The expenses scandal has driven the economic news off the front page. So what about those 'green shoots of recovery' we were hearing about before we were so rudely interrupted?Here's Martin Wolf reading the runes:
In summary then: yup, things are - if not quite getting better - at least stabilising. But we're broke, and we can never let this happen again or it might really be back to bartering cans of baked beans. So governments around the world are going to have to try to keep those money men on a much shorter leash than before - whilst raising taxes and cutting services for 'perhaps decades'. (I suspect the British government, whoever that proves to be this time next year, is going to pursue the second and perhaps third of those tasks with a lot more application than the first.)On the economy, we already know five important things. First, when the US catches pneumonia, everybody falls seriously ill. Second, this is the most severe economic crisis since the 1930s. Third, the crisis is global, with a particularly severe impact on countries that specialised in exports of manufactured goods or that relied on net imports of capital. Fourth, policymakers have thrown the most aggressive fiscal and monetary stimuli and financial rescues ever seen at this crisis. Finally, this effort has brought some success: confidence is returning and the inventory cycle should bring relief....
The state, meanwhile, is back, but it is also looking ever more bankrupt. Ratios of public sector debt to gross domestic product seem likely to double in many advanced countries: the fiscal impact of a big financial crisis can, we have been reminded, be as costly as a large war. This, then, is a disaster that governments of slow-growing advanced economies cannot afford to see repeated in a generation. The legacy of the crisis will also limit fiscal largesse. The effort to consolidate public finances will dominate politics for years, perhaps decades. The state is back, therefore, but it will be the state as intrusive busybody, not big spender.
OK - now can I have a volunteer to write the general election manifestos of our three main political parties please ? Just a few thousand words are needed - but they must be full of hope and promise. Mustn't frighten the horses by suggesting we're in a pickle now, must we?
There will be time enough for that after the election...
Charlie, if one was to put to Wolf the proposition that the public finances could be sorted within a year or two as long as governments were prepared to scrap the principle that the wealth of the top 1% is untouchable, what do you think he would say?
ReplyDeleteI think Wolf would say - and he's be right - that taxing the rich isn't going to be enough, although it may be a necessary part of the solution.
ReplyDeleteThe question before us is moving from being a high consumption economy, fueled by credit, to one where there is a much higher level of investment. We have to try to protect services whilst making this transformation - and also not necessarily protect all jobs (I'm not sure I want to protect jobs in the aerospace/arms industry for instance), but certainly ensure there is a steady stream of replacement work. Sure, we need to close tax avoidance loopholes including offshore tax havens, introduce serious wealth taxes and extend upwards the rate of income tax on high incomes. But this won't be enough: we also need to raise more tax (and/or provide fewer services) from the majority of the population.