Bill Keegan has been an economic commentator for longer than most. That does not mean he is worth reading. That's the case because what he writes is almost invariably worth the time expended. So it is in the case of his article in the Observer this morning which begins:
A record balance of payments deficit of £96.2bn (5.2% of GDP) for 2015, and £32.7bn (7% of GDP) for the fourth quarter alone — both higher in percentage terms than in any year since the second world war — and the first, instinctive reaction of the government is to let what is left of our steel industry go hang, so that imports can be boosted even further.
He is, rightly, repelled by such logic.
He is right to recall three other events when doing so: wartime, the 1970s economic crisis and 2008. In each case the point he makes is that economically the aftermath has proved as tough as the event (although I am not diminishing the impact of war here) and in the case of the 70s with the Thatcherite aftermath and now with Osboronmics, those impacts are wholly self inflicted and utterly unnecessary.
As he concludes, in that case:
Then [the 1975 EU referendum], as now, there was growing concern about the balance of payments and the pound. Then came the 1976 IMF crisis, and an attempt to stem a fall in the pound that had first, in the words of Sir Douglas Wass, Treasury permanent secretary at the time, “declined to fall” and then fallen too much.
The paradox now is that, patently absurd though the whole idea of Brexit is, fears about it have been unsettling the pound. Now we have the balance of payments crisis. I did not get where I am today forecasting exchange rates, but it is not inconceivable that circumstances are combining to bring the pound down to a more competitive level, and that, as in 1975-76, things could get completely out of hand.
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I stopped buying the Observer over 9 years ago. Before that for donkeys years I always read Keegan (column sometimes replaced by the great Wynn Godley). Keegan invented the term ‘sado monetarism’. I think I learned more from him than 3 years of economics at Essex Uni in the early 80s.
This point particularly resonated with me:
“The problems have been piling up ever since the Thatcher government’s monetarist experiment with a sensationally overvalued exchange rate that inflicted serious damage on manufacturing.”
Bill is great
Mind you, so was Wynn Godley
There’s a useful chart and supporting data on the UK balance of payment history back to 1955 here, and it’s been getting increasingly negative since the late 1990’s which indicates a long term failure of UK industrial policy across numerous governments:
http://www.tradingeconomics.com/united-kingdom/balance-of-trade
I don’t dispute that Labour also failed on this issue
That’s why we should call this approach ‘ Osbomoronics’ Richard. ‘Cos that’s what it is.
Having seen interviews however with steel workers, many that I have seen are blaming Europe for the industry’s problems!!
Could the planned destruction of the steel industry be to do with pushing us into BREXIT? Is this Osbourne’s grab at the Tory leadership and 40,000 workers jobs are worth it?
This ‘chancellor’ tends to use economics as a political tool only in which he can only see as far as his nose. It would not surprise me if that is what he is doing now.