Despite a brief revival, the world economy is slowing again. A more sustained recovery will require international cooperation to reduce external imbalances in a way that reduces unemployment and maintains low inflation.
This post explores the role of the role of internal and external balance (or lack thereof) in helping us find a return to a more sustainable prosperity. These ideas form much of the theoretical content of The Leaderless Economy by Peter Temin and David Vines, which was published in 2013.
So do we need another policy scheme for restoring global prosperity? I would argue that we do. Global growth picked up in 2017 but, apart perhaps from the US, has begun to falter recently, not least in the UK, but also in continental Europe. Many economies have accumulated high levels of private and public debt, and have made little progress in reducing them. Continue reading →
More thought-provoking words from Michael Pettis on global economics and politics, particularly the relationship between the US and China, the pressures on international trading relationships and the two countries’ roles in future decades.
He describes the options open to the dominant global powers in restoring a more sustained pattern of growth and prosperity: one country can lead, or we can all get together and cooperate over economic policy.
He suggests that we are living through a period during which neither are likely. Furthermore, the experience of the 1920s and 30s demonstrate that this power vacuum could be bad for us all.
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 →
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.
Tracing a connection between rising inequality and the Great Recession of 2008 is appealing to leftist economists. It suggests that what they see as two of the potential downsides of capitalism and in particular the neoliberal economic order can perhaps be mitigated via appropriate policies. Thus, a more egalitarian capitalism can become less prone to crisis or recession.
Of course, what is appealing as social and economic outcomes is not a good enough reason to investigate linkages between them, though I suspect that I am far from the only one who is drawn to particular ideas as a matter of bias.
Perhaps there is nothing wrong with that as a starting point, followed by economic analysis of the chosen object of study.
These three countries had the largest current account imbalances in absolute terms in the run-up to the recession. The US ran a deficit, and Germany and China were running surpluses. Since these imbalances have been pinpointed by some economists as a cause of the recession itself, analysing them is important. Continue reading →
Last year the UK government published its industrial strategy, which, broadly speaking, aims to improve the country’s economic performance, from productivity and wage growth to job creation and regional imbalances.
This strategy, which seems to consciously avoid the more traditional term, ‘industrial policy’, is welcome. But does it go far enough, and what of importance is missing from the strategy?
There are some significant blind spots in the new strategy. One of the most glaring is the neglect of macroeconomics and the level of the exchange rate. Another is, remarkably, the neglect of the manufacturing sector itself, and a necessary focus on reindustrialisation. Continue reading →
Almog Adir and Simon Whitaker In the last few years there has been a small net overall flow of capital from advanced to emerging market economies (EMEs), in contrast to the ‘paradox’ prevailing for much of this century of capital flowing the ‘wrong’ way, uphill from poor to rich countries. In this post we show […]