I made a rare visit to London yesterday. It was only my second since March 2020. All present agreed that as we reluctantly accepted we were older people we might not be visiting again for some time: 19 July represents an at least partial return to lockdown for all of us. The behaviour of those at Wembley is a very obvious threat to those who know that Covid is a real risk, as is the case for anyone over 60.
Being a bunch of economists, this was, of course discussed. This is, of course, a personal reflection on the conversation, which was also framed by football, racism, a government clearly in panic and to a large degree out of control on Covid, and the impact that all this is having on the swirling cauldron of sentiments now apparent in politics.
There were a number of points of agreement. A sweepstake on when interest rates might rise proved to be a waste of time. No one thought it likely before 2025, and it's not clear why it could happen then given the massive over-gearing within the private sector economy meaning it has almost no ability to afford such rate rises, which many younger people (in particular) are simply unaware of as a risk, and for which they have no margin for tolerance as a result. In effect, there was a consensus that conventional monetarism is dead.
There was also some agreement that unconventional monetarism is also dead. That is QE, of course. I do, however, have to be clear as to what I mean. The logic of QE for central bankers is that they have the right to unwind this process. As we, however, agreed, there is no foreseeable situation in the UK where this is likely. The government is going to run deficits for a very long time to come. The economy will be vulnerable. Bank lending without government guarantees to businesses that are massively undercapitalised is likely to be low. New government injections of cash look like they will be required for years. Reversal is unimaginable.
That gave rise to another agreement. Central bankers are not independent in this case, and the pretence that they are should be dropped.
That resulted in agreement that it should at least be agreed that QE needs to be reframed in that case. My old concept of Green QE, or Peoples' QE as Corbyn had it, is back in the frame as a consequence. QE as fiscal policy to fund direct intervention in the economy in other words.
Summary of the current political scenario was agreed to be hard. It is unstable. But from failing on the culture wars, to a collapsing NHS, and massive numbers of Covid cases, completely internationally aberrationally, it seems that this government is very definitely losing the plot. Its popularity will decline. We could not see how Johnson can survive another lockdown (which seems likely) given the promise of irreversible reopening. But what might happen then is unclear.
More clear is the need for continuing Covid support. If Sunak has his way and withdraws this the feeling was that recession is very likely. But that could increase inflationary pressure by creating supply disruption. The pressure is short-lived though. It is not going to flow into wages. That means the damage will be real.
On unemployment the sentiment was a significant increase with the end of furlough. If businesses fail that could increase further, and quickly.
As to consumer spending, there was little reason to agree with Andy Haldane: the spending boom will be short lived.
And the chance that the government will invest as required is low unless QE, tax and the way in which savings are organised are reconsidered. That's when the debate really started. I fear that will have to be for another time.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
What was the make-up of the ” bunch of economists ” ?
is it likely to be reported in the national media ?
No
Some economists met for lunch
I agree that very slowly people are beginning to accept that Johnson and his government are getting this badly wrong, but the turnaround will come very slowly.
The only hope I have is that we will continue to follow USA and get a change in government. That has to be a progressive alliance, but I doubt it will happen.
In USA democrats and republicans are somewhere around 50/50. Here, Labour is too far below that to be able to govern and currently too inward looking to accept it needs a coalition of some sort.
It has even happened in Israel – it won’t last, but who would have thought it?
I live in hope.
I see a lot of fear at work -I’d say the gung-ho ‘back to normals’ are in the minority.
So, do I take it that:
1. If interest rates go up the economy will crash as people will no longer be able to pay their mortgages.
2. If interest rates don’t go up then the economy will eventually crash as there is no place to save. Pension funds will not give out the returns that people are expecting.
I guess, 2 will take longer to filter through than 1, but either way, something is going to have to give!
Yes
Real returns will have to rise
Interest rates staying low doesn’t have to lead to 2 if appropriate monetary and fiscal policies are used, including building active travel infrastructure and decarbonisation. We could create millions of good local jobs retrofitting energy efficiency measures in homes, offices, community centres and other buildings
I really cannot believe how stupid Johnson and his Cabinet are.
Laws are made to protect the public especially when infectious diseases are at issue and the current pandemic presents a massive need for legal protection.
In such instances the vast majority of the public recognise their responsibility and will take the necessary measures, wearing a mask and social distancing, to keep themselves and others safe. Sadly it is the ones who do not possess this sense of moral responsibility towards others and consequently will not wear a mask.
As in all such cases the law applies only to those who have no such moral compass and therefore have to be forced to comply via the law.
So “What is Johnsons problem with making mask wearing compulsory?”
This is not driven by stupidity.
It’s driven by greed and short-termism within the back benchers – just like BREXIT was. It is getting the country making money for its masters.
It’s deliberate and focussed. Just like BREXIT whose only objective was to get out of Europe at any costs because a bunch of rich people wanted it done.
There you go.
I apologise as I should have started with “I can’t believe how CALLOUS and stupid Johnson……..”
However with the predicted rise in cases per day likely to exceed 100,000 and the consequent number of people having to self isolate I can’t see where the increase in money is going to come from, simply because fewer will be at work.