Earlier this week the UK Government announced its new fiscal rule, which defines the fiscal envelope. For those of you who aren’t British, the deficit exceeded 10% of GDP during the recession and fiscal sustainability has become an important political issue, even for people who aren’t econ junkies! Unfortunately, this new rule is unlikely to encourage the sort of sustainability that the Government is hoping for. To understand why, I’m going to write a short series of posts on fiscal rules. This first post will briefly review the history of fiscal rules in the UK. For people who love technical details, this paper by Simon Wren-Lewis and Jonathan Portes is a great review and I’ll be coming back to it later.
A fiscal rule is simply a set of objectives that guide and constrain the Government as it makes policy. The rule usually comprises targets for debt and the deficit, with many variations in the details. Rules were introduced to the UK in 1997 by the then-Chancellor, Gordon Brown. Since then they have had a rocky history, as the chart shows:
I’m sure you’ve all noticed that, with the exception of Patrick’s great post on productivity yesterday, it’s been a bit quiet around here lately. Matt’s busy working two jobs in addition to writing a PhD, agnitio has decided that a house and family are more important than blogging, and I have descended into the laziness of failing to test my ideas in public. One of those things is a really bad reason not to blog, so my Christmas present to myself is to get back in the saddle and spend at least one day a week being told off by Eric! But I want to write about some different things than I did previously.
On the 8th of December this year Martin Weale, of the Bank of England’s Monetary Policy Committee, highlighted concerns with the UK’s recent productivity growth. In the UK total output per worker is now no higher that it was 6 years ago. The UK is not the only country experiencing weak productivity growth. Many OECD countries have experienced slower productivity growth (GDP per hour worked) from 2010 to 2013 than before the Great Recession. Indeed, of the 34 OECD countries only Australia, Chile and Spain experienced faster productivity growth from 2010 to 2013 than from 2000 to 2007.
“I have a dream. It involves a Star Trek chair and a bank of monitors. It would involve tracking the global flow of funds in close to real time, in much the same way as happens with global weather systems.”
Is the binding constraint on better macroprudential policy a lack of timely information? If they had that information, could a world regulator really have averted the crisis in 2007?
Full speech here.
Hello New Zealand readers. Just giving you a heads up that tomorrow (Thursday, 23 October) there is a panel discussion on the Piketty book (Capital in the Twenty-First Century) and its relevance to New Zealand.
As I contributed to the related book of book reviews, and as this particular event is in Wellington (where I live), I’m on the panel. Here are the details which I stole from an email:
The event is at the Royal Society (11 Turnbull Street, Thordon) and begins at 5.30pm.Bernard Hickey is chairing the panel, with the other panellists being Geoff Bertram, Brian Easton, Prue Hyman, Max Rashbrooke and Cathy Wylie.The aim of the event is simply to have some broad and engaging discussion on the relevance of Piketty for New Zealand, with reference to the book being launched on the night.
And if it swings your boat, you can even join the Facebook event.
If you want to prepare beforehand, here is my long-form review (filled with typos – like honestly filled, it is a first draft that never went any further), here are some common misconceptions, and here is a list of other reviews.