Ten Big Questions for Economic Policy
In last couple of days better news from the construction and manufacturing sectors has fanned hopes that the UK economy may be ‘recovering’, but as I’ve argued before a real recovery is a long way off.
Much of the current debate around the economy seems to come back to two simple measures – growth and the deficit, but in reality the UK faces much wider challenges. It is also the case that the nature of any growth and the manner of any successful deficit reduction policy matters. Imagine for example we go through a credit and asset price boom in the next half decade – growth would appear strong and the deficit would fall rapidly, but the apparent success would be based on very flimsy foundations. It is always worth remembering the reason the UK ended up with such a large deficit in 2009 was due to a collapse in tax revenues and that really sustainable public finances depend upon a rebalanced economy.
So rather than simple concentrating on ‘growth’ and ‘the deficit’, it is worth pausing for a moment and asking the bigger questions of policy makers. I don’t pretend that this list is in anyway complete, but these ten questions would be my starting point.
- How can we ensure that the rewards from growth actually benefit most people? The danger here is a repeat of the situation between 2003-2008, when despite decent headline growth, median wages for those in the middle and below barely budged.
- How can we reduce our dependence on the financial sector as a driver of growth?
- How can we ensure that there is more economic activity throughout the UK rather than too much being concentrated in the South East pocket?
- How can we increase investment levels in the UK? In particular, how can we increase private business investment?
- What can be done about the UK’s poor balance of payments?
- How can we ensure that we have a diverse and resilient tax base?
- How can we better manage the credit cycle?
- How do we tackle long term unemployment and ensure that more people have access to the labour market? In other words, how do we get back to something reassembling full employment?
- Why is youth unemployment so high?
- What is a proper balance between fiscal, monetary and macroprudential policy and how should that balance be managed?
I would be very curious to hear different perspectives on these questions, their answers and what I have missed either in the comments or on other blogs.
But what really strikes me about my list is how few of these questions can be answered with reference to monetary or fiscal policy alone, the big challenges will not be answered through the old policy levers, what is really needed is economic reform.