Suchergebnisse

I outline the missing link in macroeconomic analysis of fiscal policy. While the Office for Budget Responsibility's (OBR) remit does allow it to judge whether the effects of fiscal (or other economic policies) on potential output are material, such judgements will matter little for the horizon over which it is being asked to assess whether the government will meet its fiscal rules. Even if there is a material permanent increase in public investment, for example, as in the 2020 March Budget with a commitment to step from 2% of GDP to 3% of GDP, it takes a quite some time before it cumulates to a sufficient impact on the stock of public capital and on potential output to make a significant difference to the fiscal denominator. But it surely will.

Democracy is unstable as a political system as long as it remains a political system and nothing more, instead of being, as it should be, not only a form of government but a type of society, and a manner of life which is in harmony with that type. To make it a type of society requires an advance along two lines. It involves, in the first place, the resolute elimination of all forms of special privilege which favour some groups and depress others, whether their source be differences of environment, of education, or of pecuniary income. It involves, in the second place, the conversion of economic power, now often an irresponsible tyrant, into a servant of society, working within clearly defined limits and accountable for its actions to a public authority.R. H. Tawney, Equality, 1931.

We are entering the end game for this Parliament and so it is now time to focus on the policy horizon. In the run-up to the next election, the government's pieces will be moved by our fourth Prime Minister since the announcement of the advisory referendum on EU membership in February 2016. The rapidity in turnover of political leadership tells us starkly that there are deep problems with our economic and social performance, relative to expectations and to that of our main trading partners. The overriding narrative is of a kingdom of nations that have taken a huge step backwards in international standing and in the fulfilment of domestic objectives. At this historic moment with the accession of Charles III, we are not this time faced with post-war reconstruction, industrial decline, the need to deregulate or the need to hitch our colours to the rise of the City. It is more a problem of how to bring the country and devolved nations together and aim for economic and social progress for all. That implies both broadening our regional focus and narrowing our gambit to what institutions and policies the UK needs as a small open economy in order to deal with a global economic situation we must take as given and no longer made in our image. No new IMF or World Bank would, for example, offer the UK a seat at the top table, which was certainly the natural order in the first half of the twentieth century.

Not so very long ago, I argued that it was possible to characterise modern monetary and fiscal policy in the UK as a function of three key events: exit from the European Exchange Rate Mechanism in September 1992, the election of 'New Labour' in May 1997 and the global financial crisis of 2007–2009. The first led to the adoption of a domestic inflation target in October 1992, the second to the operational independence of the Bank of England and the establishment of the Monetary Policy Committee and the third to the acceptance of the need for macro-prudential policies, extraordinary monetary interventions to augment a simple interest rate rule and formal budgetary oversight by a fiscal council. The latter was provided by the Office for Budget Responsibility, which was established in 2010.

The Institute has long examined overseas developments in order to understand better domestic macroeconomic dynamics. The organising principle for much of the postwar period was simply the impact on net trade with an implicit view on whether the exchange rate was at an appropriate level and, as such, the external sector was viewed as a constraint on domestic activity. Increasingly integrated factor markets in the modern era of globalisation means that the overseas sector plays a fundamental role in the evolution of both aggregate demand and supply in the UK economy and it is increasingly hard to disentangle the overseas from the domestic sectors. It is not so much that we should reverse this integration but more how to design policy to limit any undesirable consequences on regional and income distribution, as well as aggregate fluctuations in activity.

We consider the role of money as a means of payment, store of value and medium of exchange. I outline a number of quantitative and qualitative experiences of monetary management. Successful regimes have sprung up in a variety of surprising places, and been sustained with state (centralised) interventions. Although the link between state and money, and its standard of identity and account may be clear, particularly in earlier stages of economic development, the extent to which the state is widely felt to hold responsibility for 'sound money' is less clear in modern democracies, where there are many other public responsibilities implying ongoing trade‐offs.

The financial crisis has led to a change in the mix of capital and labour employed in the UK and a sharp decline in total factor productivity. This has meant that labour productivity has not recovered to any great degree since the financial crisis. We explore the role of overall and sectoral productivity in explaining the fall in labour productivity, but also question the extent to which productivity in the service sector may be measured with error. We outline the links between a constrained financial sector and a fall in overall productivity – in which intangible capital seems to play an important role – and illustrate how a financial sector providing intermediate services may act to amplify the business cycle impetus from a total factor productivity shock within the context of a calibrated model.