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Trade and currency, a Brexiter’s delusion

If there is one industry Brexit has stimulated, it is the production of daft ideas for regenerating the UK economy after its exit from the EU. Many of the offerings have been from people who really like the idea of Britain becoming a European version of Singapore. But the left wing is not short of silly schemes either. This one, from businessman and self-styled economist John Mills, is one of the silliest I have seen. John Mills is chairman of John Mills Limited (JML). On his biography, he describes this as “a consumer goods company specialising in selling products requiring […]

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Productivity and Employment: A Cautionary Tale

Ah, productivity. Who knew that our whole prosperity was totally dependent on a concept as nebulous as this? To be sure, it doesn’t sound nebulous. It is output per worker per hour. What is so difficult about that? The problem is how you define “output”. Usually, we take this to mean GDP (gross domestic product), though we might use GNP (gross national product) or GVA (gross value added). In this post, I shall use GDP. As Diane Coyle has engagingly written, GDP is a deeply flawed measure. Yet we are obsessed with it. The Eurozone uses government debt-to-GDP and deficit-to-GDP […]

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The Amazing Conversion of Sir James Dyson

“Will you tell me how long you have loved him?” asks Jane Bennet, on receiving the astonishing news that her sister Elizabeth is to marry Darcy, the rich aristocrat she used to hate.“It has been coming on so gradually, that I hardly know when it began,” replies Elizabeth. “But I believe I must date it from my first seeing his beautiful grounds at Pemberley.” This is from the end of Jane Austen’s Pride and Prejudice. Austen is lampooning the British 19thcentury marriage market, in which women (and men) pretended to “fall in love” when in fact they were marrying for […]

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More on productivity

The ONS’s latest flash productivity estimate is rather good. Productivity in Quarter 3 2017 was up by 0.9% on the previous quarter. Here’s what ONS has to say about it: Output per hour growth in Quarter 3 2017 was the result of a 0.4% increase in gross value added (GVA) (using the preliminary gross domestic product (GDP) estimate) accompanied by a 0.5% fall in total hours worked (using the latest Labour Force Survey data). This fall in total hours was driven primarily by a 0.5% fall in average hours per worker. Yes, yes, I know – economics jargon. Let me […]

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Money creation in a post-crisis world

As many of you know, I have spent much of the last seven years explaining to anyone who will listen that banks do not “lend out” deposits or reserves. Rather, they create both loan assets and matching deposit liabilities “from nothing” by means of double entry accounting entries. Creating money with a stroke of the pen (or a few taps on a computer keyboard) is what banks do. But this does not mean that the money that banks create comes from nowhere. It doesn’t. It is only created when they lend (or when they purchase assets, which is equivalent to […]

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Beyond disappointment

I’m sitting in a coffee shop opposite Haymarket Station in Edinburgh. Just up the road, the Institute for New Economic Thinking (INET) is holding its conference. I’m supposed to be there, as I was yesterday and the day before. But I am not at all sure I want to go. The last two days have left a very bitter taste. This conference, grandly entitled “Reawakening”, is supposed to be a showcase for the “new economic thinking” of INET’s name. I hoped to hear new voices and exciting ideas. At the very least, I expected serious discussion of, inter alia, radical […]

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Lehman’s Aftershocks

Peter Praet’s speech at the Money, Macro and Finance conference last week was a goldmine. I’ve already discussed the central bank credibility problem revealed by his final slide. But his presentation went far, far wider than central banks. It raised serious questions about the future of the global economy. This slide – the first in his presentation – shows that there have been three significant global shocks in the last decade, not one: The first, obviously, is the deep global recession caused by the failure of Lehman Brothers in September 2008. But what are the other two? As Toby Nangle’s […]

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Central banks’ credibility problem

In a speech in London the other day, Peter Praet discussed the ECB’s unconventional policy measures. I was there, and I have to say that he deviated considerably – and rather entertainingly – from the version of the speech on the ECB website. But his core message was still the same: “Rates are expected to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases. So, no interest rate hikes for a long time to come. But that’s not what his final chart says: Market expectations are that interest […]

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The UK’s political crisis

On the evening of Friday, September 22nd, the credit ratings agency Moody’s downgraded the UK’s credit rating. Admittedly, it was only by one notch. But coming as it did hard on the heels of Theresa May’s grand speechin Florence, it was a shattering blow.  Credit ratings agencies lost much of their lustre in the financial crisis of 2008, when they were revealed to have been complicit in the mispricing of complex financial derivatives – the “toxic waste” that brought down some of the world’s largest financial institutions. So it is tempting to dismiss Moody’s action as pointless and its analysis […]

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We need to talk about productivity

“We need to discuss the complete disconnect between the marginal product of labour and labour wages,” said Sir Chris Pissarides, speaking on the closing panel of the Lindau Economics Meeting. I tweeted this comment. Laurie MacFarlane of the New Economics Foundation promptly responded with this chart that brilliantly illustrates Sir Chris’s point: “Quite why marginal productivity theory is still taught as something which explains the real world is beyond me,” commented Laurie. Marginal productivity theory says that profit-maximising firms will only employ workers who can generate at least as much additional return for the firm as they are paid. Expressed […]

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