Richard Portes's picture
Affiliation: 
London Business School and CEPR

Voting history

Economic Consequences of an Independent Scotland June 2014

Question 1

Do you agree that that Scotland would better off in economic terms as an independent country?

Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
Scotland would lose substantial net transfers from the rest of the UK. It could use the pound sterling as its currency, but there would be no monetary union, hence no influence over its own monetary policy and exchange rate. Conversely, recent research suggests that the shock-absorbing benefit of floating exchange rates for a small open economy have been exaggerated, in the face of the 'global financial cycle'. It might succeed in (re-)joining the EU, but that is by no means certain, and the EEA, with again no influence over its own policies in many domains (having to accept Single Market legislation), is decidedly second-best. The Edinburgh-based financial institutions would suffer, and some might move. And so on.

Euro Area Deflation and Risk for UK Economy May 2014

Question 2

Do you agree that a deflation in the Euro area (as defined in Question 1) would pose a considerable risk to the UK recovery?

Answer:
Agree
Confidence level:
Confident
Comment:
The main short-term effect would be through financial markets and confidence rather than through trade. But if deflation took hold in the euro area as it did in Japan, then there would be a longer-term effect through trade. Neither would in itself take the UK into recession, but either could reduce growth significantly.

Question 1

Do you agree that there is a significant risk of a sustained deflation across the Euro Area in the coming two years?

Answer:
Agree
Confidence level:
Very confident
Comment:
HICP inflation falling since late 2011, below 1% since October 2013; core higher but also falling since autumn 2013. Not clear what is your source for '5-year forward inflation-linked swap rate' - I believe the 5-year OIS rate this morning was 0.595%, while the 2-year is 0.18%. Not much between that and deflation! 5 countries of the 18 are already in deflation, and the average for the others is <1%. Survey and market expectations are clearly 'de-anchored' from the ECB 2% target, and so are mine. But this is assuming unchanged ECB policies. The question is how soon and how much they will change.

Responsible long-term fiscal policy (pilot survey)

Second question:

To help ensure that advanced country governments pursue responsible fiscal policies, countries should adopt formal rules for limiting structural deficits, which are supported by primary legislation or constitutional reform.

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
'Balanced-budget amendments' may have some justification for regional sub-units within a sovereign (states, municipalities). But they impose undesirable inflexibility on economic policies for sovereigns which may have to respond to severe aggregate macroeconomic shocks. A much better alternative is an independent fiscal commission that analyses and comments on government fiscal policies.

First question:

To help ensure that advanced country governments have sufficient flexibility to respond to future crises, it is important that finance ministries aim for a ratio of public debt to GDP that is substantially less than 60% in normal times.

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
Recent empirical work suggests there are no thresholds beyond which the debt-to-GDP ratio is associated with lower economic growth. History shows that economies can cope with very high ratios, although it may take an extended period to return to 'normality'. But 'normal' may encompass a very wide range. The fixation on debt reduction since the crisis has been bad economic policy, with demonstrably bad results.

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