The Bernanke Review of Bank of England Forecasting
mainly macro
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13h ago
  My guess is that the world is divided into two groups of people: those who are really interested in the process by which central banks decide on monetary policy, and those who are largely disinterested. If I’m right, and you are part of the second group, it may be wise to skip this blog. As the job of central banks is to set interest rates to keep inflation close to target, and inflation over the recent past has been well above target, then a typical reaction might be that central banks have slipped up in some way. The Bank of England is a typical central bank in this respect, and it c ..read more
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The Anatomy and Reasons for UK relative Economic and Political decline over the last decade and a half
mainly macro
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2w ago
  Nothing works anymore, the country is in a mess, worker’s living standards have remained stagnant, public services are at breaking point. Such statements are now commonplace, and are increasingly brought together in articles like this one by Sam Knight in the New Yorker. But is all this the result of 14 years of bad government, or can the blame be laid at the door of one or two specific events like austerity or Brexit? Economic decline I want to start with a post I wrote two years ago, where I was already talking about an unprecedented era of UK macroeconomic decline. I focused on com ..read more
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Why raising taxes substantially is critical for the next Labour government to be sure of achieving its missions
mainly macro
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1M ago
  My series of posts on detoxifying government debt was all about why Labour should not be afraid to increase public investment substantially. Public investment should be matched by borrowing because future generations benefit from individual investment projects. The same is not the case for most day to day (current) public spending. If the economy is not suffering from deficient aggregate demand, it makes sense to match increases in day to day spending with higher taxes. A fiscal rule that does this (often called the ‘golden rule’) makes sense. That day to day public spending needs to i ..read more
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Detoxifying government debt, part 4. Labour’s inheritance
mainly macro
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1M ago
  The Labour party has for a long time been fearful about high government borrowing to fund additional public investment. It didn’t start with 2010 austerity. Gordon Brown, probably the best Chancellor the UK has had over the last 50 years, used PFI mainly as a way of getting public investment done without additional public sector borrowing. It didn’t make economic sense at the time, as public borrowing is normally a far cheaper way of financing investment, but it happened because increasing government debt to finance worthwhile public investment was seen as toxic. In parts 1-3 of this s ..read more
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On maxing out credit cards and magic money trees
mainly macro
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1M ago
  “When you repeat a lie, you spread it. When you spread a lie, you strengthen it. When you strengthen a lie, you become an accomplice to it. In this disinformation age, we must do better.” George Lakoff Keir Starmer,in commenting on the recent Budget, said “Britain in recession, the national credit card maxed out, and despite the measures today, the highest tax burden for 70 years”. The analogy of maxing out the nation’s credit card has been repeated by other Shadow ministers. Rachel Reeves, Shadow Chancellor, has joined many Conservative ministers in saying there is no ‘magic money tre ..read more
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How 14 years have shown the impossibility of shrinking the UK state
mainly macro
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1M ago
  The Budget was predictable, and predictably boring. Hunt cut taxes, but the tax burden is still rising because of the tax increases already programmed in. Furthermore, he was only able to make the tax cuts he did (i.e. reduce the extent of tax increases) because he had previously pencilled in assumptions about public spending that were fantastically low. You can either portray those assumptions as Austerity 2.0 or just silly - I did the latter here. However, with (I hope) the not silly assumption that this will be the last Conservative budget [1] for a while, I thought it might be usef ..read more
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Rishi Sunak doesn’t want to talk about Islamophobia because he wants to use it
mainly macro
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1M ago
 This week I was going to post the final part of my ‘detoxifying government debt’ series, but Sunak’s statement from No.10 last week means that it will have to wait. Lee Anderson had the Conservative Whip withdrawn because he said something wrong and didn’t apologise for it, but ministers were comically unable to say what was wrong about what he had said. They certainly didn’t want to say it was Islamophobic, although it certainly was. [1] Many commented that the Conservative party was reluctant to call Anderson’s words Islamophobic because that would expose the extent of Islamophobia wi ..read more
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Detoxifying government debt, part 3. The Truss crisis has no relevance for Labour borrowing to invest
mainly macro
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2M ago
  Over the last fifteen years the UK has experienced or witnessed three crises stemming from financial markets, the Global Financial Crisis, the Eurozone crisis and Truss’s ill-fated ‘fiscal event’, all of which have led to a view that government debt is in some way toxic, and therefore public investment needs to be curtailed. Because it is more recent I will focus on the last, but it is worth just repeating why the other two have no relevance whatsoever. The Global Financial Crisis occurred in large part because banks started treating risky assets issued by the private sector (US subpri ..read more
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Detoxifying government debt, part 1. Debt is also an asset
mainly macro
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2M ago
  Perhaps Labour scaling back its proposed green investment is just a pre-election ploy, and will have no implications for what they do in government. Perhaps. But perhaps they genuinely think the country can only afford a modest increase in public investment; much less than the economy and public services need. As we shall see, this idea that the nation cannot afford to increase worthwhile public investment because it requires more government borrowing is quite wrong. In my last post I noted that both Shadow Chancellors Rachel Reeves and John McDonnell had adopted the falling government ..read more
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One Rule to bring them all, and in the darkness bind them
mainly macro
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2M ago
  What a future Labour government will be able to do in terms of repairing both our broken public services, our broken economy, and getting cheaper green energy will depend in part on its decisions about fiscal rules. [1] When hopes and expectations are frustrated as a result of these rules, you will hear a lot about how such rules are neoliberal and should be scrapped. So are fiscal rules neoliberal, by which I mean are they just instruments designed to suppress public spending and cut taxes? The answer to my question is of course yes and no. First the no. Fiscal rules arose o ..read more
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