My Lords, I, too, thank the noble Baroness, Lady McIntosh, for making this debate possible. The most dramatic economic effect of the United Kingdom’s Brexit vote has been the collapse of sterling. Since June, the pound has fallen by about 16% against a basket of currencies. Mervyn King, the former Governor of the Bank of England, has hailed the lower exchange rate as “a welcome change”. Indeed, with Britain’s current account deficit in the order of 7% of GDP—by far the largest since records started—depreciation could be regarded as a boon. But is it? That is the subject of our debate today.
There are two things to consider. The first and most urgent is the effect of sterling depreciation on our payments to, andContinue reading...
Keynes and Brexit
| Wednesday, November 16, 2016
John Maynard Keynes would have been conflicted by the referendum. Culture pulled him towards Europe; politics and especially the continent’s current austerity economics would have pushed him increasingly away.
Churchill talked about the “three majestic circles” of the Commonwealth, the United States and Europe. But over Keynes’s lifetime, the reality was that Britain was firmly locked into only two of them: the special relationship with the US, and its own imperial preference system. Keynes resented Britain’s dependence on America and he never saw imperial preference other than as a bargaining chip, but he did not see Europe as replacing either of them.
Like Churchill, Keynes supported the idea of some sort of European Union to avertContinue reading...
Helicopter Money Is in the Air
| Thursday, September 22, 2016
LONDON – Fiscal policy is edging back into fashion, after years, if not decades, in purdah. The reason is simple: the incomplete recovery from the global crash of 2008.
Europe is the worst off in this regard: its GDP has hardly grown in the last four years, and GDP per capita is still less than it was in 2007. Moreover, growth forecasts are gloomy. In July, the European Central Bank published a report suggesting that the negative output gap in the eurozone was 6%, four percentage points higher than previously thought. “A possible implication of this finding,” the ECB concluded, “is that policies aimed at stimulating aggregate demand (including fiscal and monetary policies) should play an even more important role in the economic policy
The Scarecrow of National Debt
| Monday, August 22, 2016
Most people are more worried by government debt than about taxation. “But it’s trillions” a friend of mine recently expostulated about the United Kingdom’s national debt. He exaggerated a bit: it is £1.7 trillion. But one website features a clock showing the debt growing at a rate of £5,170 per second. Although the tax take is far less, the UK government still collected a hefty £533.7 billion in taxes in the last fiscal year. The tax base grows by the second, too, but no clock shows it.
Many people think that, however depressing heavy taxes are, it is more honest for governments to raise them to pay for their spending than it is to incur debt. Borrowing strikes them as a way of taxing by stealth. “How are they going to pay it back?”Continue reading...
Theresa May, the UK prime minister, has all but repudiated the economic policies of the previous chancellor of the exchequer, George Osborne. She has promised an “industrial strategy to get the whole economy moving”. What form should a renovated economic strategy take?
The immediate problem to overcome is the uncertainty engendered by the Brexit vote. What weapons exist to fight it? Mr Osborne’s target of eliminating the budget deficit by 2019-20 has already been abandoned, but adding to the national debt by issuing government bonds for an infrastructure programme is likely to unsettle the financial markets. The Bank of England’s base rate is already close to zero, and judging by Thursday’s announcement we should not expect a