Must-Read: Martin Wolf: The British economy after the coalition
Must-Read: Martin Wolf thinks, rightly, that the Tory-LD coalition should face an accountability moment for making its huge bet on austerity, and thus getting economic policy wrong. But, unfortunately, it seems that they are not: if the Tory-LD coalition loses, it will be for other reasons.
This is very bad news for the long-run rationality of economic policy in the North Atlantic.
Martin Wolf:
…Growth-promoting borrowing is needed** In what condition does the coalition government leave the UK economy?… In the last quarter of 2014, UK real gross domestic product per head was 4.8 per cent higher than it had been in the second quarter of 2010…. But it was much the same as in the first quarter of 2007… below its pre-crisis peak… [and] close to 16 per cent below where it would have been if the 1955-2007 trend had continued. Moreover, this huge shortfall cannot be explained by a pre-crisis boom. On the contrary, the economy was close to its long-term trend in 2007…. In the short run, stagnant productivity [has] allowed the economy to combine weak expansion of overall output with decent jobs performance. In the long run, however, productivity determines standards of living….
The necessary ingredient is buoyant demand…. The coalition’s fiscal bite was less bad than its bark. The argument [the coalition] offered for tightening faster than Labour had promised was that it was necessary to stop the UK from being… Greece…. This was wildly exaggerated…. Despite failing to hit its fiscal targets, interest rates on UK public debt have remained astonishingly low: 30-year and 50-year gilts yield 2.4 per cent, while yields on comparable index-linked gilts are close to minus 1 per cent. Why should one be desperate to avoid a free loan? What is needed instead is growth-promoting borrowing…