I wish I could be amused by the Bank of England's optimism for the UK economy. They believe growth will be higher than predicted this year, that this will continue next year and that although inflation will increase wage growth may stay heard of prices. Admittedly they think 2018 is hard to call but what it seems they have not considered is the possibility of an exogenous shock. It's as if Carney's summer success in staving off a post Brexit vote downturn has left the Bank thinking that anything else that might happen can be addressed in the same way, meaning other potential shocks can be dismissed as factors to be considered.
I do not agree. Trump is the first possible shock. The reality of Article 50 might be the next. A loss of confidence in the UK economy as a result of growing political and economic tensions is also a real possibility. I am seriously hoping there is no significant break down in law and order as a result, but there are those in the media who seem intent on fuelling it. And if there are difficult election results in Germany and France next year, and I think that possible, with the far right gaining ground, then many aspects of our political and economic life might get much more difficult.
In that case what economic options are available to any government committed to maintaining the economic stability of the UK? Discussion I had yesterday suggested there are just two. They are Green (or People's) QE and the Green New Deal.
When all is said and done most economic activity is domestic. And the UK has got the power to create its own money. In combination these plans exploit those two facts in a way no other economic plan available does. And they were explicitly designed to tackle economic downturn and the resulting need for transformation. The chance that we will need them grows by the day.
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I agree totally.
It makes you wonder just how close Mark Carney has come to losing his job recently and I also think the timid way the BoE seems to be working totally undermines the idea of its independence.
Not sure it ever was independent. Talking of fall back plans, if Skidelsky is correct (& I’m real interested to hear why he is wrong)
https://www.theguardian.com/business/2016/oct/21/why-pound-sterling-collapse-not-good-uk-economy-robert-skidelsky
then what is the plan? Because what his article points to is a vastly impoverished UK (or England – depending). I have yet to see a substantive discussion on what he is saying & what he projects is terrifying. In my view this is one of the most important articles written in the Guardian in recent times. & apologies if this sounds like a stuck record.
I think he is right
The Bank is well aware of capital flight, and has contingency policies in place.
But activity flight – economic and academic activity departing, rather than reducing – is a new thing.
Actually, it’s not so new: ask everyone in Ontario about the 1980’s economic boom (or rather, the masking of the general recession) from all the anglophone companies made to feel unwelcome by the Partie Quebecqois in the neighbouring Province.
A very salient comparison I would have thought, and I’m sure there’s a serious risk of “activity flight” as you term it here too following Brexit.
On the other hand, as with capital flight, contingency policies for counter-measures could equally-well be conceived-of for that as well. “Re-balancing” of our economy *away from* the complete dominance exercised by the financial interests (the “casino” that is the City) far from being regrettable is a desperately-needed prerequisite for climbing-back from the pit we have dug for ourselves during 45 years of neoliberalism.
Investment in infrastructure, in twenty-first century enterprise and in R & D – but most of all investment in people, primarily through a complete overhaul of training and education – could work wonders – once we rid ourselves of the parasitic incubus that is the rent-seeking financial sector, which is sucking the life-blood out of the whole of the rest of the economy and exacerbating all our social ills in the process.
Will peoples’ QE or a green New Deal still be sustainable with higher interest rates?
The decade of near-zero rates has now gone, and it seems to me that we have wasted it.
Yes: this is money creation at no cost