHS, this winter he decided to save Christmas instead, until he was… [Read More...]
The two sides of austerity.
I thought I’d use the FT’s mea culpa on austerity to make a point which is easily missed in public debate. Sustained austerity of the kind inflicted on the UK from 2010 until quite recently was terrible for two types of reason. The first, that most people focus on, are the cuts to government spending (shrinking the state) that went well beyond trimming any fat and caused real hardship. The second is macroeconomic. Cutting government spending in a recession is never a good idea, and when interest rates were stuck at zero it was a disaster. To highlight that distinction, I’m going to claim (with a few provisos) that the current Chancellor in this recession has so far not made the second, macroeconomic mistake. In that sense we… [Read More...]
COVID-19, experts and the media
On February 4th, the British Medical Journal (BMJ) publishedan editorial which suggested that the actions of most government’s in mishandling the COVD-19 pandemic could be described as ‘social murder’. They write: “The “social murder” of populations is more than a relic of a bygone age. It is very real today, exposed and magnified by covid-19. It cannot be ignored or spun away. Politicians must be held to account by legal and electoral means, indeed by any national and international constitutional means necessary. State failures that led us to two million deaths are “actions” and “inactions” that should shame us all.” The biggest state failure of them all is the UK Chancellor persuading the UK Prime Minister to ignore his expert scientific advisers last autumn. This damning… [Read More...]
Why are the Conservatives so bad at running the economy?
Despite their reputation, over the last forty odd years Conservative Chancellors have been very bad at running the economy. Given the general view which suggests the opposite (twice as many thinkthe Tories are better at managing the economy than Labour) , it is worth setting out the record, but also to ask why they have been so bad. I’m going to start in 1979, with the Thatcher government, because Thatcher represented a new type of Conservatism. Before 1979 the Conservative party was more paternalistic, less neoliberal, and generally accepted the largely Keynesian methods for running the economy. (That is a huge oversimplification of course, but we have to start somewhere.) Above is the path of GDP per head over the period of Conservative government that started in 1979. As you… [Read More...]
Vines and Willis on the future of macroeconomics
Mainly for economists I want to talk about the latest Oxford Review of Economic issueon ‘rebuilding macroeconomics’, and particularly the first article by David Vines and Samuel Wills. The first thing I want to say is that the title is pretentious. Academic macroeconomics is reasonably happy doing what it is currently doing and in that sense there is nothing to rebuild. A better title is future directions for macroeconomics. The Vines and Wills article suggests two major changes in direction. The first, following Blanchard, is to partly reverse the microfoundations hegemony, by allowing models or parts of models that don’t include microfounded models routinely back into the top journals. The second is to focus on models that allow more than one long run equilibrium. I will take … [Read More...]
If the UK government fails to do a deal over unfair competition it is not because of UK sovereignty. It’s because of crazy stupidity.
Why do people keep saying the impasse over a trade deal with the EU has to do with UK sovereignty? I know the government says this, but the government says a lot of things that are just untrue. They are standard lines the go down well in focus groups. For those who are not paid to follow the government line, to repeat the government’s line seems odd. The current impasse seems to me to be about EU sovereignty, not UK sovereignty. As present (see date of post) the main stumbling block in agreeing a deal is the EU’s insistence that it should be able to increase tariffs if it feels that UK goods have a competitive advantage because of future UK government subsidies or rule divergence. Avoiding… [Read More...]