I’ve heard the arguments that secular stagnation refers to a situation with low long-term interest rates – reaching the zero lower bound on nominal rate often – low inflation and low output growth. But what does this really mean?
Note: This is an outline of thoughts rather than some type of persuasive argument – in time I should make an effort to flesh out all the little bits in this, but it is just a run down of my current general thoughts. Take it as such and feel free to provide constructive feedback 😉
Anyone who reads this who also read my writing pre-2014 will remember that I was a strong post-distributionalist when it comes to social insurance policy. To the point where the term pre-distribution (or predistribution) did not appear on TVHE when I did a search.
Since then the economic environment has changed and I have spent more time considering these issues. So have my views changed? Let’s consider the issue.
Tl;dr No, but I think the terminology can be used more clearly. With regards to redistribution – if our concern is the distribution of income alone pre-distributionalist policies are indirect and inefficient. But pre-distribution policy prescriptions have relevance when discussing issues of transition – which is essentially insurance from shocks, and the provision of job/income security (as apart from a security net). Such insurance can be costly, but is still worth discussing in this frame. Furthermore, if we stretch the term pre-distribution far enough it becomes ridiculous – sure the whole study of economics concerns the distribution of income, but the name is used for a subfield for a reason.
The first reckoning for any Budget is when the Office for Budget Responsibility releases its estimates of the fiscal and economic impact of the measures. The second is when the Chancellor appears in front of the Treasury Select Committee and explains the reasoning behind the Budget. George Osborne’s Summer Budget appearance happened yesterday and shed light on a number of his more controversial fiscal policies. This is my summary of his answers, presented without comment. Read more
There is a very interesting report out from the Social Market Foundation that investigates the characteristics parents value in a school. The core result is that less-wealthy families do not choose schools on the basis of academic achievement:
This leads the SMF to express concern that school choice may not lift educational achievement because some parents do not consider it important. They then recommend Government intervention to promote the primacy of academic success. The line they’re treading between free choice and paternalism is a fine one. One the one hand, they want free school choice to improve the quality of schooling. On the other hand, they have a prescriptive view of what school quality means. Read more
Earlier this year Raj Chetty gave the keynote address at the annual AEA meeting. He discussed the role of behavioural economics for public policy, giving examples of successful nudges such as a change in defaults for retirement saving. Unusually, he took the goal of policy as given and spent his lecture talking about how behavioural economics can help achieve those goals. Read more
Getting the debt to GDP ratio to fall at some stage is a good idea, but having a target for a specific year is silly. It is not optimal because if some shock hits the economy before 2016/7 which means debt tends to rise relative to GDP, it is crazy to try and counteract that to meet the target in such a short space of time. It is not effective because it can be gamed by the government fiddling the timing of expenditures.
Having a five year rolling target for the deficit allows fiscal policy plenty of time to adjust to shocks. We saw this in action over the last few years, as the Chancellor was able to reduce the pace of fiscal consolidation from 2012 when the economy failed to recover as quickly as he had hoped. Changing this mandate from five to three years gives any Chancellor less time to adjust, which is why it is a backward step.