Deficits, debt in The Monday Briefing
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In the last decade Britain and the US have experienced an unusual combination of soaring asset prices and sluggish wage growth.
Between 2006 and 2016, the total value of assets held by UK households rose by 59% while average incomes increased by just 24%.
A post-World War II wave of liberalisation reduced barriers to trade and helped fuel a global boom in exports. The Uruguay Round of negotiations between 1986 and 1994 marked the high point of this process. It was the largest ever trade negotiation and significantly reduced barriers to trade in goods. Since the 1990s the momentum of trade liberalisation has slowed, and since the financial crisis, almost ground to a halt. The election of Mr Trump, an ardent critic of the international trading order, is indicative of how much things have changed.
Last month Deloitte’s economists from across the world met in London to assess the outlook for the global economy. It was a fascinating and wide-ranging discussion. Rather than trying to summarise individual views, here are some of the areas where the discussions affected my own thinking.
The global recovery has moved up a gear in the last year. The year 2018 is likely to be the best year for world growth in seven years. But this is a mature recovery and, at the risk of sounding like a kill joy, this is about the time you’d expect the economic cycle to start rolling over. For the rich western economies the second half of 2018 is likely to mark the peak in growth.
There are numerous explanations for why technology is no longer boosting productivity in the way it did in the twentieth century. The US economist, Robert Gordon, argues that today’s technologies are less productivity-enhancing than the great inventions of the past. The opposing view is that technology is still working its magic, but in ways, such as improving the quality of goods and services, which are poorly captured by the statistics.
The latest Deloitte survey of UK Chief Financial Officers (CFOs) released this morning shows that business confidence has edged up and is running not far off its long-term average. CFOs seem to have shrugged off weakness in equity markets and concerns about trade with perceptions of uncertainty dropping to the lowest levels since the spring of 2016, before the EU referendum. This finding fits with our own “Worry Index” which tracks newspaper references to terms relating to uncertainty and risk. It dropped to a ten-year low in the first quarter.
To the bafflement of economists Britain’s economic recovery has been accompanied by growing demand for labour and falling wages. Since 2007 the number of people in work in the UK has risen by 2.7 million, an increase of 9%. Over the same time earnings, after allowing for inflation, have fallen by about 2.5%.
The idea of measuring national happiness has been around for decades and was pioneered by the government of Bhutan in the 1970s. Since the global financial crisis interest in measuring, and understanding, what drives happiness, has risen.
Donald Trump’s scepticism about free trade is longstanding and was a prominent feature of his 2016 presidential campaign. Such was the appeal of Mr Trump’s protectionist stance that his opponent and former free trade advocate Hillary Clinton found herself renouncing the Trans-Pacific Partnership she had once promoted.
In the aftermath of the financial crisis poverty, inequality and social inclusion have become high profile issues. To its adherents, and there are many, the solution is for the state to provide adults with a Universal Basic Income (UBI) to cover their basic needs, allowing them to earn whatever they wanted in addition. Implementing a UBI would represent a profound change in the role of the government and its effect on peoples’ lives.