Global economics in The Monday Briefing
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The world seems like a much more uncertain place today than it was before the financial crisis. The International Monetary Fund reckons that macroeconomic risk is running at twice the level it was before the failure of Lehman in 2008. The backwash from the crisis, debt-laden governments, low productivity and risk averse businesses and banks, has spelt weaker growth.
Uncertainty has also been fueled by shocks such as political surprises and natural or man-made disasters. In the last few years markets have had to contend with a stream of worries, from conflict in Eastern Ukraine and the Middle East, to Brexit, the Gulf of Mexico oil spill and Donald Trump’s surprise victory.
But what lasting effect do such external shocks have on markets and economies?
With the holiday season almost upon us we are launching our summer reading list. The Economics Team read dozens of articles to come up with our top six picks for summer reading. All are available free and on-line. You can save these articles on your iPhone or iPad's reading list by opening the links on Safari and tapping on the share arrow next to the address bar. To print these articles please use the print icons, where available, on the webpages to ensure the whole article comes out. The Monday Briefing will continue to run throughout the summer.
Despite speculation that the result of the election could mean a closer long term relationship between the UK and the EU, CFO concerns about Brexit have risen.
Last week a Times headline proclaimed that “Austerity is Over” in the UK. It may have been an exaggeration, but the headline captured the spirit of the time.
Labour’s anti-austerity rhetoric played well with voters during the election campaign. The Conservatives, who ran their 2010 and 2015 election campaigns on the need to reduce public debt, have gone quiet on austerity. As Torsten Bell at the Resolution Foundation notes, the deficit got a mere three mentions in the 2017 Conservative manifesto, down from 17 in 2015.
By about 9am last Friday my capacity for surprise had been almost exhausted by the Labour Party’s stunning performance in the General Election. Still, I was a bit puzzled by the phlegmatic reaction of financial markets to the news of a hung parliament.
There was no panicky sell off as we saw last year following the Brexit vote. The fall in the pound was a fraction of that seen last June. The FTSE100 equity index was down over 3% on the Brexit news a year ago; last Friday it rose 1%.
This week’s briefing provides a short General Election primer. All data, odds and polls are correct as of 7pm on Sunday 4 June.
Voting in Thursday’s election will take place between 7am and 10pm. The counting of ballots will begin as soon as the polls have closed.
Last week I spoke at a debate on the effects of technology in the workplace. The event got me thinking about this vast, complex subject. Here’s a two-minute summary of my musings.
It seems to me that innovation will remain the key driver of growth and human welfare. Rising prosperity and insatiable human demand seem likely to create new industries and jobs to replace those destroyed by technology. In short, robots won’t steal all the jobs. This has been the pattern of the last 200 years and I think it will persistent.
Equity markets seem to be partying like there’s no tomorrow. After a surge in recent weeks equity markets in the US, Germany and the UK are close to all-time highs.
If you had bought UK equities a year ago, five weeks before the EU referendum, you would have made a 27% return.
Western politics has developed a more nationalist character in recent years. In Europe populist parties claim to champion national interest against globalisation while in the US Bernie Sanders and Donald Trump have broken with the free trade consensus that has lasted since 1945.
Perhaps the most fundamental task facing economists is to measure the change in human welfare over time.
To get to a measure of spending power you need to measure incomes and prices over time. Incomes are relatively straightforward, prices less so. To gauge the changing standard of living you need to measure thousands of prices in constantly changing representative basket of goods and services.