Martin Wolf has written this in the FT this morning, and I am sure he's right:
For only the third time since the late 1800s — and the other two were just after the world wars — the UK's private sector productivity has fallen over five years. This is why unemployment has remained low. It is also why the coalition government got away with three years of economic stagnation. With normal performance, unemployment would now be more than 15 per cent. But this experience raises questions. What are the UK's economic prospects? What should policy do?
I take slight satisfaction from noting that but for this wholly unforeseen change my forecasts for unemployment as a result of the Coalition's policies would have been correct. I'm glad they're not.
What I will take issue with is what Martin Wolf prescribes as the solution to this problem. The FT headline says:
Why the Bank of England must gamble on growth
The job of policy makers is to shift the economy on to a better path. This means taking risks
I agree that there must be a gamble with growth but almost all Wolf's discussion that follows is on the duty of the MPC in this regard. And that's the issue. The MPC should not be taking the risk, politicians should be and the MPC should be the instrument of their policy and not a free agent in its own right.
The corporate capture of policy is well represented by the very existence of the MPC - and I am aware of and also critical of Labour's part in its creation, for the record. I expect democratically elected politicians to take risk and be accountable for it. The MPC does not share those characteristics. It is the wrong organisation to take risk. It's an indication of the poverty of our economic leadership that people like Martin Wolf can think it should have this role.
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I haven’t read the article but might it be that Wolf is simply discussing what happens with the situation “as is” – that the MPC has these powers and responsibilities – rather than making judgement as to whether that is where the responsibility for such policy should lie?
But anyway, I agree with you: of course this should be the responsibility of politicians. That it is not is a reflection of their cowardice (i.e. being able to hide behind the MPC if anything goes wrong, but claim at least some credit if things go right by pointing to he fact that they gave them such responsibilities).
One further point. You refer to the MPC as a ‘free agent’, but ever since Brown started this trend of transferring powers and responsibilities to the BofE and its various offshoots, I’ve always found myself wondering about the extent to which it really is a free agent. There’s a long history of government passing responsibility for specific areas of policy to quangos or other bodies and agencies. But in almost every case I’m aware of, when circumstances dictated politicians found it impossible not to intervene, even if that was often done “on the quiet” – to put it politely, and in almost all cases (as we see with Hunt and the NHS on a weekly basis) it was precisely because politicians should never have given up that responsibility in the first place.
Anyway, I find it very difficult to believe that there aren’t a range of mechanisms in place to enable an interchange of views and opinions between government and the BofE, and thus onwards to the MPC. They would, of course, be in addition to the social interactions that take place as the various people involved (from the BofE, Treasury, No11, etc) make their way around Whitehall and beyond.
The possibility that this is all smoke and mirrors – an exercise in apparent but not real abandonment of power – is real
If anything that makes the problem worse
Agreed.
” It is also possible to construct more or less plausible explanations for relative productivity underperformance in the striking flexibility of real wages, exceptional importance of financial output and scale of damage to intermediation”
Are you quoting this for a possible entry into ‘Pseuds Corner?’
I think it would be in the best interests of the UK, in effect us all, if these controlling bodies, BoE, the Treasury, the City and Government ministers all pooled their resources and collectively decided upon the best route forward. We do not need petty competition between them. Perhaps this is already happening but only the 1% elite are being considered.
“wholly unforeseen”
No-one would normally accuse me of being an irrational fan of Harold Wilson, but I have to say that *he* did foresee that his Redundancy Payments Act would reduce the level of unemployment in recessions since it made it cheaper to retain employees than to sack them if the reduction in demand was deemed to be temporary or if some comparable employees were approaching retirement
“For only the third time since the late 1800s — and the other two were just after the world wars — the UK’s private sector productivity has fallen over five years. This is why unemployment has remained low. It is also why the coalition government got away with three years of economic stagnation.”
Not sure I quite understand this. Is it saying, in plain English, that although productivity in the private sector has fallen off, they have kept most or much of the workforce still on?
I think it is also important to keep in mind that most of these jobs are part time, temporary, zero hours and agency jobs. What they have done is kept employment up by simply paying their employees quite significantly less!
It is important to mention those that are forced onto Workfare, who earn nothing, but are considered as employed….a wonderful way of fiddling the figures!
Stevo
I was wondering the same thing. We have amazing advances in technology yet production per person is going down – why?
I’ve heard a few explanations;
1) Companies retained skilled employees in the recession, even when there was no work
2) There are more part-time casual jobs which skew the figures
3) Its all a con. A Labour MP claimed that private sector job agencies were encouraging benefits claimants to leave “job seekers allowance” & claim to be self-employed while, obviously, being on such a low income that they would still require benefits.
TBH, one would need access to the data to guess which of these is closest to the truth.
Steveo, i think the ‘joke’ centres are also encouraging your third point – getting people off the statistics is a major priority.
http://www.bbc.co.uk/news/uk-politics-21260331