Andrew Mountford's picture
Affiliation: 
Royal Holloway
Credentials: 
Professor of economics

Voting history

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Strongly agree
Confidence level:
Confident
Comment:
Another multidimensional question asking for a one dimensional response. Yes there is certainly evidence that in the UK at least quantitative easing is fuelling a house price bubble which is a risk to the UK financial system. However increasing liquidity after the 2008 financial crisis was clearly the correct policy response in the short term. But surely it should have been possible to implement an accomodative monetary policy alongside a stricter regulatory structure that ensured that the increased liquidity was not used to fuel a speculative bubble.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Strongly agree
Confidence level:
Confident
Comment:
As ever the question asks for a one dimensional response to a multidimensional question but from reading the financial press we do seem to be back in a similar situation to that in the leadup to 2007-8 crisis . However this is not due to a build up of public debt but due to a failure to address the bias in the financial system towards the taking of excessive risk. Fundamentally the financial system hasn't significantly changed since 2007. The Banking sector is still highly concentrated and so bank failures will have systemic effects. In the UK the banking sector is still vulnerable to a house price correction (and so interest rate hikes) as Bank business models are still reliant on mortgage lending which is about two thirds of major UK banks’ loans to UK borrowers . I also read that Eurozone banks are similarly vulnerable to interest rate rises. The only changes from 2007 stem from the increased regulation of Basel III and the Vickers report reforms in the UK. However it is difficult to have confidence in these as (i) Vickers himself felt the increased capital requirments have been watered down and in any case are subject to the same off balance sheet manipulations as before. Basel III also seems to be just more of the same (see e.g. Wikipedia criticsm) (ii) the ring fencing of retail banks in the UK may make them even more vulnerable to UK property market swings and (iii) the disciplining effect of bailinable bonds on lending behaviour is dubious at best. So its very much a case of plus c'est change https://www.reuters.com/article/us-eurozone-banks-ecb/fifty-one-euro-zone-banks-vulnerable-to-rate-shocks-ecb-says-idUSKBN1CE0KI https://www.ft.com/content/a56772c4-6554-11e7-8526-7b38dcaef614 http://www.bbc.co.uk/news/business-35573225 http://www.bankofengland.co.uk/publications/Pages/fsr/2017/jun.aspx https://www.bloomberg.com/news/articles/2017-10-03/fed-s-next-bank-cop-seen-as-icebreaker-in-basel-capital-standoff https://en.wikipedia.org/wiki/Basel_III

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
This depends very much on your view of what the future would look like if European states did not co-operate (i.e. pool their sovereignty) on macro matters (defence, tax , money, tariffs, market regulation). The more apocalyptic your view of this possible future, the more you will believe that the costs of cooperation are outweighed by the benefits, whatever your criterion function.

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Question 1; Do you agree that euro membership should be compulsory for all EU member states?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
One cannot separate the issue of economic prosperity from politics e.g. as the renowned economists, Besley and Persson have shown, greater `state capacity' allows for a more efficient collection of taxation and so an increased state capacity in the future. Efficient tax raising ability enables more investment in productive public capital (e.g. better rule of law, and more productive citizens via more efficient public administration (including law enforcement and tax collection), health, education, transport and housing investments) and so more efficient tax raising in the future. We undoubtedly live in a world where the capacity of states has been diminished by the growth of large and multinational corporations that are expert at playing one country off against another, avoiding taxation and evading regulations. Thus if the euro is part of a cooperative process that allows for the creation of greater state capacity in Europe and so the greater ability to collect taxes from large and/or internationally mobile corporations then these potential gains can be compared to the evident present day costs of e.g. high levels of unemployment in many euro member states. However, if this is the justification, then I don't see, from a practical as well as social welfare perspective, why a cooperative process doesn't do more to compensate the losers e.g. via transfers/investments within and across countries and within and across generations.

Wages and economic recoveries

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Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?

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Answer:
Agree
Confidence level:
Confident
Comment:
This is simply the wrong question to ask about the labor market. Of course if you make welfare payments low enough and employment obligations small enough then in equilibrium you will have lower unemployment and more people having to put up with low pay and poor working conditions, see e.g. http://www.bbc.co.uk/news/business-37334936 But if this is the reason for low unemployment and high participation rates then it is not the sign of a well functioning labor market. Furthermore, such work often leaves workers below the bread line and so is effectively subsisized by the welfare system thus implying taxation and so inefficiency elsewhere in the economy. Investing in training and workers invariably implies commitment and so a degree of infelixibility. A flexible response to business cycle variability is a clearly a good thing in itself but not if it is at the expense of training and long term accumulation of skills, experience and organizational capital.

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