I took a couple of weeks off my endless Quantitative Easing Journey to have a quick look at the UK’s growth record, the record of some of our close national competitors, and the future prospects for the economy.
If you want to go straight to the pdf, here it is (about 400kb): http://www.centreforum.org/assets/pubs/slash-and-grow.pdf
Here is an exerpt from the conclusion:
It may seem odd to urge a future government to care about economic growth. But the
Conservative’s extreme aversion to public debt risks producing policies that prioritize
deficit reduction over all other objectives. Public debts have risen largely to allow
private indebtedness to fall without producing catastrophic consequences for the
economy. The prior rise in private indebtedness passed unnoticed by the same
Conservative opposition that is now almost hysterically worried about a similar rise in
public debt. This makes no sense; if the past few years tell us anything, it is that
Britain’s macro-economy can be at far greater risk to private debts than public. . . .
If the next government is to take economic growth as seriously as the deficit, it should
consider taking an economic path that allows for slightly more consumption. Japan’s
experience during its long struggle against deflation is highly pertinent; twice (in 1997
and 2001) it introduced fiscal reforms to tackle the deficit, and twice achieved the
precise opposite.27 Despite being an export-champion, its last fifteen years have been
dire. If the next British government proceeds upon the basis of deficit reduction before
growth, it risks achieving neither.
There are tons of graphs: this one shows where our growth has come from (excluding government) since 1971:
and a helpful spreadsheet that I am constantly updating to show the various scenarios in action, the consequences for the savings ratio, public debt, and so on: it is very crude but will get sharpened over time.
The more I read about Japan, in particular the cannot-be-rated-high-enough Richard Koo’s Holy Grail of Macroeconomics, the more convinced I am that delaying the fiscal murder till we are sustainably growing is the right answer. Read that book (Hat-tip to Aditya Chakraborrty of the Guardian for whose recommendation I am in debt).
More later: I may try to get an opEd done now