Wouter Den Haan's picture
London School of Economics
Professor of economics

Voting history

Prospects for Economic Growth in the UK April 2014

Question 1

The long period of slow or negative growth might imply that there is a substantial output gap in the UK economy.  Do you agree that there is currently a larger output gap than the OBR estimate to the extent that the shortfall in output relative to capacity is 3% or greater?  

Confidence level:
Not confident
The main indication that the UK economy may have quite a bit of spare capacity is that labor productivity is very low. That is, although the number of employed is not that low, workers do not produce very much. However, the reasons for the low productivity are far from understood. For example, labour hording cannot be a very important part of the explanation, since the strength of employment since mid-2010 is due to greater flows into employment not due to reduced flows out of employment. There are other candidate explanations, but at least an important part remains unexplained. (A useful discussion can be found at http://www.bankofengland.co.uk/publications/Documents/inflationreport/ir12nov.pdf, page 33). Until we understand better what is behind the low productivity, I think it would be better not to count on a substantial amount of spare capacity.

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.

Neither agree nor disagree
Confidence level:
The answer is not the same for all countries. "Rules" that limit structural deficits make it possible to be in a strong financial position when crises hit. Constitutional amendments allow for little or no flexibility to respond to unforeseen events. This is an important drawback. In some countries, however, constitutional amendments may be necessary to impose credible discipline.

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.

Strongly Agree
Confidence level:
Very confident
In Iceland, Ireland and Spain, low initial debt to GDP ratios did not prevent debt to GDP ratios reaching problematic levels. Without such low initial debt to GDP ratios, however, these countries probably would have faced larger and more persistent problems. Moreover, if all countries in the Euro area would have started out with a debt to GDP ratio below 30%, then the Euro zone debt crisis would not have been so severe and possibly would have been over by now.