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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.
In the wake of the financial crisis the West has witnessed a rise in radical politics of the right and left. One explanation is that the crisis has exacerbated the effects of more longstanding social and economic change.
Two seminal research papers by Nobel Laureate Angus Deaton and Princeton economist Anne Case shed new light on this phenomenon. In a quite remarkable piece of research Deaton and Case examine the effect of adverse economic change, poor education and low social capital on white, working-class Americans.
It is just seven weeks until the UK General Election due on 8th June. Much has changed in the nine months since the UK voted 52% to 48% to leave the EU.
Conservatives and Labour campaigned to remain in the EU but the outcome of the referendum has changed everything. That surprise vote illustrates the power of John Maynard Keynes’, maxim: “When the facts change, I change my mind. What do you do Sir?”.
Slow productivity growth is one of the biggest topics shaping current economic discourse.
It is hard to overstate the importance of productivity in driving improvements in living standards. Since 1850, UK GDP per head has risen 20-fold, transforming our standards of living. If productivity had remained flat over that period, GDP per head would only have doubled.
UK labour productivity rose at around 2% a year from the seventies but has stagnated since the financial crisis. British productivity now remains only slightly higher than its pre-crisis peak at the end of 2007.
The last Deloitte survey of UK Chief Financial Officers shows a further easing of the Brexit shock that hit corporate spirits last summer. The full report is available at:
CFO perceptions of external macro-economic and financial uncertainty have almost halved since last year’s EU referendum. Business optimism, which dropped to the lowest level in nine years last July, has risen to an 18-month high.
It is perhaps odd that despite gloomy news stories about the risks to growth the world economy is recovering. And this is a rare thing, a synchronised global recovery with activity strengthening in developed and emerging markets for the first time since 2010.
Leading indicators for growth are flashing green. Singaporean export growth, a barometer of global demand, has hit a two-year high. Chinese electricity consumption has rebounded.
The Governor of the Bank of England, Mark Carney, recently lamented Britain’s “first lost decade” since “Karl Marx was scribbling in the British Library” in the 1860s. He was referring to the fact that wage growth for the average British worker has stagnated in the decade since the financial crisis.
Last year earnings for the median worker in the UK, the person in the middle of the wage distribution, were almost 7% below their pre-recession level in real terms. The latest official forecast shows that real earnings are unlikely to return to pre-recession levels until 2021.
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.
Free trade helped power a dramatic rise in living standards in the West in the nineteenth and twentieth centuries. In the last three decades it has had a similar impact on the welfare of billions of people in emerging economies.
Yet in the face of a backlash against globalisation, free trade is arguably more at risk than at any time since the 1930s. Those who want to limit trade see it as a way of “bringing home” high-quality jobs and reinvigorating industry.
The polarisation of politics in the Western world has created new challenges to existing political norms. Declining support for established political parties has been paralleled by a growth of alternative, more extreme, parties and politicians. This week we take a look at what voters in the US, UK and Europe are telling pollsters on the big issues.
Mr Trump won a remarkable victory, but he entered office with an approval rating of 45%, a record low for an incoming US President. His rating now stands at 40% compared with an average of 61% for previous Presidents at this stage in their administration.