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.
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.
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.
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.
Over the past decade in advanced western economies, the rate of improvement in prosperity has ground to the lowest point of the post-war period.
It is argued in this article that productivity has been the result of aggregate demand rather than supply conditions. And that the strength of demand follows global monetary conditions that are the result of deliberate policy interventions.
PRIME (Policy Research in Macroeconomics) economists were asked by the FT “How fast do you think the UK economy will grow in 2018 and how will this compare to other countries?” (See here).
For the last several years the media have carried reports of a crisis of low productivity plaguing the British economy, both in terms of level and rate of change. Almost two years ago, PRIME's Jeremy Smith provided what I considered the definitive refutation of the existence of such a crisis. But, far from ending, the “crisis” discussion has gathered pace to become a recurrent media theme.
We know that the UK economy has remained in a rut, plagued by foolish austerity and declining real wages, since the great financial crisis.
So I thought it might be interesting to look, in a simple way, at the performance of a set of mainly developed economies, in Europe and a few from other parts of the world, and compare their progress – or lack of it - over the 10 year period 2007 to 2016. And then see where the UK sits in comparison with others.
Today's Observer newspaper (4th June), publishes a letter signed by 130 economists, under the heading "Labour’s manifesto proposals could be just what the economy needs". We felt it important to reproduce the contents of the letter here, together with the full list of signatories).
The Observer letter contends that Labour's Manifesto proposals are much more likely to strengthen and develop the economy, as against the Conservatives commitment to maintaining austerity.
The letter, together with the full list of signatories, is available online from the Guardian website.
Today the Institute for Fiscal Studies produced a review of political manifestos prepared for General Election 2017. Predictably, the respected, and largely independent IFS researchers review the tax and spending proposals of the different parties with little regard for the wider economy.
This skews their perspective, and their approach to analysing the economy. It is as if IFS staff consistently peer at the British economy through the wrong end of a telescope.
In the wake of the formal invoking of Article 50 by Prime Minister, no one knows with certainty the impact on the UK economy of leaving the European Union. Claims of imminent damage and possible disaster should be treated at best as informed speculation and at worst as more of the dysfunctional fear campaign that proved such ineffective argument for “remain”.
In this anxiety-inducing context calls for calm are both rare and largely ignored
Since 2010 the European Commission, the IMF and the Greek and European political establishment have imposed a full blown internal devaluation programme that in Greece has caused a depression unlike any seen in Europe since WWII. The main drivers of the programmes have been an exaggerated and cruel implementation of the neoliberal policy agenda, including cuts in wages and pensions, increases in taxation, the fire sale of public assets at fire prices and severe cuts in funding for an already underfunded health system.
For three decades the European Union has moved away from Christian and social democracy towards neoliberalism, constraining policy at national and EU level to conform to the ideologies of “free” trade, fiscal austerity and a deregulated labour market.
The British government urged its electorate to support not European unity or even cooperation, but a version of the European Union in which capital dominates labour. If politicians on the continent continue to pursue that vision, Brexit will be the harbinger of things to come across Europe.
Virtually the last thing that George Osborne did before being summarily dismissed in July by the new Prime Minister, was to scrap his target for fiscal balance by 2019-20. This target, and earlier versions of it, had formed the backbone of his and the government’s economic policy since being first elected in 2010.
There is, however, no sign that the OBR will change their flawed methodology to something less arbitrary and more realistic.
A range of economic forecasters provided estimates of the impact of Brexit during the referendum campaign, and some have produced forecasts since the vote. Most pre-referendum projections were dismissed as propaganda, unfairly so in many cases although the two Treasury documents were in our view overly pessimistic. Post referendum forecasts should be described as scenarios since Brexit is a unique event and there is little solid evidence on which to base a forecast.
We have used our own CBR econometric model to attempt to shed some light on what might happen.
Six years into fiscal consolidation policies around the world, economists are wholly preoccupied with supply rather than demand. Productivity figures are regarded as indicating structural flaws, of far greater interest than the successes or otherwise of governments' fiscal strategies. Geoff Tily argues that it is a fallacy to interpret failures of productivity outcomes as indicating a failure of supply.
The most recent quarterly statistics for the UK economy show an increase in quarter-on-quarter GDP growth for the second quarter of 2016 compared to the first (up to 0.6% from 0.4%, or 2.2 and 2.0% on an annual basis). None-the-less many predict an imminent recession, to strike Britain before the end of the calendar year and perhaps in the current quarter.
But some of the pessimism comes heavily laden with political agendas, which should induce scepticism or at least doubt about imminent recession. So what is the likelihood of a recession in the near future?
Today we had the first estimates for 2nd Quarter GDP for both the Eurozone and the United States. Both sets of data give cause for concern that the world economy – and in particular the so-called “advanced economies” are stuck somewhere in the doldrums between sluggishness and stagnation.
Both showed quarter-on-quarter rises of just 0.3% (annualised 1.2%). Most worrying, we can see that the US economy has been decelerating (taking the annual rate of change) quarter by quarter for over a year.
When looking at how economies are doing, we tend to look mainly at the trend in GDP. But in terms of economic well-being, a clearer (though still imperfect) indicator is GDP per head of population – how the economy is doing relative to changes in population.
In general, since the end of World War 2, in most all so-called advanced economies, there was an almost inexorable upward slope in any chart on GDP per head of population. But over the last decade, in particular since 2007-08, many countries have reached a virtual plateau. In a few cases, there is still a tiny, upward glide. In others, the line is flat.
And in several cases, the slope is downward.