The alternative economic view – guest post from Andrew Simms

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I've known Andrew Simms for what seems like a long time. He's a fellow Green New Deal member, former Policy Director at the New Economics Foundation and is now head of environment campaigning at Global Witness. With his permission I share here the answers he gave to the FT as part of their new year survey of economists as I think they provide an invaluable insight into the thinking of an alternative economist:

Q1: Economy Will Britain's economy sustain a decent pace of economic growth in 2015? Please explain your answer.

The question rather implies that there can be no debate over whether Britain can or should sustain orthodox economic growth in 2015, and that such growth will automatically be a ‘good thing.' That is only because we have come to conflate the fact of GDP growth with a range of benefits seen as dependent on it, whilst largely ignoring the costs of growth. But the growth figures are just an indication of the quantity, not quality of economic activity. This point is tacitly acknowledged by the Office for National Statistic's decision to start publishing some data on life satisfaction. A better question would be, will Britain get more of what makes life worth while in 2015 while moving simultaneously to operate within safe planetary boundaries. In answer to this, key trends and policies are likely to push us in the wrong direction, standing to undermine both well-being and the transition to a low carbon economy. Increasingly insecure employment conditions, inequality and cuts to secure public services are set to undermine well being. At the same time subsidies and tax breaks to the fossil fuel industries (such as the purported halving of the tax bill relating to developing new North Sea oil fields) will prop up the old, dirty economy, while a policy environment for renewable energy that is confused and fails to provide a stable investment environment, is an obstacle to transition to a clean, modern economy.

Q2: Living standards To what extent will UK households see — and feel — an improvement in their household finances and standard of living next year?

We head into 2015 with the latest data looking unpromising. The Office for National Statistics reports Q3 figures showing inequality up and median income down. The poor remain worse off since the crash, especially if the costs of housing are included as the Institute for Fiscal Studies has repeatedly pointed out. But, as a comment on the continuing imbalance toward financialisation in the UK economy, by comparison the net wealth of financial corporations went up by a staggering 373 percent over the last year. We still make the error in economic commentary of conflating ‘living standards' with ‘quality of life.' The former concerns volume of consumption and the latter the quality of our subjective experience of life, which, if you do have enough to eat, a roof over your head and a warm home in winter, tends to be a more meaningful, ‘felt' measure of progress. [Unfortunately for the Government, even if household finances improve, studies from behavioural economics show that while economic crises and recessions have a clear negative impact on well being, subsequent 'recovery' fails to have the equal opposite effect. More positively, however, recent research at the University of California-Berkeley, found a strong link between behaviour shifts that add to our life satisfaction, such as volunteering, sleeping more, spending more time with friends and exercise, that are not to do with raising consumption and are linked to lower energy use.] In addition to the trends above, if austerity measures continue and operate toward the higher end of public spending cuts, those with already less will be hurt worst. The divisive message this sends, of the UK clearly not being in it ‘all together', corrodes trust and social cohesion, pushing a strong ‘feel bad' factor, as well as being straightforwardly inequitable. And, I would argue, bad economic policy regardless.

Q3: Labour market Will the UK reach full employment in 2015? What would this look like?

As a term, ‘full employment' is about as misleading as the ‘free market,' like most mythical beasts they are much discussed but never seen, except in dreams. In post-warBritain's burgeoning economy, the period thought of as delivering full employment, the actual unemployment rate was around 2 percent and even that was largely enabled by the unpaid, housebound labour provided by women in support of the male workforce. If there is anything remotely that can be described as full employment in the UK in 2015 it will be characterised by a large volume of part-time, low-paid, insecure work, enough to bring official unemployment figures down, but hiding a gross deterioration in the quality of paid work. In 2014, over two thirds of agency workers aged under 30 said they were only in temporary work because permanent work was unavailable. Two policy innovations could redeem this rather dismal outlook. A massive expansion of the green collar sector in the UK is both necessary and holds the potential for substantial job creation. Infrastructure investment is in political favour and a programme of green infrastructure funded by new, targeted Quantitative Easing — an innovative variation conceded to hold no technical barriers by Mark Carney, Governor of the Bank of England, would stimulate the economy, boost employment and tackle climate change countrywide. The other innovation would be to promote the conditions in which the norm of a shorter working week becomes economically possible for all — by, for example, tackling the high cost of housing and having a decent living wage — thus sharing more equitably available paid work.

