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

Voting history

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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Question 2: Do you agree that the traditional argument that less central bank independence leads to higher inflation will (still) be relevant over the next 48 months in Western economies?

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Answer:
Disagree
Confidence level:
Confident
Comment:
In general the link between independence and inflation has been more tenuous than the academic profession suggests. Some years ago Posen suggested that independence was the result of the desire for low inflation, not the cause of it. That argument remains sound. Inflation in the short term is little influenced by central bank actions, and many of those arguing for less independence want to see less monetary expansion and higher interest rates. This would reduce inflation, not raise it. An increase in inflation as a result of a decline in independence could come from a sharp revision to inflation expectations by price and wage setters. Although financial markets may believe that independence reduces inflation, it is not clear that this view has spread to the wider economy. Marginal reductions in independence are unlikely to affect expectations, and inflation is unlikely to rise in the UK and the Euro Area as a result of any changes. However, in the US we could see legislation and pressure that would induce lower interest rates than would be normal in the face of fiscal expansion. Hence we could see a rise in inflation there well before the end f 2018 because the Fed became more politically pliable.

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Question 1: Do you agree that central bank independence in the Eurozone and the UK will decline over the next 48 months?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
It is unlikely that central bank independence will decline markedly in either the UK or the Euro Area in the next 48 months. In both cases significant changes would require legislation or even treaty change for the ECB, and this is unlikely to happen in such a short period. Increases in oil prices, and for the UK a devaluation, mean that inflation will rise toward target in both areas. Interest rates will follow upward, and quantitative easing will become much less prominent. Hence some of the political pressures for less independence will be diluted.

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