Innovation in The Monday Briefing
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Economists disagree on lots of things, but on one thing at least there is a consensus. Productivity, or the efficiency of production, is the main driver of human welfare. The data bear this out. Consider that growth in living standards in the UK since the late nineteenth century has been driven entirely by rising productivity. It is not surprising that improving productivity is the Holy Grail of economic policy.
With the return to work underway here’s our summary of the key developments in the global economy and in politics over the summer.
On the economic front the mood has been fairly positive, with activity nudging higher led by the euro area, Japan and emerging markets. Unemployment has fallen in Europe, North America and Japan since June. The VIX index, a gauge of financial market uncertainty, is close to a 25 year low. In the last three months global equity prices have risen by 5% and the euro by 4%. The dollar and the pound have continued to soften. Copper and oil prices rose over the summer, the later buoyed by Hurricane Harvey.
With the summer break upon us here are ten facts to sprinkle into your holiday conversations.
- There is a common misconception that for a Brit making a card transaction overseas in sterling is cheaper than using the local currency. Martin Lewis of moneysavingexpert.com reports that, in fact, it is almost always better to make card transactions in the local currency. Even if the currency conversion provider waives its commission it usually uses an exchange rate with a significant mark-up over that offered by Visa/MasterCard for sterling transactions.
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.
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.
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.
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.
Societies become richer by producing more goods and services from a fixed amount of labour and other inputs. The history of human material progress is the history of ever greater efficiency in production.
Since the financial crisis that process seems to have broken down. Productivity growth has slowed and, for many, wages have stagnated. Across the Western world policymakers and politicians are searching for ways of raising productivity growth.
The global recovery is entering its eighth year – sufficiently long for some commentators to suggest that we are due for another recession. That seems premature. 2017 looks likely to be another year of growth for the global economy, and at a rather faster rate than in 2016.
But this is not likely to be the year in which growth finally breaks through, returning to the heady rates seen in the decade before the financial crisis. In other words, activity is likely to remain close to the lower, so-called New Normal levels seen since 2009.