Macroeconomics: UK economy, IB Economics

Larry Elliott outlines three things that he thinks should be essential elements of any Labour Party manifesto this year. Unsurprisingly, they focus on ongoing supply-side problems: a UK development bank, commitment to infrastructure investment, reform of planning regulations. 

All of the above would be welcome. However, as Larry Elliott knows full well, the latter two have been advocated for the best part of 40 years, which might suggest that it's the political system that's to blame for the fact they've not been tackled almost as much as the politicians themselves. 

An interesting piece in today's Guardian that looks at how the current debates about economic policy in the mini-Budget might be used to frame future policymaking decisions. 

The Conservatives are going to have to launch another round of austerity measures, but are going to use this to suggest that - ha, ha - they are the party of fiscal discipline. However, the author, Josh Ryan-Collins, argues that the Labour Party need to look beyond this.

In essence, he's asking them to draw a clear distinction between current expenditures and capital expenditures, and then focus on the latter to argue that a true pro-growth agenda would be spending money on supply-side reform and also focus on tackling inequality and ensuring better policy co-ordination. These don't look unreasonable to me. 

Philip Inman argues that the pro-growth agenda espoused by the current government - and any chance of boosting growth from 1.8% to 2.5% in the next decade - is wrong-headed, and places too much faith in the impact of deregulation. He has a point. 

A growth rate of 2.5% is - in my opinion - only feasible if there's massive supply-side reform of the sort that will both take years to implement, and unlikely given the nature of the political cycle.

Larry Elliott sets out the week ahead - the latest MPC interest rate decision and, subsequently, the mini-Budget being delivered by Kwasi Kwarteng. Both promise to be worth watching!

However, for all the tax about the need to reinvigorate growth - and you'd have to worry if Liz Truss thinks that she's the person to do this - Elliott's point is a fairly fundamental one. For all the talk of deregulation, the UK is already relatively deregulated to many of our trading partners. Thus, it may well be that the real issue holding back growth is much more fundamental - a lack of investment, and, a lack of supply-side capacity. This has been something that has been a feature of my now 28 year teaching career, and no-ones been able to find an obvious solution. 

And perhaps economic theory can explain why: the payoff to meaningful supply-side reform is such that short-term, careerist politicians have little incentive to implement it. 

Excellent Larry Elliott piece on why sometimes the simplest ideas have greatest force. In it he suggests that supply-side reform is essential to ensure growth, noting that the decade pre-global financial crisis was marked by potential growth of 2.7%, whereas between 2010 and 2019 it was a full percentage point lower. 

As a result, it's difficult to generate non-inflationary growth - and that will only return if the UK can boost productivity through appropriate investment. And rather than seek 'miracle solutions' he argues that the seeming earnestness of Rishi Sunak and Keir Starmer might our best chance of securing it.

Richard Partington on the growth agenda promoted by the current government. I fear that he may well be right. 

As I've said many times - if generating growth were as easy as the Prime Minister and the Chancellor seem to think, someone would have done it years ago. The fact that they haven't bespeaks of something. And it's reflected in the growth forecasts of many leading banks, who see the current reforms only leading to a marginal uplift in growth, something that makes me want to turn off the radio every time I hear some Conservative MP trying to tell me that 'the plan' is going to succeed. 

And here's what the Guardian believes could be the supply-side agenda that the government commits to - deregulation across the board, notably in childcare and education, and the abolition of corporation tax. 

Quite how this is all going to occur, not least given last year's commitment to a global minimum level of corporation tax, heaven only knows, but you can't say you haven't been warned.