Simon Wren-Lewis's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of economics

Voting history

Towards a High-Wage, High-Productivity Economy

Question 2: What is your evaluation of the following statement: “A well-designed government-stipulated wage increase can lead to higher productivity”?

Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
See above. Impossible to say without specifying how specifying how that 'well-designed government-stipulated wage increase' has been achieved.

Question 1: Which of the following statements most closely reflects your understanding of the relationship between productivity and wages.

Answer:
Wage increases can in some cases increase long-run productivity
Confidence level:
Confident
Comment:
With all price changes we have to ask why are prices higher before giving a good answer. If real wages are higher in some sectors because stricter immigration controls lead to supply shortages, the higher wages might produce productivity improvements in those sectors, but productivity is likely to decline in other sectors. More seriously disruption to supply chains may cause worse outcomes.

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:
Public deficit
Confidence level:
Extremely confident
Comment:
The key lesson of earlier fiscal rules is that you have to allow room for fiscal stimulus when interest rates hit their lower bound. Any fiscal rule that does not do this or something very similar can do great harm, as 2010-15 showed, and it is better to have no fiscal rule at all than have a rule that doesn't allow for fiscal stimulus at the interest rate lower bound. Equally fiscal rules should never inhibit green investment, or low income compensation for high carbon taxes. That aside, rules should have current deficit targets for five years ahead on a rolling basis, with the actual value of the target determined by views about long run debt and a green new deal. Public investment should not be inhibited by any aggregate rules, but instead the social return on individual projects. Rules should never set debt targets, because they will always fail as they are not robust to shocks. The likely path of interests should inform the path of debt that informs the deficit target, but not be a target itself.

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:
Greatly Harmed
Confidence level:
Extremely confident
Comment:
I'm excluding the period when Brown was Chancellor, when rules had no negative impact on the economy. Following the GFC, rules were used to impose fiscal contraction on the economy when fiscal stimulus was required, and that did great harm, probably leading to a permanent loss in UK output.

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:
Reduced
Confidence level:
Very confident
Comment:
In the five odd years before the GFC, Labour's fiscal rules did force greater fiscal consolidation than would have happened otherwise. Since 2010, macro policy has been (erroneously) designed to reduce public debt, and the governments fiscal rules helped them do that. The exception is post 2015, when Osborne just set rules for short term party political reasons. It is quite wrong to say that because fiscal rules were broken they were useless. Labour's rules lasted for 10 years until the GFC. Osborne's main rule under the Coalition government held for 5 years. The lesson of this period is good rules survive, unless their is a large negative shock.

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