From Hammond on to Johnson - where next for fiscal policy?

As Mr Johnson takes over as Leader of the Conservative Hard Brexit Cult, and by virtue thereof as Prime Minister, it is timely to take a quick look at what his economic and fiscal policy options are - at least in the lead up to DD-Day (Do or Die) on 31st October. It’s equally important to take stock of Mr Hammond’s record as he quietly fades away after three years as Chancellor of the Exchequer.

The Minor Mystery of the Euro’s Trade Effect

I do not consider an increase in inter-country trade a good thing in and of itself, though that view is common among economists and in the media.  For most economists increased trade reflects a putative more efficient international allocation of resources derivative from competition on a global scale. 

 Rarely noted is that free trade theory is consistent with a decline in bilateral trade due to the likely possibility of different demand preferences between countries and, more esoteric, re-switching of techniques.  Except in technical articles one tends to find the blanket generalization that liberalising trade increases bilateral and multilateral flows and that is unambiguously a good outcome.  In that context I look at EU trade patterns since the euro’s use became generalized in the early 2000s.

Of vaulting ambition, Macbeth, and what GATT Article 24 actually says

Boris Johnson is a moral (or is it amoral?) coward, dispenser of racist remarks, teller of untruths and general political fantasist. Driven by ambition and lust for power, he appears to have no principles to guide him save expediency and openness to self-serving opportunity.

But sometimes, the truthless soundbite that seemed so useful for a particular moment leaves its author or articulator exposed. And thus it is with Mr Johnson’s “GATT 24” untruth which has now unravelled, and forced Johnson into a rare ‘clarification’.. After all, when even Liam Fox says you’re wrong, you know you’re on a sticky wicket.

Thus Spoke the Bond Market

Will market volatility amidst global trade tensions and uncertainty cause a global recession? Although the world’s major central banks had managed to avoid risks in the first week of June, despite some small variations at some maturities, the United States yield curve remained more or less as it was at the beginning. What will happen in the not-so-distant future?

International coordination saved the finance sector, but not the world

2018 was the 150th anniversary of the TUC, and the 70th anniversary of the Trade Union Advisory Committee to the OECD. As part of the celebration of these achievements, the TUC’s Economics and Social Affairs department organised an event “Lessons from the Great Financial Crisis” - on 12th November, 2018 – the day after Armistice day, and 100 years after the ending of the First World War.  Several speakers, including ex-Prime Minister Gordon Brown, were invited to address the gathering of trades unionists, thought leaders and economists. Below is a transcription of Ann Pettifor’s contribution.

The metaphors of economics and austerity

Conservative economists commonly use three metaphors of potential doom – meteorological, seismological and medical – when arguing for austerity. In addition. there is the economy as “runaway train” that has to be slowed and brought back “on to the right track”. And we must not forget the most enduring metaphor – the national economy is a household that needs prudent management, if disaster is not to strike the whole family.

How to transform the EU – and build solidarity between its members

If we are to restore stability within Europe, and if we are to defeat the authoritarian ambitions of extreme political forces, then restoring policy autonomy to democratic governments by managing capital mobility is essential. Economic forces cannot be detached from their entanglement with democratic, political institutions. A new European Clearing Union would help to restore a common purpose to the European project, and to defeat the rising ride of authoritarianism.

Economic Guidelines for a better European Union

Whether the UK finally leaves or remains a Member of the EU, progressives are generally united in viewing the existing Treaty and legislative rules on economic oplicy as dangerously dysfunctional. In their second joint paper, emeritus Professor John Weeks and PRIME co-director Jeremy Smith set out proposals for “Economic Guidelines for a Better Union - facilitating policies that enhance not constrain EU economic policy”.

TV discussion “Eurozone Future: Is the eurozone really on the brink?”

On Wednesday (6th March) PRIME’s co-director Jeremy Smith was invited by TRT World TV channel to take part in their Roundtable discussion on the future of the euro and eurozone, hosted by David Foster.  His co-panellists were Valentina Romei, FT, Vicky Pryce, Chief Economics Adviser to the CEBR and via skype from France, Philippe Waechter, Ostrum Asset Management. 

UK economy 2010-2018 - the devastating impact of the age of austerity

While updating our data for GDP per head of population from OECD and ONS, and doing some quick calculations, I realised a startling fact. The present age of austerity, starting with the 2010 Coalition government, and on to the Cameron / May Conservative governments, has to date been the worst since records began for average annual change in GDP per head. And if we exclude years of recession, it has been by far the worst.

