The NIESR blog is a forum for Institute research staff to provide an informed, independent view on current economic issues and recent NIESR research. The views expressed here are those of the authors, and are not necessarily those of the Institute.
I’m grateful to the editors of the NIESR Economic Review for publishing a series on Inequality, Social Mobility and the New Economy and for putting early intervention, the subject I was asked to contribute an article about, in the context of the ‘new economy’. It belongs there, even if it may appear strange to some readers to put nurturing healthy, happy children in amongst the cold, hard logic of economics.
The British Government triggered Article 50 of the Lisbon Treaty on 29 March. The announcement was widely anticipated and the financial market response was unsurprisingly muted. As we detailed in the latest issue of NIESR’s Economic Review that went out today, the road to final exit is long and other news and events since the referendum have caused more pronounced movements in financial markets.
Technologies affecting the way businesses produce goods and services are disruptive. This abstract word disguises the upheaval in organizations and consequently livelihoods and social relations resulting from digitization. The upheaval is what enables the economy to deliver greater prosperity in the long term, but in the midst of the disruption that prize is hard to discern, and especially for the individuals whose incomes and employment are affected.
When reforming, the UK is more like a sprinter than a marathon runner. Long periods of inaction and arduous behind the scenes preparations, lead to sudden jolts of activity. And so it was twenty years ago when the incoming Labour government decided to make a surprise announcement about the creation of operational independence for the Bank of England on its fifth day of office.
In her launch statement outside 10 Downing Street last June Theresa May spoke of her vision of ‘a country that works for everyone’, one that wasn’t completely consumed by Brexit and capable of ‘delivering a programme of serious social reform’
It is a long-standing narrative in academic and public debate that paid work has become more insecure. Arrangements such as fixed-term contracts, temporary working and employment via agencies have proliferated, arguably undermining more traditional employee-employee relationships and the securities they offer.
What did social networks look like 100 years ago? In an era without Facebook, Twitter and other social media what did social networks look like and how much can this tell us about how networks operate today?
Why does long growth or what economists used to call secular trend matter? It is essentially about compound interest. At a growth rate of 2% per year, income will double every 35 years. Over the 315 years from 1700 to 2015 in the UK we have reasonable or passable data for Britain stating that income has grown at an average rate of 1.69%, which implies a nearly two hundred-fold increase in income (widget production) over this long period.
Article 50 may lead to a decisive fork in the road for the UK. The final Brexit agreement “must take account of the framework for its [the UK’s] future relationship with the EU.” Therefore, the government has two years, realistically eighteen months, to redefine our international relationships. These relationships have a direct correspondence on our economy, creating winners and losers. The government may have to choose between two very different paths.
The UK has often been described as being an economically divided country. Initially this divide was related to the decline of traditional primary (for example, mining) and secondary (manufacturing) industries and the rise of the service sector in London, which increasingly provided legal, financial, accounting and educational services to the rest of the world. Oddly enough both sets of industries, whether in decline or still growing by the late 20th century, had strong roots in the industrial revolution. This simple observation tells us that we cannot know today which sorts of industries will necessarily thrive into the 21st century: Hoxton hipsters making furniture might dominate the pricing of credit default swaps.
First let's ask what explains household debt? Well if the household formulates a rational plan that conditions on its lifetime budget constraint, over its lifetime debt should be zero. With many overlapping households we might expect to observe debt in a young economy when the proportion of young outweighs the old.
Brexit need not have led to a second Scottish referendum. But the UK Government’s policy of ever harder Brexit, without so much as a vote, raises issues of political legitimacy north of the border. The Scottish Government faces daunting economic hurdles to convince its electorate. But if we have learned one thing over the last year, the feeling of exclusion can override economic logic.
The resilience of output following the referendum has been most welcome and has led to many forecasters gradually cranking up their central views for 2017. On Wednesday, the OBR plumped for a central case of 2% this year compared to 1.4% in November. The Institute itself also published an upward revision in February and thought that output would be most likely to grow by some 1.7% this year. But it is the composition of that growth and the risks present a great concern.
For the last several budgets/autumn statements I have agreed to write an immediate response for some media outlet, and have therefore felt obliged to watch either the speech itself, or the media reports on the day. The good news is that no one has asked this year, and so I can ignore all budget coverage until tomorrow.
In the week before the Spring budget, we are all supposed to get excited about the odd change in tax rates or the TV license fee. And worry about the excise duties on various viscous hydrocarbons. In fact, what we ought to be worried about will probably mostly be missed by commentators: that is whether the government is meeting its obligation to reduce risk.
The problem of teacher shortages is rarely out of the news. Only this week the Education Select Committee concluded that the government is failing to take adequate measures to tackle "significant teacher shortages" in England. Gaps in the classroom are being filled by supply teachers, some hired by agencies. Yet, while agency staff usage and spending in the NHS frequently attract headlines in the national media, much less attention is paid to the spiralling costs of agency supply teachers in England’s state schools.
It has been said many times that the NHS is at breaking point. Talk of bed shortages, wasted resources, understaffing and missed targets saturate the media. A Government Adviser has even said recently that hospitals are in a ‘state of war’. High rates of use of agency workers are seen as a symptom of a sick NHS but the reasons for their spiralling use are poorly understood. New research by the National Institute of Economic and Social Research (NIESR) set out to explain why agency workers seem to be keeping the NHS alive. The research diagnoses the root causes of high agency spending, revealing that agency working is only the symptom of a much larger, chronic problem around NHS staffing.
There is a growing sense that globalisation, by equalising the international price for labour and for capital, has acted to reduce both real wages and real interest rates – the former means that labour earns less but the latter tends to inflate asset prices. This wedge in the return to capital and labour may help us understand why income and wealth inequality has increased in the recent past.
Last year, I was invited to present a keynote address to the 20th annual conference of the FMM Research Network on Macroeconomics and Macroeconomic Policies, “Towards Pluralism in Macroeconomics”, held in Berlin on October 20th – 22nd.