LONDON – The European Union has never been very popular in Britain. It joined late, and its voters will be asked on June 23 whether they want to leave early. The referendum’s outcome will not be legally binding on the government; but it is inconceivable that Britain will stay if the public’s verdict is to quit.
Over the years, the focus of the British debate about Europe has shifted. In the 1960s and 1970s, the question was whether Britain could afford not to join what was then the European Economic Community. The fear was that the United Kingdom would be shut out of the world’s fastest-growing market, and that its partnership with the United States would be at risk as well: The Western alliance would consist of two pillars,
The Economist’s Concubine
| Thursday, March 17, 2016
LONDON – In recent decades, economics has been colonizing the study of human activities hitherto considered exempt from formal calculus. What critics call “economics imperialism” has given rise to an economics of love, of art, of music, of language, of literature, and of much else. Continue reading...
The unifying idea underlying this extension of economics is that whatever people do, whether it is making love or making widgets, they aim to achieve the best results at the least cost. These benefits and costs can be reduced to money. So people are always looking for the best financial return on their transactions.
This is contrary to the popular separation of activities in which it is right (and rational) to count the cost, and those in which
Keynes’s General Theory at 80
| Tuesday, February 23, 2016
LONDON – In 1935, John Maynard Keynes wrote to George Bernard Shaw: “I believe myself to be writing a book on economic theory which will largely revolutionize – not, I suppose, at once but in the course of the next ten years – the way the world thinks about its economic problems.” And, indeed, Keynes’s magnum opus, The General Theory of Employment, Interest and Money, published in February 1936, transformed economics and economic policymaking. Eighty years later, does Keynes’s theory still hold up?
Two elements of Keynes’s legacy seem secure. First, Keynes invented macroeconomics – the theory of output as a whole. He called his theory “general” to distinguish it from the pre-Keynesian theory, which assumed a unique level of output –Continue reading...
How Much Debt is Too Much?
| Thursday, January 28, 2016
LONDON – Is there a “safe” debt/income ratio for households or debt/GDP ratio for governments? In both cases, the answer is yes. And in both cases, it is impossible to say exactly what that ratio is. Nonetheless, this has become the most urgent macroeconomic question of the moment, owing not just to spiraling household and government debt since 2000, but also – and more important – to the excess concern that government debt is now eliciting.
According to a 2015 report by the McKinsey Global Institute, household debt in many advanced countries doubled, to more than 200% of income, between 2000 and 2007. Since then, households in the countries hardest hit in the 2008-2009 economic crisis have deleveraged somewhat, but the household debtContinue reading...
The Optimism Error
| Saturday, January 16, 2016
In Cardiff last Thursday, 7 January, George Osborne warned of a “dangerous cocktail of new threats” to Britain’s prosperity. These include collapsing global stock-market and commodity prices, weak growth in China and Latin America, stagnation in Europe and turbulence in the Middle East. Osborne was right to prepare us for “headwinds”. What he could not admit was that the fragility of the British recovery he now discerns – just two months after his triumphal Autumn Statement – is due, in no small measure, to his own austerity policies.Continue reading...
The unpalatable truth is that austerity in the face of the private-sector collapse of 2008-2009 has weakened our ability to produce output. Britain has been left overfinancialised, overborrowed and