Coppola Comment

What do you do when your economy is in the doldrums and you need to kickstart growth? Why, you put more people to work, that's what you do. This has been the Tories’ strategy since 2010. The sustained attack on welfare benefits has all been focused on “making work pay” - encouraging, and at the margin forcing, people with illnesses, disabilities and caring responsibilities into paid work.  But there is another way of putting more people to work, and that is to import them. In a new report , the centre-right CPS thinktank says that importing people to kickstart growth has been the unspoken strategy of successive governments since 1997. And it argues that the strategy has manifestly failed.  In my latest Substack piece , I examine the reasons the report advances for this failure, and conclude that the "put more people to work" strategy has not failed. It has in fact compensated to some degree for the catastrophic failure of innovation, capital investment and productivity si...

Earlier today, the Governor of the Bank of England, Andrew Bailey, gave a speech at the Resolution Foundation outlining the nature of the Covid-19 crisis and the challenge that it poses for monetary policy. But as his speech progressed, it became clear that the Bank faces a much larger challenge. Covid-19 hit the UK economy at the end of a dismal decade. Returning to "where we were" before the pandemic won't be good enough.  Just how dismal the 2010s were is evident in this chart from Andrew Sentance:  Even before Covid-19 struck, average GDP growth was well below its historical average and heading downwards. The 2010s were, to put it bluntly, a decade of stagnation.  The 2000s were slightly worse, but that was because they included the deep recession after the financial crisis, during which the economy shrank by 6%. For the 2010s, there was no such excuse.  So Covid-19 hit an already under-performing economy. As a result, Sentance's forecast for the 2020s is frankl...

We are used to thinking of workers as free agents who sell their labour in a market place. They bid a price, companies offer a lower price and the market clearing rate is somewhere between the two. Free market economics, pure and simple.  But actually that's not quite right. The financial motivations of workers and companies are entirely different. To a worker, the financial benefit from getting a job is an income stream, which can be ended by either side at any time. But to a company, a worker is a capital asset.  This is not entirely obvious in a free labour market. But in another sort of labour market it is much more obvious. I'm talking about slavery.  Yes, I know slavery raises all sorts of emotional and political hackles. But bear with me. I am only going to look at this financially. From a financial point of view, there are more similarities than differences between the slave/slaver relationship and the worker/company relationship - and the differences are not nece...

When the banks fell over, they knocked the stuffing out of the British economy. The UK’s productivity has been dismal ever since. Unemployment has fallen to historic lows and wages are rising, but productivity growth remains near zero. This “productivity puzzle,” as it is known, has had economists scratching their heads for best part of a decade. But UK productivity is a tale of two halves. Experimental statistics recently released by the Office for National Statistics (ONS) reveal widely varying productivity levels across the UK. “Productivity grew in half of the 12 regions and countries of the UK in 2018,” says the ONS, “with output per hour increasing in both Scotland and the East Midlands by more than 2%; in contrast, output per hour fell in Yorkshire and The Humber and in Northern Ireland by at least 2%.”  It would be easy to ascribe this stark divergence in productivity growth to the dominance of financial services and decline of manufacturing. Financial services are...

Last week I attended a workshop entitled "Enhancing the Bank of England Toolkit," hosted by the Progressive Economy Forum. Presented at the workshop, and underpinning most of the debate, was this report from GFC Economics and Clearpoint Advisers, which was written for the Labour Party and first issued last June. The report was widely criticised at the time, as one of its authors ruefully observed in the introduction to the presentation. Nonetheless, the authors presented it unamended. The report recommends setting a productivity target for the Bank of England in addition to its existing inflation target: An additional target will be introduced: productivity growth of 3% per annum. The Bank of England will be required to explain how its policies are impacting upon productivity and, therefore, the potential growth path of the economy. This target is extremely challenging. A footnote in the report notes that labour productivity growth since 1950 has averaged 2.4%, and ...

Sectoral balances can tell us so much about what is going on in an economy. Especially when they are expressed as a time series, as in this remarkable chart from the ECB : Although it is a time series, this is not a rate-of-change chart. The y axis is in billions of Euros, not in percentage growth rates. But the chart nevertheless shows that Eurozone net saving has risen steadily since the financial crisis, except during the Eurozone crisis of 2011-12 when it dipped slightly. What do we mean by "net saving"? The legend appears to conflate saving with investment, and the brief explanation at the bottom of the chart doesn't really help. So here's some simple algebra to sort it out. In national accounting, "saving" is the excess of income over desired consumption. For the private sector, it looks like this: S p = Y - T - C where Y is the net income of the private sector from all sources, T is tax payments, and C is all other consumption. Thus, ...

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 ratios to justify harsh spending cuts and tax rises. In the UK, "WE MUST PAY DOWN THE DEBT!" roar the headlines, entirely missing the point that debt-to-GDP is a ratio, so even if we never borrowed another penny, it would rise if GDP fell. Even if GDP growth remained positive, but slowed down - say to 1.5% per annum instead of the predicted 2% -  debt-to-GDP would take longer to r...

The present period of very low interest rates is widely assumed to be temporary, a consequence of the 2008 financial crisis and subsequent central bank action. Because of this, as the financial crisis fades into the mists of time, there is growing political pressure for "normalisation" of interest rates. Here, for example, is William Hague warning that central banks must start to raise rates or face losing their independence: The only way out is for the US Fed to summon the courage to lead the way to higher interest rates, and others to follow slowly but surely. If they fail to do so, the era of their much-vaunted independence will come, possibly quite dramatically, to its end. Hague gives ten reasons why low interest rates are a bad idea. His points can be summarised thus: the "reach for yield" by savers who want higher returns drives up the price of assets higher asset prices increase wealth inequality, fuelling popular anger pension funds are struggling, ...