Martin Ellison's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of economics

Voting history

Covid-19: Economic Policy Response

Question 2: Which of the following would have the second greatest impact in mitigating the economic effects of the coronavirus economic crisis in the UK?

Answer:
Government transfers to and bailouts of businesses
Confidence level:
Very confident
Comment:
In effect, we need to pause economic time until the virus passes. Extending credit to firms and workers helps to some extent but is likely to cause problems in the future when they have to cope with severe debt overhangs. Better that the whole society takes the hit now by making cash transfers funded by increasing public debt. Interest rates are very low by historical standards so debt servicing costs are minimal, and markets still appear willing to lend to the UK government. The UK budget deficit rose in excess of 20% of GDP in both World War I and II, leading to large spikes in debt, but which we were able to pay down in subsequent years through a combination of GDP growth, inflation and (some) primary surpluses. I would hence like to see much larger scale interventions than have been agreed so far. What’s the point of having a nation state with an ability to borrow large amounts of money cheaply if we don’t use that ability when there is a crisis of this type?

Question 1: Which of the following would have the greatest impact in mitigating the economic effects of the coronavirus economic crisis?

Answer:
Broad cash transfers and/or tax cuts
Confidence level:
Very confident
Comment:
The coronavirus is a huge shock to demand and supply that is persistent but likely temporary. The policy response therefore needs to focus on sustaining the economic system until the effects of the shock dissipate. It is critical that we retain the organisational capital of firms and the skills of workers, which are best guaranteed by direct cash injections to firms to guarantee their cash flow and direct cash payments to cover the salaries of workers temporarily laid off due to the virus. This is not about stimulating demand (with leisure facilities closed there’s very little for people to spend money on) but about maintaining the supply base of the economy. We have already seen productivity growth in the UK slowing since the Great Recession; productivity will collapse if government support is not forthcoming.

Labour Markets and Monetary Policy

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Question 2: Do you agree that, in a period of great uncertainty and after a prolonged period of weak real wage growth, monetary policy makers can afford to wait for greater certainty about real wage developments and building inflationary pressure before raising interest rates?

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Answer:
Agree
Confidence level:
Confident
Comment:
The downside to inaction is "letting the cat out of the bag", i.e. setting in motion a chain of events that will be difficult to control. In the current climate I don't see what this could be. If inflation were to rise then the central bank has plenty of ammunition in terms of interest rate hikes or QE reversals, so it seems premature to act now.

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Question 1: Do you agree that a strong labour market is a good indicator of building inflationary pressure?

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Answer:
Agree
Confidence level:
Confident
Comment:
I'm concerned that our ability to accurately measure inflation is deteriorating over time. The statistical authorities find it difficult to measure inflation when the nominal recorded cost of many services is zero (Skype, Facebook etc), so the strong labour market may be a good indicator that the economy may be overheating even if inflation is muted. Strong labour market performance is an indicator of *something* and that something may call for policy actions.

Bitcoin and the City

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Question 2: Do you agree that the regulatory oversight of cryptocurrencies needs to be increased?

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Answer:
Strongly disagree
Confidence level:
Confident

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