Carney's Conundrum declining productivity

Understanding the mystery of our terrible productivity performance since 2007 in the UK is at the heart of Mark Carney’s concerns (this is a topic of great interest  to Mr Carney).   His analysis of this productivity fall is important to get right as it will determine whether the Bank of England decides to pursue a looser monetary policy or not.  Many economists believe that, after a brief period of decline at the start of a recession, productivity should pick up pretty quickly as a slimmed down labour force is raises production per head.  Before examining why our productivity has declined so much we should look at some numbers.

Less is More More or Less

Three years ago many were expecting the worst from austerity, how could we possible keep the lights on whilst slashing public expenditure - crime would soar, schools would fail and there would be rioting on the streets.  But how different things look now, a new light now shines on the old problems and there is a shake up to the accepted liberal order.

On the PIIGS back - time to dump the Euro

It’s a life time since the Great Depression but the events on the twenties and thirties maintain a strong hold on our economic and political psyche.  During the intervening years the gold standard has figured prominently as the boogieman that deprived countries of the policy options required to combat the deepening slump. Firm evidence for the overly restrictive nature of the standard is provided by the economic rebound enjoyed by most countries choosing to exit the system, Britain being foremost in this regard.  What’s puzzling us today is why countries stayed wedded to the gold standard for so long.  The relative merits of the gold standard depended on the valuation on joining;  France joined as an under-valued currency whereas Britain re-joined in 1925 as an over-valued currency, this meant that when recession struck Britain was at a significant disadvantage to France and other competitive economies.  Without room to manoeuvre (easing monetary policy and lowering interest rates)  Britain ended up in economic and political turmoil, with an unemployment rate of  25% and the collapse of the Labour government who did not return to power until 1945.

Devolution with dilution solving the Lothian question

Right the way across the globe old political structures are being torn down, the Arab spring has turned to Muslim winter, austerity in Europe drives people against their politicians and more generally the catholic South of Europe is in conflict with the Lutheran North.  In the BRIC economies rapid growth has not assuaged the thirst for change.  It must be something in the water that’s affecting us all, or is it just money or the shortage of it?  Interestingly it’s the middle classes and in particular the young middle classes who are after a change and they have forgotten their manners;  the post baby boomer generation thought they had it all in the Credit Boom and now they are feeling the pinch and look likely to be in recovery mode for years to come. In Blighty we have been somewhat protected although we having to acclimatise to coalition government and the rise of independence fever.  We may not be rioting on the streets in protest to austerity but we are close to a more fundamental breakdown.

The politics of Austerity – north south divide

There are two threats to recovery in the Eurozone, one is rising interest rates an inevitable consequence of Europe being two years behind the US in the recovery cycle and the second is politics.  It could prove to be a long hot summer in the PIIGS economies and in the dusty hallways of the European Central bank (ECB).  The good people of Italy, Spain, Ireland, Greece and specifically Portugal are being asked to endure years (potentially a decade) of austerity.  This Lutheran penance is being applied on these warm blooded catholic nations by the iron will and ice cold determination of German and Dutch bankers supported by the EU and the IMF.  The cheer leader for this chilling approach is Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup, the Eurozone’s finance ministers.  His determination that these indebted economies on the fringe of the Eurozone should bail themselves out at breakneck speed is at the heart of the politics.

Money can't buy me love - but it'll get me new hip

In the last month there has be a sea change in British politics, which threatens to overturn the consensus that has held sway since 1945.  All the major political parties have finally recognised that there needs to be a more sustainable relationship between the size of our economy and the scale of our welfare state. We are all children of Beveridge and his report (published in 1942),  which set the roadmap for defeating the ‘the five greats’ - squalor, ignorance, want, idleness and disease.  It’s clear that much of his mission is now accomplished and its time to redefine these ‘greats’ (mine would be Debt, Greed, Intolerance, Ignorance and Security) but the vision can wait, all the focus is now devoted to the funding model for our state provided services.