Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

Covid-19: Economic Policy Response

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:
Extremely confident
Comment:
The crisis is severe and is becoming widespread. Time is of the essence. The policy response has to be swift. Targeted responses that involve conditionality and a lot of paperwork cannot be definition be quick. A broad based tax cut can benefit the employed but will not benefit the unemployed. A cash transfer would benefit everyone. A three month holiday on mortgage payments and credit card debts backed by regulatory forbearance will benefit the indebted and can protect those who are temporarily laid off. Another way to support households is to allow withdrawals from pension funds without tax penalties while the crisis lasts. This will have no immediate fiscal impact but can allow households to smooth consumption.

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 credit support for businesses
Confidence level:
Extremely confident
Comment:
Many businesses that were solvent before the crisis need to be able to access liquidity quickly. This can be achieved through the banking system.

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:
Investments in human capital including education and job retraining.
Confidence level:
Extremely confident
Comment:
Clearly education is the most direct way to improve skills and human capital once we first ensure that the best talent isn’t diverted into unproductive activities and speculation. Public investment p in schools and universities is essential to improve human capital.

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

Answer:
(Insufficient) investment in research and development
Confidence level:
Confident
Comment:
Reward structure in the U.K. have traditionally favoured finance relative to more productive sectors. The high rewards in finance have misallocated talent in the sense of Acemoglu (reward structures and the allocation of talent, EER 1995). A paper by James Ang in EER 2011 shows that policies that favour the financial sector divert talent into finance from the R&D sector. Ang uses patent data from 44 OECD countries including the U.K. and 22 non OECD countries. Financial deregulation, by increasing the relative rewards in finance, distorts the allocation of human capital and reduces R&D. This is a largely neglected channel in discussions of the U.K. productivity puzzle.

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:
Regulatory and competition policies, possibly including financial regulation
Confidence level:
Very confident
Comment:
In the long run, reward structures in finance should be more in line with productive sectors, so that more human capital is attracted to R&D and innovation. Although there has been progress in financial regulation since the crisis, more needs to be done to ensure that talent is more evenly distributed across the economy and that more talent is directed into R&D. Competition policy can help change relative rewards to facilitate that.

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