Ray Barrell's picture
Affiliation: 
Brunel University London
Credentials: 
professor of economics

Voting history

Happiness and well-being as objectives of macro policy

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Question 2: Do you agree that quantitative well-being analysis should play an important role in guiding policy makers in determining macroeconomic policies?

 
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Answer:
Agree
Confidence level:
Confident
Comment:
Quantitative well being analysis should clearly be one guiding factor behind longer term macro economic policies that affect employment and growth. However, it is hard to give a weight to well being as compared to output per head, and hence care has to be taken in discussing and designing policy frameworks. Fiscal policy can obviously be used to help increase wellbeing by reducing deviations of unemployment from its sustainable level, and this can best be achieved by limiting the speed at which excessive deficits are eliminated. The content and composition of fiscal policy can be made to help reduce sustainable unemployment and raise well being. Much of this would have to be done with labour market policies, buy the provision of low wage public sector related jobs as an alternative to benefits would do much to reduce unemployment. This would be particularly important for the young unemployed. Designing monetary policy regimes that take account of well being is academically much easier than it is for fiscal policy, but much less productive for society. Monetary policy cannot easily reduce sustainable unemployment, but if used carefully it can reduce cycles in employment. This can be achieved by allowing long periods of adjustment to inflation overshoots rather than making unemployment a specific objective of monetary policy. Having a well being related unemployment objective would require giving the central bank a target for sustainable unemployment, but as we have no idea what this is, we could just cause ourselves the problems we created in the 1970s. Low and stable inflation are also factors determining well being, and that should perhaps remain the primary or only objective of monetary policy. In all these areas we should remember that we probably cannot design an optimal policy because we cannot collect enough information on the driving factors for our goals or know enough about the relative importance of goals. We can however, make decisions about what might be better or worse amongst a number of alternatives.

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Question 1: Do you agree that subjective well-being measures, or at least some of the subindices from the typical survey measures, are now reliable enough to give useful insights when used in macroeconomic empirical analysis?

 
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Answer:
Agree
Confidence level:
Confident
Comment:
Well being measures have been with us for some time, and we have long run consistent series for a number of countries. Some well being measures clearly have a role to play in empirical macroeconomics, more particularly as variables to be explained, but also in some cases as explanatory variables. One must be careful, however, not to use them in a mono-causal explanation, for instance with greater equality being associated with greater wellbeing. This may well involve a causal chain, but both may reflect a greater sense of identity (as discussed by Akerlof and Kranton in Identity Economics and by Sen in Identity and Violence) in a society, and hence be the outcome of other economic and social processes. As welfare is the outcome of economic processes, it is important to measure it, and indicators of life satisfaction and happiness may well be good indicators of outcomes. Deaton suggests (in The Great Escape for instance) that life satisfaction is a better well being measure than happiness, and it depends upon levels of incomes, health standards and political freedom. Such measures can also be used as explanatory variables in studies of industrial strife, as explanations of productivity differentials and of labour market participation decisions. Their use will broaden our understanding of what we do and why we do it. The links between unemployment and life (dis)satisfaction and (un)happiness are clear, and they suggest that policy makers should use longer term aspects of macro and micro policies to help reduce unemployment, even at some cost to other goals such as the level of productivity and its short term growth rate.

A “new” UK industrial strategy ?

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Question 2: Do you agree that the UK needs a new regional policy?

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Answer:
Agree
Confidence level:
Confident
Comment:
A new regional policy should be designed to enhance growth, and not just support declining regions. Perhaps an emphasis on infrastructure may help, but that should perhaps be local transport and education, as inter regional links sometimes just make it easier to bring in goods and services, and does not aid production. Supporting small firm creation and development in growing industries are clearly an important parts of such a strategy. It should encourage potential growth poles such as Oxford, Cambridge, Edinburgh and Manchester, based around world class universities. It should also not hinder London, as that region will have to replace jobs lost by leaving the EU. However, we should not hope for much from the right thinking people who have led us out of the EU.

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Question 1: Do you agree that the UK needs a new industrial policy?

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Answer:
Agree
Confidence level:
Confident
Comment:
There are many causes of the UK’s low level of productivity relative to other northern European economies, but it is unlikely that a new industrial policy will help much. Industrial policy in the UK was a relative failure in the UK before membership of the Single Market and the EU reduced the role of the national state in the area, transferring some powers to Brussels and constraining others. The reasons for failure in the 1950s in to the 1970s are well documented, for instance by Broadberry and Crafts (1996) and by the OECD surveys on Regulatory Performance in the UK. They were driven by the nature of the UK elite running policy, where all right thinking men (from Oxbridge not Uxbridge) knew what the right policies were. Evidence was not needed. A similar group of people drove the Leave campaign, saying they wanted control back. It was therefore not surprising that this group of people want to return to the industrial policies that Margaret Thatcher’s Singe Market took away from them. They will run the country in what they perceive as its best interest, which means their best interest. It will be expensive, and it is one of the costs of leaving the EU. The UK does have a low level of R&D spending, and it does have poor infrastructure and poor intermediate education. The first may be addressed by a new industrial policy, the second will possibly be addressed, but HS2 and Hinkley Point are poor indicators of future success. The last, poor intermediate education, will not be addressed by spending resources on Grammar Schools. Well-designed industrial policies do appear to work, but it is not clear that is what the UK will produce. It would be better to have not been put in a position where an incompetent elite starts to repeat policies from the past.

The Future of Central Bank Independence

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Question 3: More generally, do you agree that it is desirable to maintain central bank independence? Again focus on the near future, say next 48 months.

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Answer:
Agree
Confidence level:
Confident
Comment:
Central banks have changed in recent years, resuming their financial stability role. This means that they are much more involved with fiscal policy makers. The Great Moderation saw unwise innovations separating stability from the monetary authorities, and this probably worsened the crises we saw from 2007 onwards, as it reduced the speed and efficiency of reactions. Independence over interest rate setting in relation to politically set inflation targets is wise, and probably will be maintained over the next 48 months. Polities will have to reflect on the causes of crises, and these are seldom located in loose (or tight) monetary policies, but rather result from legislation changes to ‘enhance financial efficiency’ or policies to protect local financial elites from market pressure. We may see ‘efficiency’ legislation in the US, and this could raise the risk of a financial crisis there, and will impinge on Fed independence.

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