Are We Heading towards a Synchronised Global Slowdown?

The global economy is heading towards a downturn. However, is the world prepared to deal with the consequences? Whether it is a slowdown or recession, it remains to be seen as to what the future would hold for the banking systems of Eurozone and China, and the global stocks in general.

Why the left must now unite against Brexit

Although Theresa May has survived to fight another day as Prime Minister, the of her Brexit deal in parliament has blown the debate wide open. The Prime Minister has called on MPs to "put self-interest aside" and "work constructively together" to find a way forward. In this context, the Labour Party’s next steps are critical.

The debate about Lexit is now irrelevant. The only form of Brexit that is possible is one that will entrench the status quo or empower something far worse. The left must unite against it.

The economic consequences of Brexit?

It is my view that there can be no ‘soft’ Brexit, given divisions within the governing party; given the rules of the Single Market; given the threat to the future of the Union if exceptions are negotiated for Britain; and given the political and logistic complexity of the Northern Ireland border. We are therefore headed either to Remain, or for a ‘hard’ Brexit. If it is to be the latter, we will automatically leave the EU on 29 March, 2019. 

To Secure a Future, Britain Needs a Green New Deal

This is an extract from a chapter in Economics For the Many (Verso, 2018) edited by Rt. Hon. John McDonnell MP. The chapter was written in August, 2017. 

If we are to secure a sustainable, stable and liveable future for the people of Britain, then implementation of the Green New Deal will be vital. Not just for the sake of the ecosystem, but also for the sake of rebuilding a stable, sustainable economy. A sustainable economy will be one dominated by a “Carbon Army’ of skilled, well-paid workers.

Brexit Agreement: a bad deal, a worse Protocol - time to consult the people!

The main body of the draft Withdrawal Agreement is certainly long and detailed – a tribute to the efficiency of the EU’s legal services – but it mainly contains the sort of provisions one would expect for the terms of the separation, and for issues that straddle the departure timeline. 

But as for the so-called Ireland/Northern Ireland Protocol, that’s another matter altogether. It’s not a backstop for Northern Ireland, but an up-front set of binding rules for the UK as a whole.

The EU’s dysfunctional fiscal rules empower the far right, both in Italy and elsewhere

In this post, PRIME’s co-director Jeremy Smith and Progressive Economy Forum Council member John Weeks analyse the current “bar room budget-brawl” between the Italian government and the European Commission, and argue that the Commission’s wrong-footed response threatens to strengthen the far right. To avoid opening the door to fascism, the EU must ditch its bias towards austerity.

Budget Special: To tackle austerity, Britain needs (at least) a £50 billion increase in public spending

It’s budget time. Austerity has severely damaged Britain’s physical and social infrastructure. Coupled with a fall in real wages, austerity has shrunk Britain’s social wage. No wonder British voters are angry and disillusioned. So let’s examine the case for a £50 billion spend. For the NHS, local government, central government services, and unfreezing benefits…

It can be done within the levels of expenditure considered acceptable during the Thatcher era. All it takes is political will – and the overturning of the ‘Treasury View’.

A private debt story: Republic of Turkey (un-)hires McKinsey

Turkey and Argentina are non-identical twins; both countries suffered from almost simultaneous financial crises both in 2001 and 2018. Both are currently suffering from currency crises with potential spill-over to the rest of the emerging markets, and there are those who argue that these twins may have triggered a crisis in the emerging markets in 2018.

But this time Turkey, resisting too many internal and external calls for asking for help from the IMF, hired McKinsey & Company instead.

The slowing economy of the Single Market and NAFTA era

Ten years on from the full explosion of the Great Financial Crisis in autumn 2008, and Brexit lurking just round the corner…  A lot of the Brexit arguments revolve around the perceived pros and cons of the EU’s Single Market; meanwhile, President Trump has been using force majeure to overturn aspects of the 1994 NAFTA deal.

Given this conjuncture, I thought it would be instructive to take stock and assess, over a longer time-frame, how the UK and other developed economies have performed from an overall macroeconomic perspective. And in particular, whether any impact of the Single Market and NAFTA can be detected.

‘Deficit Financing’ or ‘Deficit-Reduction Financing?’.

For John Maynard Keynes, the main purpose of increasing loan-financed government spending at times of economic weakness is to increase the nation’s income. Keynes argued that any such government spending was not deficit spending, because he understood the spending as the most sensible means to cut the deficit. Deficit-reduction spending might be a more appropriate definition. 

“You will never balance the budget through measures which reduce national income”