Angus Armstrong's picture
Affiliation: 
Rebuilding Macroeconomics, IGP, UCL
Credentials: 
Director of Rebuilding Macroeconomics
Professor, University of Stirling

Voting history

Post-Covid Fiscal Rules for the UK

Question 3: Which of the following variables should fiscal rules target to best improve the performance of the UK macroeconomic policy going forward.

Answer:
No explicit target
Confidence level:
Very confident
Comment:
To best improve the UK macroeconomic performance fiscal policy ought to aim at a socially inclusive economic objective -- such as ensuring that labour and all other resources can be fully mobilized, now and in the future, in the pursuit of wellbeing in thriving communities. To operationalise this objective requires some new measurement such as sustainability, agency and inclusion as well as traditional measure of economic activity. These metrics ought to be the aim of fiscal policy.

Question 2: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the conduct of fiscal policy in the UK?

Answer:
Harmed
Confidence level:
Very confident
Comment:
This seems to be more a question of the application of fiscal rules, rather than having rules per se. In this case I consider that the rules have relied on some dreadful macroeconomic ideas - such as the long run of the economy is somehow tied-down by some 'given' or fixed long run potential growth rate which has embedded fiscal conservatism when this was least appropriate. This reflects the limits of conventional thinking about what drives long term productivity and prosperity rather than the veracity of having rules per se.

Question 1:  What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the level of UK public debt? 

Answer:
No impact
Confidence level:
Very confident
Comment:
The rules constrain Chancellors to some extent because there is a political cost to being criticised on Budget Day. But some rules are bad rules and constraining the Chancellor in these circumstances is probably counter-productive. I would argue that this was the case in post 2010 in terms of justifying austerity resulting in even higher levels of public debt.

Should We Worry About Post-Covid Inflation?

Question 2: Which of the following will be the greatest inflationary (or deflationary) force facing the UK economy?

Answer:
Global factors
Confidence level:
Very confident
Comment:
Since we advance by learning, any set back to integrated national economic systems will surely be temporary. The UK is a very open economy in trade, capital, humans, ideas. It has had very limited control over pricing power or market interest rates for at least two decades. I expect global factors to continue to dominate.

 Question 1: Which of the following scenarios is most likely to hold on average for most of the upcoming decade?

Answer:
No opinion
Confidence level:
Extremely confident
Comment:
I do not know what will happen over the next decade - hence I have answered no opinion with extreme confidence. I would be surprised if anyone really thinks they do know what will happen with any strong conviction. However, based on the background notes in the text I would add the following. First, the rise in deposits is simply the result of the sudden stop in spending due to lockdowns. Second, what really matters is whether the increase in deposits is accompanied by higher lending. In fact, we see the opposite. The ratio of loans to deposits has collapsed. Yes, it will rebound once lockdown is lifted, but I do not see why it will rise further as this would imply more leverage. Therefore, I think the risk is that inflation will be below target and until the Bank of England changes its policies then I don't see why deflationary pressures will persist. On a third and final point, I am sympathetic to the longer term global challenges and I think these are far more important than domestic policy changes.

Pages