The BBC reported on Tuesday that government borrowing for the 2017-18 financial year fell to its lowest level in eleven years, at £42.6bn. This was lower than forecast and represents 2.1% of GDP. However much of this reduction is accounted for by reduced spending rather than increased tax revenue. This is because economic growth remains sluggish, at 0.1% in the first quarter of 2018 according to the latest figures, and is failing to generate buoyant tax receipts.
So austerity continues, while growth is faltering. The Chancellor, Philip Hammond, claimed today that “our economy is strong and we have made significant progress.” This is surely breathtaking arrogance. The deficit may be down, but the economy is struggling.
According to economist and entrepreneur John Mills, the UK economy could be doing much better and significant imbalances remain, which are constraining growth and improvements in productivity and wages. Continue reading →
I refer to the work of Michael Pettis quite often on this blog. He strikes me as a highly original thinker, combining macroeconomics, finance, development, political economy and economic history in a way which provides a deep understanding of world economic events.
He recently posted here about what he sees as the two main models of economic development which nations have used to transform their economies at certain times in history: the high wages model, and the high savings model.
Models of development can be described as a set of policies and institutions which aim to develop the economy and achieve sustained rises in productivity and output via industrialisation and the advancement of technology.
For Pettis, both models aim to raise wages and productivity, but they are distinct from one another in how they drive the investment which makes this possible. Continue reading →
A very brief interview on YouTube with Professor Mariana Mazzucato, who specialises in the economics of innovation. Admittedly she is plugging her new book The Value of Everything: Making and Taking in the Global Economy, but she makes a good case that we should have more of an appreciation for the role of the state, in partnership with the private sector, in driving innovation under capitalism. She argues that we must use that partnership to promote greater and more widely-shared prosperity.
Historically the state has often been a major player in funding, researching and developing new technologies, not least those behind the smartphone, as she describes in The Entrepreneurial State. I hope to read her new book during the next few weeks. In the meantime, a critical review by Marxist Michael Roberts can be found here.
Godley is recognised as having predicted a severe recession in the US some years before it began in 2008, due to the unsustainable build-up in private sector debt, particularly among households.
Minsky is also well known for his ‘financial instability hypothesis’ and its implication that ‘stability is destabilising’ in the financial sector of capitalist economies: periods of stable economic growth can create fragile balance sheets in the private sector, which often lead to stagnation or crisis. Continue reading →
Michael Pettis is a Professor of Finance at Peking University’s Guanghua School of Management, and an economist whose work I have found to be original, interesting and inspiring. His book The Great Rebalancing explores the role of current account imbalances in the Great Recession and its aftermath of slow growth. I explore some of his ideas in more detail here.
Particularly relevant to today’s events is his prediction that, just as in the 1930s, in a world of limited demand, tensions over international trade are inevitable.
In the short video below, he explores some of the issues facing China’s economy over the next decade, its misallocated investment and unsustainable rise in debt, relations with the US including trade tensions, GDP and its measurement, and liberalization under different economic and financial circumstances.
I have posted before here and here on the neglected American School of Political Economy, which has been well-documented in the work of Michael Hudson. Below are brief bios of two of its members, taken from Hudson’s highly informative and thoroughly heterodox J is for Junk Economics (p.210 and p.176).
Their policy proposals were designed to encourage a dynamic and sustainable economic development path with benefits accruing to the broad population, and emphasized abundance rather than scarcity. The success of such policies in driving industrial and agricultural expansion in the US does not mean that they are necessarily applicable to today’s advanced economies.
The ASPE illustrated the importance of economic and social context, which would change depending on whether an economy is catching up with or occupying the technological frontier.
To take one example which remains highly relevant: in today’s America, and elsewhere among the richest countries, infrastructure spending has been squeezed thanks to the austerity drive, rather than used as a means to enhance prosperity following the economic crisis. This has surely been a serious mistake. Continue reading →
The French economist Thomas Piketty is well-known for his best-selling work on inequality, Capital in the 21st Century (hereafter Capital), which has sold over two million copies worldwide. It also ranks highly for the book which people buy and don’t get very far with. Nevertheless, its theme struck a chord with the zeitgeist.
I have posted on some critiques of Piketty’s work here and here, before actually getting round to reading his magnum opus. I have now read it, so perhaps I can rest easy!
Capital is a tremendous achievement and its popularity has reset the agenda on inequality in economics. In some ways it is a return to the considerations of the classical political economists and Marx, in that it examines major categories in economics such as growth and distribution, and tries to find theoretical and empirical links between them, and draw implications for policy. Continue reading →