Patrick Minford's picture
Affiliation: 
Cardiff Business School
Credentials: 
Professor of economics

Voting history

Will COVID-19 Cause Permanent Damage to the UK Economy?

Question 2: Which aspect of the economy poses the greatest risk for a slow recovery?

Answer:
None of the above, other, or no opinion
Confidence level:
Confident
Comment:
Given the sharp rebound I expect, none of these permanent effects are likely. My main concern is with possibly high inflation from the massive growth in money supply produced by QE and liberalisation of the banks. I would like to see monetary tightening and QE with drawal once recovery is in place, eg early 2021.

Question 1: How quickly will the economy rebound (e.g. to the pre-pandemic trend) once the COVID-19 pandemic has been contained and absent major policy interventions? 

Answer:
The economy will recover rapidly (e.g. within a year), with limited lasting effects on the supply and demand side of the economy.
Confidence level:
Confident
Comment:
The recession has been directly caused by lockdown. Lockdown is now being eased and the disease is dying out in its current 'wave'. Future local new outbreaks are containable by localised social reaction. Any totally new wave should come from a much weaker strain of the virus, the strong strains having died out as the result of deaths and survivors' antibodies killing them in the first wave. As this pans out popular behaviour will return to normal, in line with cumulative easing. The economy should restore activity in Q3 and Q4.

COVID-19 and UK Public Finances

Question 2: What is the best way to (eventually) reduce public deficits and debt?

Answer:
Perpetuities
Confidence level:
Extremely confident
Comment:
As noted above, the government should issue debt at the longest possible maturities given current long term interest rates. Perpetuities would be ideal vehicles for this maturity lengthening. By keeping the debt interest cost as low as 0.4%, if that can be achieved in the sale of debt outside the public sector, then the future taxpayer cost will be minimised. There will then be no need for policies of inflation for example to devalue the debt. Instead fiscal policy can be addressed to the growth needs of the economy, including tax reform; also to eliminating the zero lower bound and restoring normal savings markets and returns, together with monetary normalisation.

Question 1: How urgently should the UK government address the rise in public debt?

Answer:
There is no need to take or announce any budgetary actions to reduce the deficit or the public debt until the end of the pandemic
Confidence level:
Extremely confident
Comment:
The government needs to see out the pandemic, financing its needs by borrowing. Currently the Bank is buying up this debt on the open market via QE,so that effectively the public sector is selling no debt on the markets. The Bank should dispose of its holdings as soon as the market can absorb it at current very low interest rates; the government should aim to issue at the longest possible maturities to lock in currently very low rates of interest. Once the Bank has reissued these to the market, the government will then face low costs of debt financing over the long term, which will keep the future cost to taxpayers down. Once the pandemic is over, a longterm plan can be drawn up for supporting the economy with taxes as low as possible and necessary spending while ensuring that longterm solvency is ensured.

The UK 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:
None of the above, other, or no opinion
Confidence level:
Confident
Comment:
I am unconvinced there is a 'productivity problem' to be solved here as explained above. In general I am in favour of policies to strengthen the supply-side via lower taxes and supportive public spending policies, regardless of the issues raised here.

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