UK News
Insights from the UK and beyond
from The Great Debate:
Stubborn national politics drag down the global economy
Four years ago world leaders, meeting in the G20 crisis session, agreed they would all work to move from recession to growth and prosperity. They agreed to a global growth compact to be delivered by combining national growth targets with coordinated global interventions. It didn’t happen. After the $1 trillion stimulus of 2009, fiscal consolidation became the established order of the day, and so year after year millions have continued to endure unemployment and lower living standards.
Only now are there signs that the long-overdue shift in national macro-economic policies may be taking place. The new Japanese government is backing up a "minimum inflation target" with a multi-billion-dollar stimulus designed to create 600,000 jobs. In what some call the “reverse Volcker moment,” Ben Bernanke has become the first head of a central bank for decades to announce he will target a 6 percent level of unemployment alongside his inflation objective. And the new governor of the Bank of England, Mark Carney, has told us that "when policy rates are stuck at the zero lower bound, there could not be a more favorable case for Nominal GDP targeting.” Side by side with this shift in policy, in every area but the Euro, there is also policy progress in China. It may look from the outside as if November’s Communist Party Congress simply re-announced their all-too-familiar but undelivered wish to re-balance the economy from exports to domestic consumption, but this time the promise has been accompanied by a time-specific commitment: to double average domestic income per head by 2020.
The intellectual case for change is obvious. A chronic shortage of demand has developed for two reasons. First, as the IMF announced at the end of 2012, the adverse impact of fiscal consolidation on employment and demand has been greater than many people expected. Secondly, the effectiveness of quantitative easing has almost certainly started to wane. As former BBC chief Gavyn Davies has put it, “the supply potential of the economy is in danger of becoming dependent on, or ‘endogenous to,’ the weakness of domestic demand. ...With demand constrained in this way for such a lengthy period of time, supply potential is beginning to downsize to fit the low level of demand.” It is a new equilibrium that can be reversed only by boosting demand.
But why is there so little optimism when the paradigm shift sought in 2009 is finally starting to materialize? Why do experts continue to downgrade their forecasts for 2013 and even 2014, while discussion so often drifts toward talk of a lost decade? It is, I suggest, because while countries are today adopting national growth strategies, they have missed out on the other part of the 2009 decision -- the necessity of coordinated global intervention. And the big question is whether the momentum for growth can be sustained by national initiatives alone in the absence of global action or will instead melt away once again under the pressure of narrow, self-defeating national policies.
Webcast: Gordon Brown’s speech at Thomson Reuters
Prime Minister Gordon Brown set out his economic plans during a Newsmaker event at Thomson Reuters on Wednesday. Brown said he believed Britain would maintain its coveted AAA credit rating and announced a pay freeze for senior civil servants and military officers to help reduce a record deficit.
Below is a recorded webcast of Brown’s speech and the Q&A session that followed.
Brown needs Darling in these troubled times
One thing looks certain after Alistair Darling’s speech to***the Labour Party conference on Monday — he’ll be Chancellor of***the Exchequer for a while yet.****** Prime Minister Gordon Brown is expected to reshuffle his***ministerial team next week and there’s been a lot of speculation***that Darling could lose his job and be moved to another***department.****** The silver-haired finance minister has had a rough ride***lately. The economy is on the brink of recession and his***comments in a magazine interview saying the economic challenges***were the greatest in 60 years caused a furore and were blamed***for sinking the pound.****** But delegates at the Labour conference today just loved him.***They stood and clapped and then they clapped some more after***Darling hit out at unfettered capitalism and the huge payouts***given to bankers that he said helped cause the credit crunch.****** Darling looked genuinely embarrassed. He called for them to***stop but the delegates just went on. Besides modesty, the***finance minister had another reason for wanting them to stop.****** He had another type of conference call to attend to. A G7***one. The finance ministers and central bankers of the rich***nations club were having a hastily-arranged telephone chat at***1230 London time to discuss the latest bout of market turmoil.****** Given London’s position as one of the world’s top financial***centres, Darling could hardly miss out and he rushed off the***stage to get on with his G7 buddies.****** The crisis also looks to have cemented Darling’s position.***It would seem odd to remove the finance minister when the whole***world financial system is in the middle of the biggest upheaval***in a generation.****** With Brown making his economic experience a key selling***point, he needs Darling on side.
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The Wall
