Thorsten Beck's picture
Affiliation: 
Cass Business School
Credentials: 
Professor of Banking and Finance

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:
140% of GDP (e.g. if fiscal support were trippled)
Confidence level:
Confident
Comment:
This question gets us back to the fiscal policy debate of the 2010s in the UK, where government ignored the advice of national and international "experts" in their mis-guided austerity drive. I do not think that there is a magic fixed debt threshold above which public debt in the UK with its own currency and flexible exchange rate becomes unsustainable. To the contrary, a big fiscal recovery package now can stimulate the economy and help reduce debt/GDP in long-run. It might also help reduce the shock to be expected from the UK exiting from the Single Market and Customs Union at the end of this or (more likely) next year.

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:
The question refers to economic growth, not to economic equity or fairness. In this sense, supporting businesses to recover from the Corona-recession as quickly as possible will be critical. While providing credit (guarantees) might them help through the recession, losses will still be there and firms might have to thin an equity buffer (to be able to roll over or attract new debt funding) to continue functioning. Recapitalisation of firms in certain industries (such as transportation) might be therefore necessary. Obviously, this should come with strings. While nationalisation might not be the best way to go, recapitalising in the form of preferred shares and restrictions on executive pay and dividend payments might work. In some industries (e.g., rail services) this might also be a good moment to restructure ownership and management of service provision.

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:
Very confident
Comment:
Support for businesses (possibly best done through credit guarantees), ideally at low or zero interest rates, allows firms to continue paying their employees and fulfil their other financial commitments, as revenues fall towards zero in many sectors. Such credit (guarantees) should have a grace period of six months (to be extended if necessary) and a reasonably long maturity. This allows economic activity to be frozen (mostly for health reasons) while preserving the plumbing of the modern market economy.

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:
Infrastructure investment
Confidence level:
Very confident
Comment:
Helping regions outside the South of England and London to get better connected would make them more attractive investment targets, with positive externalities across firms and sectors in these locations.

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:
Very confident
Comment:
Improvements in technical skills would be a long-term solution to support a well-trained working population and thus also improve productivity growth

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