Q4: Monetary policy Oil prices are low, inflation is set to fall below 1 per cent, but growth is strong and unemployment falling. When should the Bank of England raise interest rates? And do you think they will?

When a representative of Goldman Sachs said on the BBC Radio 4 Today programme that low oil prices were ‘unquestionably good' for the UK economy, it was only possible to say that if you ignore the era defining task of decarbonising the economy, rather than have low prices produce the very opposite incentive. As under the first question in this survey, it is important to go back to first principles and ask: what needs to be achieved in the economy, and what is necessary in terms of monetary policy to do that? In this sense interest rates are a crude and indiscriminate tool, like a floodgate. Next year the world will attempt to agree both a new climate target at a conference in Paris, and a whole new set of sustainable development goals. If the UK is to show leadership in tackling what the scientists of the IPCC most recently called a threat of "severe, pervasive and irreversible" global warming, That means while low carbon transition needs access to cheap, patient capital, economic activities that are intensive in their use of energy and materials shouldn't be encouraged. Given other underlying economic frailties, I doubt that oil prices will stay low for long, or that interest rates will rise, much or soon.

Q5: Fiscal policy Do you think the next government will deviate from the current deficit reduction plans? Does it matter?

I hope it does as, even on its own terms, it repeatedly fails to meet targets while promoting policies likely to undermine its own tax base, like the changes in the labour market leading to the proliferation of low paid (and therefore low tax paying) insecure work. When coming to power in 2010 the Government thought borrowing would be below £40 billion in this financial year, but it is currently set to be around £100 billion. Any likely variation of the next government, coalition or otherwise, is unlikely to change course significantly in their (I would argue fundamentally flawed) approach to deficit reduction. The most recent signs are that Labour will move more slowly, but in the same direction. It matters enormously that none of the major parties offer new paradigm economic thinking. Current deficit reduction plans are a triumph of ideology over practical economics focused on solving real world problems.

Rather late in the day George Osborne seemed to become vaguely aware of the fiscal multiplier — the childishly obvious observation that public spending has a stimulating, multiplier effect on the economy. And, that well directed, for example toward green infrastructure spending, can solve several problems at once such as: creating good jobs, generating tax receipts, lowering energy bills, modernising the economy and insulating it from the geopolitics and price volatility of fossil fuels, and tackling climate change. Such a programme (mentioned under Question 3 on the labour market) as advocated by the Green New Deal Group (of which, for full disclosure, I am a member) could even be financed by an unconventional instrument such as targeted quantitative easing, rather than conventional borrowing. Rather than the helicopter money advocated by some, this would be more like lifeboat finance.

Q6: 2015 election How important is the result of the UK election to the country's economic performance in 2015?

Unless there is real choice in the General Election over genuinely different economic plans and paradigms, the result is unlikely to make a huge difference to the UK's economic performance. The Treasury gives an astonishing level of credence to the likely rulings of credit rating agencies and may worry about their perception of (politically dubious) notions of relatively strong or weak government emerging. This, however, is despite the ratings agencies' track record during the financial crises revealing them to be, at the very least, overrated. Given, though, the lack of fundamental policy diversity among any of the future likely incumbent parties, the likelihood of the election result itself providing reason to reassess the UK's credit rating is small. Similarly, given the range of possible outcomes it is hard to see any result triggering an enduring feel-good factor capable of appropriately energising the economy. The real question remains, what actually constitutes a good economic performance in 2015, and who can create the enabling conditions for it?

Q7: UK and Europe If Britain was to call a referendum on its membership of the European Union, would this impact on your economic outlook?

A referendum on Britain's membership of the European Union would be a weapon of mass distraction used against addressing the real economic problems we collectively face — such as serious and dangerously divisive inequality, and an economy on collision course with its climatic planetary boundary. In this sense a referendum would corrode any hope that the outlook would include measures to bring about an urgently needed rebalancing of the economy.

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