Economics

Wednesday

Daniel Korski

How do you leave the euro?

A few weeks ago, Lord Wolfson announced a £250,000 prize for the person who could figure out how a country could leave the eurozone. Given what is happening to the euro, it seemed an awful lot of money to spend on a sub-section of the real question: namely, how Europe can maintain monetary stability and promote growth. The euro, as Gideon Rachman pointed out in the FT last week, is a means to an end, not an end in itself.  It seems Lord Wolfson agrees that he asked too narrow a question and has reformulated the task. The winner will now have to answer what will be the best way

Tuesday

Daniel Korski

A counterweight to France-German power

It was only a matter of time before the Franco-German drive to reshape Europe’s “economic governance” met with a counter-proposal. In international politics, a powerful state or group of states tends to lead others to band together in or order to provide some form of balance. This is now happening in Europe. David Owen and David Marsh are proposing the creation of a “Non-Eurogroup” (NEG), corralling the 10 EU countries outside the Eurozone into a group. Writing for the Financial Times, they argue that such an NEG would bring many benefits. They say: “Setting up the NEG would establish rights and responsibilities for non-eurozone members, ending the long-held European position

Monday

Jonathan Portes

Another voice: Against austerity

Here’s the latest in our Another Voice series of posts, which give prominence to viewpoints outside the normal Coffee House fold: You can’t help but notice that the UK economy isn’t doing too well. Part of this is down to international developments, sure. But part – as Mervyn King said in “http://www.bankofengland.co.uk/monetarypolicy/pdf/govletter111006.pdf”>his letterto George Osborne last week – is the result of “fiscal consolidation”, aka spending cuts. The IMF’s assessment, published a few days ago, shows both why debt has risen (lower tax revenues) and what is happening now (sharp contraction): And there’s much more contraction to come: So why keep on contracting if it is affecting economic growth? Clearly, the Prime Minister

Thursday

Clarissa Tan

Another round of Easing

So the Bank of England has pulled the lever on a second round of Quantitative Easing. Apparently sluggish economic growth, plus more ominous signs from the eurozone, have persuaded the central bank it can’t wait any longer to print more money. But given the evidence from QE1 – only a small boost to GDP accompanied by extra inflation – it’s a big gamble. Mervyn King & the rest of the Monetary Policy Committee clearly believe that more money in the system is what’s needed to kick-start growth. But even they admit that QE1 didn’t live up to expectations, so why should QE2? In the meantime, quantitative easing as an instrument

Tuesday

Alex Massie

An Irish Recovery?

I think it’s tiresome the way countries in desperate economic trouble are treated as lab rats by pundits far away whose sole interest in their travails lies in their providing an argument to buttress favoured policies back home. It’s a pretty grim game, really. So when Paul Krugman spends a summer writing about Ireland’s enforced austerity he’s not really writing about Ireland at all. He’s arguing about the United States and never mind what the hell happens to the poor, miserable Irish. The worse things go for them, the better they go for the Krugman school. Tyler Cowen documents all this rather neatly. This doesn’t mean that a return to

Monday

Alex Massie

Thought for the Day | 26 September 2011

Via Samizdata, here’s Jeff Randall on the eurozone crisis: The fallacy at the heart of this crisis is that every financial problem has a political solution. True. And one can make another, related point: the fallacy at the heart of this and every other matter is that every political problem has a financial solution.   Or, often, a solution at all.

Sunday

Fraser Nelson

Time for the QE gamble, again

It’s time to warm up the printing presses. When growth evaporates and governments feel politically unable to cut spending or raise taxes, there’s only one tool left: printing more money. We can expect more of it soon. As James says today, Osborne believes he has created the conditions where the Bank of England can do some more Quantitative Easing and it could start as early as next month; an unusual move, given how high inflation is. But the Bank is (as ever) forecasting a return to the 2 per cent target soon – and may now claim that economic weakness makes an undershoot likely. And so (the logic will run)

James Forsyth James Forsyth

Huhne ramps up the rhetoric on 50p

Chris Huhne’s comments to Prospect magazine about the 50p tax rate are typically provocative. The millionaire, former City boy accuses the Tories of wanting to abolish the 50p tax rate to help ‘their friends in the City to put their feet up’. He even suggests that the Lib Dems would not vote through any Budget that contained its abolition. Huhne’s intervention comes at a time when George Osborne is trying to build support for abolishing—or, at least cutting—the 50p rate. Tellingly, the letter from economists opposing the 50p rate was drawn up with the help of one of the Chancellor’s closest lieutenants. But, as with so much Lib Dem rhetoric

Friday

Fraser Nelson

Obama’s plan B: tax cuts

Washington, DC The clue is in the name. A stimulus is supposed to stimulate, and Obama’s first attempt stimulated nothing more than the American national debt. So he’s trying again, with a $447 billion package (he’s careful not to call it a “stimulus”) in what will probably be his last roll of the pre-election dice. But $245 billion of it would be debt-financed tax cuts.  Not sales tax cuts, the type of which Ed Balls is prescribing for Britain. It’s all payroll tax cuts: reducing the tax on jobs in the hope of encouraging more hiring. Given the temporary nature of the tax cuts, I doubt this will be the

Wednesday

Fraser Nelson

50p tax isn’t just hurting the economy, but Treasury revenues too

So where were these 20 economists when Gordon Brown first set the 50p trap for George Osborne? Then, Brown’s gamble was that the Shadow Chancellor was a political strategist with little interest or expertise in economics, so he’d be unlikely to work out just how much the 50p tax would lose the Exchequer, or guess it could be more than £3 billion a year – with further, less calculable damage on Britain’s reputation as a home for entrepreneurs. This was when we needed those economists. At the time, all Osborne had to go on was the IFS which calculated it would cost £800m – assuming the rich were no more

James Forsyth James Forsyth

A growing argument about the 50p rate

With the Eurozone and American economies both at risk of a double dip recession, how to get the British economy moving again is going to be one of the defining political arguments of the autumn. A first salvo in that fight has been fired this morning with a letter to the FT from 20 economists calling for the immediate scrapping of the 50p rate because of the harm that it is doing to the economy as a whole. This letter will, one suspects, be privately welcomed by the Chancellor who is looking for ways to, at the very least, cut the rate. He has become increasingly convinced that it is

Wednesday

Alex Massie

Irish Green Shoots?

