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Perhaps we shouldn’t be too surprised. Following the financial crisis the Bank of England slashed interest rates and printed money to kick start the economy. Consumers have responded in text book fashion.
In what has been a rather lacklustre economic recovery one standout success for the UK has been job creation. In the last eight years the number of people in employment has risen by 10% to record levels. Self-employment is up by a quarter. Britain’s unemployment rate today is one of the lowest in Europe and at the lowest level since 1975. There are three quarter of a million job vacancies in the UK today.
Common sense suggests that as unemployment falls, and employers struggle to fill vacancies, wages will rise. This relationship is embodied a simple economic model, the so-called Phillips Curve. Yet today this model, and this way of thinking about wage pressures, no longer seems to work for the UK.
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.
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.