Ethan Ilzetzki's picture
Affiliation: 
London School of Economics

Voting history

Covid-19: Economic Policy Response

Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?

Answer:
140% of GDP (e.g. if fiscal support were trippled)
Confidence level:
Not confident
Comment:
This is a grave and (hopefully) one-off emergency and the UK government should do what it takes to support NHS and the economy over the upcoming months. With 10-year bond yields at 0.6% the public is currently paying the government to borrow from it and I'm not concerned about the UK government's borrowing capacity--at the moment. My answer would be different for emerging market economies that might have to take fiscal space into account. The only reason I didn't choose >140% is my concern about the opportunity cost. There will be social needs and possibly even greater crises in the future (we didn't anticipate this one, did we?) and I do think there may be an eventual day of reckoning on public debt. 60% of GDP is enough for the government to replace all incomes nearly to the end of the year, so should be more than enough for all the measures necessary.

The UK Productivity Puzzle

Question 4: Which of the following policies would be your second choice of policy to boost private sector productivity, in addition to or absent your first choice?

Answer:
Infrastructure investment
Confidence level:
Not confident

In the last two questions you are asked which government policies are best suited to help the UK emerge from its productivity growth slowdown. Question 3 asks for your most preferred policy option, while question 4 asks for your second choice. You may use the comment section to outline specific policy recommendations.

Question 3: Which of the following policies would best help improve private sector productivity?

Answer:
Investments in human capital including education and job retraining
Confidence level:
Confident
Comment:
Although I do think the productivity decline may have been driven by low demand, I don't think it's possible at this point to resolve the crisis through pure demand-side measures. I think the policies should focus more on increasing the UK economy's long run potential as a producer of high-skilled goods on the technological frontier. The only way to boost capacities and reduce inequalities is by preparing the workforce to these emerging industries.

Question 2: Which of the following was the second most important cause for the slowdown in UK productivity growth?

Answer:
Productivity mis-measurement
Confidence level:
Confident
Comment:
See above. In addition, productiivty is particularly difficult to measure in the financial sector and the shock to productivity in the crisis was a direct hit to this sector. Further, the sectoral breakdown of the productivity slowdown does appear to be skewed towards this sector. It's very likely that the two combined to show a measured productivity decline that doesn't correspond to any drop in real productivity.

Question 1: Which of the following was the most important cause for the slowdown in UK productivity growth?

Answer:
Low demand (including due to the financial crisis, austerity policies, or Brexit)
Confidence level:
Not confident
Comment:
The UK productivity slowdown pretty much coincides with the global financial crisis. There is growing evidence and theoretical foundations to the idea that low aggregate demand could lead to lower (measured) productivity either through scale effects or through unobserved capacity utilization.

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