Could it be that Ireland has passed through the worst of the storm? Writig in the Financial Times yesterday David Vines and Max Watson argue that maybe, just maybe, it has. [T]he first and most important thing about Ireland is that it is swiftly restoring its competitive edge. Indeed it is moving rapidly towards a sizeable current account surplus – in a range of 3 to 4 per cent of gross domestic product. Of course, recession has also played a role in turning external accounts around, but a steady uptrend in exports has been underway for some time. The second element is that Ireland’s net public debt will probably peak

Friday

Fraser Nelson

Brown still hovers over the 50p tax debate

A number of papers report today that George Osborne is minded to replace the 50p tax with Gordon Brown’s original proposal: a 45p tax. How the ex-PM will be laughing. As he knows, even the 45p tax will lose money — that’s why Labour didn’t raise the top rate until the final four weeks of its 13 years. But the Tories haven’t worked that out yet, and the Treasury is still working on the false assumptions he programmed into it. In short, the amount of money that either tax rate will raise depends on what’s called the “taxable income elasticity,” or TIE — a figure suggesting how responsive various taxpayers

Tuesday

Jonathan Jones

How do you measure cuddles?

There’s been a lot of fuss about this morning’s GDP numbers, but if David Cameron has his way we’ll soon be fretting about an entirely different set of statistics. The Prime Minister has given the data-crunchers at the Office for National Statistics a new mission: measure the nation’s well-being. The idea is to create new stats to accompany economic figures like the Gross Domestic Product as an additional gauge of how well things are going in the UK. It’s an idea that makes a great deal of sense. After all, the shortcomings of GDP are well-known. As Bobby Kennedy put it back in 1968: “It measures neither our wit nor our

Monday

James Forsyth

Could the Greeks leave and then rejoin the euro?

The Harvard economist Martin Feldstein proposes an intriguing solution to Greece’s problems in his latest column: “A temporary leave of absence from the eurozone would allow Greece to achieve a price-level decline relative to other eurozone countries, and would make it easier to adjust the relative price level if Greek wages cannot be limited. The Maastricht treaty explicitly prohibits a eurozone country from leaving the euro, but says nothing about a temporary leave of absence (and therefore doesn’t prohibit one). It is time for Greece, other eurozone members, and the European Commission to start thinking seriously about that option.” Where Feldstein is surely right is that Greece can’t get out

Monday

Ed Howker

Alan Greenspan doesn’t exist

Five years have passed since Alan Greenspan stepped down from the most influential banking job in the world. (Now that’s how to leave at the right time.) Described in books, interviews and profiles too numerous to mention as ‘the most powerful regulator/person on earth’, he served as Chairman of the Federal Reserve for 19 years. For reasons of sheer longevity, perhaps Greenspan deserves to be called the architect of the modern global economy more than any of his elected contemporaries. So it’s not insignificant that, by the accounts of his friends back in 1950s New York, Greenspan was something of a fruit-loop as you will discover tonight if you watch

Tuesday

Alex Massie

Slums Are A Feature of Success

Meanwhile and continuing our population theme it may be worth spending a moment on population density in the developing world too.  Commenting on this post Axstane writes: This logic tells us that Nigeria, South Africa, Mexico and Brazil are all very well off indeed since they have dramatically increasing populations. Their slums, crime rates and unemployment are all features of a healthy society?  Actually, yes they are. Apart from any other consideration, urbanisation will most probably reduce birth-rates in the developing world, not increase them. Moreover, the great migration to the city is evidence of urban success and rural failure, not the other way round. (Paradoxically, much of our development

Thursday

Alex Massie Alex Massie

Economists vs Politicians

Tyler Cowen has a fairly downbeat assessment of the UK economy’s likely future performance (manufacturing base eroded, tourism not enough, too dependent on finance etc) but he makes a pair of characteristically good points about trimming public spending: 1. The case for the cuts is not that they will spur growth, but rather forestall a future disaster.  That’s hard to test.  A second part of the case is that not many political windows for the cuts will be available; that’s hard to test too.  On that basis, it’s fine to call the case for the cuts underestablished, but that’s distinct from claiming that poor gdp performance shows the cuts to

Saturday

Ed Howker

Getting the balance right

Branko Milanovic is the lead economist at the World Bank’s research department, a professor at the University of Maryland and a grand fromage at the Carnegie Endowment for International Peace too. Branko Milanovic is the lead economist at the World Bank’s research department, a professor at the University of Maryland and a grand fromage at the Carnegie Endowment for International Peace too. He is not, it turns out, a very light-hearted man and that’s a particular misfortune because The Haves and the Have-Nots was clearly designed to be the easy-reading version of his far more weighty tome on global inequality, Worlds Apart. The structure of this latest work is idiosyncratic