Sir Charles Bean's picture
Affiliation: 
London School of Economics
Credentials: 
MA Cambridge
PhD MIT

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:
120% of GDP (e.g. if fiscal support were doubled)
Confidence level:
Confident
Comment:
We should not be overly concerned about incurring high public debt to deal with the crisis caused by the virus. Like a war (or the financial crisis), this is the classic shock that warrants a temporary period of (possibly much) higher borrowing. The reaaly important thing is that after the crisis has past, the debt/GDP ratio is put onto a gently declining path in order to create more fiscal headroom for when the next adverse shock comes along - as it inevitably will.

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:
Confident

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

Answer:
Government credit support for businesses
Confidence level:
Confident
Comment:
The objective of policy should be to ensure that the unavoidable sharp (but temporary) disruption to both supply and demand resulting from the necessary actions to address the health crisis do not also result in permanent damage to the future supply capacity of the economy. Essentially that means the government acting as an 'insurer of last resort' to provide a bridge across the period of disruption so that viable businesses do not go bankrupt in the meantime. If the period of disruption is relatively short, that can be achieved through measures to ensure that loans are freely available on reasonable terms. Because these are loans, rather than transfers, they minimise the cost to the exchequer. If, however, the period of disruption is relatively long, then such a strategy will be inadequate as it will leave businesses (especially SMEs and those with relatively high fixed costs) with excessive levels of debt, so transfers/subsidies really need to be part of the package too, and more so the longer the disruption persists. In addition, measures - whether loans or transfers - need to be structured in a fashion that encourages firms to continue to retain and pay their workers (possibly at a reduced rate) during the period of disruption.

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:
Regulatory and competition policies, possibly including financial regulation
Confidence level:
Confident
Comment:
Suitable reforms to financial markets and executive remuneration packages could encourage businesses and their owners to adopt a longer-term perspective and foster a higher rate of investment.

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:
While human capital is not the main reason for the slowdown in productivity growth since the financial crisis, the UK's relatively poor skill levels (including those of management) appear to be a key factor behind the UK's pre-existing lagging productivity performance (i.e. the second puzzle referred to above). We may not yet fully understand the reasons behind the slowdown but UK policy makers can at least attempt to tackle these long-standing deficiencies.

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