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There are two coincident problems facing the UK economy. The first is well-known and part of the standard economic narrative and the second is almost not really paid much attention to at all. In the first case I am talking about the productivity puzzle and in the second the long sequence of primary deficits (before interest payments on public debt) on public expenditure, that have been a feature of economic life in the UK, remarkably enough, since 2002-3.
As we approach the budget, there has been a lot of discussion about what the right path for fiscal policy is. One question is whether the Chancellor will throw off the shackles of trying to achieve budget balance over the coming years. I addressed this focus on budget balance in an article I wrote for the August NIESR Review, “Sound Finances”: Strategy or soundbite? , and it is worth exploring some of the pertinent issues that come out of that.
Given the upcoming autumn budget, I have a proposal for the Chancellor to consider. Replace taxes on dividends, capital gains and inheritance with a tax on wealth. Currently these three taxes combined raise £41b in revenue. A 1.2% wealth tax on those with net wealth greater than £700,000 would raise approximately this amount with £2b to spare to help pay down the deficit. A 2% wealth tax would raise £72b and give the Chancellor breathing room to lower taxes on wage income or to provide much needed additional resources for our nurses, firefighters and police men and women.
The French 5-year budget plan currently under review in the French Parliament deserves careful attention because it is the first one under President Macron and a unique opportunity to address some of the structural weaknesses of the Eurozone’s second largest economy: a high level of taxes and public spending, a competitiveness problem and high unemployment.
Writing in 1999 in a widely cited paper “The Science of Monetary Policy”, three leading economists, Richard Clarida, Jordi Galí and Mark Gertler, CGG, make the case that monetary policy is a science. Although there is some truth to that claim, CGG could equally well have titled their paper; “Macroeconomics: Religion or Science?”.
This week the Institute published its November Review and much of the focus was rightly on our projections of an increasing divergence in growth between the UK and other advanced economies. But what we also did was to look under the bonnet of these aggregate effects and try to understand what globalisation has meant for the different sectors, regions and households that add up to the averages. In this blog I shall illustrate by examining, the composition of post-tax income growth, why so many sections of the household income distribution are dis-satisfied with economic progress since the financial crisis.
As the United Kingdom is preparing to leave the European Union, Government policy is to seek a deep and comprehensive free trade agreement with the EU. But Brexit talks have not moved onto the trade issues yet and even if the future trade relationship is taken up in December, this gives little time and offers no guarantee that an agreement will be reached and ratified before 29 March 2019, the Brexit date. The Government has recently recognised the possibility that talks might break down and started to outline a ‘no deal’ vision of the UK-EU trade.
I recently came across this video link to a session held at the 2017 ASSA meetings on the ‘Curse of the Top Five’. The session was organised by Jim Heckman and involves a panel discussion with participation by Heckman, George Akerlof, Angus Deaton, Drew Fudenberg and Lars Hansen. I’m going to concentrate here on the presentations by Heckman and Akerlof.
The events in the financial markets of 2007 and 2008 represented a huge economic and financial shock and the correct response was to run public deficits and to loosen monetary policy rapidly and for an extended period to facilitate as orderly an adjustment to these shocks as possible. These initial responses were intended to be temporary, as indeed are all monetary interventions. But ten years after these events, we are still running fiscal deficits and monetary policy seems ultra-accommodative.
On Thursday, 26 October, market participants expect the European Central Bank to set out its plans for the future of its asset purchase programme. After its last Governing Council meeting, President Draghi said that the ‘bulk of decisions’ concerning quantitative easing is likely to be taken in October. What many observers wonder is: will lifting unconventional monetary policy measures lead to a renewed divergence of euro area government bond yields?
Cloud Yip is running a series of interviews under the title of “Where is the General Theory of the 21st Century” and I was privileged to be included in that series. Last week I put up my first post about the interview. This week’s post is the second in a series where I expand on my answers to Cloud. Here, I discuss my views on rational expectations and I talk about a new version of search theory, Keynesian Search Theory, that underpins my joint papers with Giovanni Nicolò on “Keynesian Economics without the Phillips Curve” and with Konstantin Platonov, “Animal Spirits in a Monetary Model”.
A couple of months ago, I had the pleasure of speaking with Cloud Yip. Cloud is running a series of interviews under the title of “Where is the General Theory of the 21st Century” and I was privileged to be included in that series.
Recently, the FT showed that contrary to popular belief the most troubling issue for SMEs in Europe is not access to finance but access to skills – with the level of concern and the gap between the issues getting larger.
Today’s announcement of a Nobel Prize for Richard Thaler is richly deserved and I congratulate the Nobel committee for recognising the importance of the growing influence of behavioural economics that Richard helped to create.
Policy makers at central banks have been puzzled by the fact that inflation is weak even though the unemployment rate is low and the economy is operating at or close to capacity.
In a post-Brexit world, there are fears that the UK labour market will experience a shortage of both high and low skilled workers. Recently, the focus has been on the future of lower skilled EU citizens who are instrumental in the UK agricultural and seasonal sectors. In certain industries, up to 40% of employers originate from the EU, and there is concern that if these EU citizens return to Europe the domestic labour force will not be able to make up these losses. But there have also been reports of possible shortages of highly-skilled workers.
Like most academics, I spend much of my time asking for money from research councils. So, it is a welcome change for me to sit on the other side of the table in my role on the management team of Rebuilding Macroeconomics. This is an initiative located at the National Institute of Economic and Social Research in the UK and funded by the Economic and Social Research Council.
This is my final post featuring research presented at the conference on Applications of Behavioural Economics and Multiple Equilibrium Models to Macroeconomics Policy Conference held at the Bank of England on July 3rd and 4th 2017.
This is my penultimate post featuring research presented at the conference on Applications of Behavioural Economics and Multiple Equilibrium Models to Macroeconomics Policy Conference held at the Bank of England on July 3rd and 4th 2017.
A leaked Home Office document setting out a number of post-Brexit immigration proposals has set alarm bells ringing, not least among UK employers. Just when they thought sense was prevailing, that there would be no ‘cliff edge’ they now hear of plans to end free movement immediately after Brexit. And while once they perceived a welcome recognition of the importance of low skilled workers, as well as the highly skilled, in key sectors, they hear of proposals to drive down the number of these workers and allow them only temporary residency.