Wednesday , October 28 2020
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Simon Wren-lewis

Simon Wren-Lewis

Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

Articles by Simon Wren-Lewis

Starve a kid to save a quid [1]

2 days ago

One of the myths perpetuated by mediamacro is that management of the public finances is all about controlling our debt by keeping deficits down. As with so much of mediamacro, this is something no academic macroeconomist would say. Econ 101 (first year undergraduate economics) tells you that the deficit should rise and fall with the economic cycle. In particular in major recessions deficits rise rather a lot, and that is exactly what they should do. Econ101 also tells you that in a recession caused by collapsing demand, it makes sense to increase the size of an already large deficit through fiscal stimulus. It becomes absolutely necessary to do so when interest rates can no longer stimulate the economy because they are stuck at their lower bound. Fiscal stimulus is the way you get out of

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Why do some find the economics/health trade-off so hard to get? Because it’s like the Phillips curve.

9 days ago

The distinction between the short run and long run traditional Phillips curve (not the New Keynesian variety) is so ingrained in economists that it seems obvious to us. We sometimes forget that it took many years for policymakers to understand it. I think something similar is happening with the economics/health trade-off in this pandemic. There is undoubtedly a short term trade-off between imposing greater restrictions (in extremis, lockdowns) to improve health outcomes (a good) and the negative effect that has on the economy (a bad). In much the same way as there is generally a short term trade off between expanding the economy to reduce unemployment (a good) and getting higher inflation (a bad). But in both cases that is not the end of the story. The problem highlighted by the

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The anti-lockdown crusade gains oxygen from this government’s ineptitude

16 days ago

If anyone still doubts that Brexit was our Trump moment, look at some of the same characters (Tory MPs, newspapers, even voters) who supported Brexit getting behind what has become an anti-lockdown crusade. I use the word crusade deliberately. Rather than religion it is ideology that drives most anti-lockdown proponents. That ideology is libertarian, although to borrow a phrase from Chris Dillowon mask phobia, this libertarianism is just solipsistic narcissism. What the crusade isn’t, for most of the anti-lockdown brigade, is evidence led. That is not to say that some scientists may genuinely believe that lockdowns are never worthwhile. Science shouldn’t be closed to heretical ideas, and there will always be scientists who put forward such ideas. Occasionally the heretical turns out to be

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Are there turning points in recent UK history?

22 days ago

This post follows on from my posttwo weeks ago, where I argued that there was a degree of inevitability that led us to governments led by Boris Johnson and Donald Trump. To summarise that argument, it is that right wing neoliberal governments in both countries have pursued policies that benefit the few rather than the many, and so to win elections they have pushed socially conservative ideas. But that push has been limited by a knowledge that some socially conservative policies can damage business interests: so in the US immigration control was not on the agenda and in the UK targets were missed. However neoliberalism also encouraged and legitimised wealthy individuals to meddle in politics, and some chose to push for even greater redistribution and less regulations. They could achieve

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Sunak and most Tory MPs do not understand the economics/health trade-off, and many people will die as a result

September 28, 2020

It is well known and generally accepted that despite warnings from China, Italy and elsewhere, the UK government were late in imposing a lockdown that reversed the march of the virus . That mistake cost tens of thousands of lives, and a severe hit to national output. You might have thought that this colossal error would have made the government fear the virus. Surely mistakes would not be repeated. But as Harvard epidemiology professor William Hanage notes, having not learnt the lessons from its neighbours its now failing to learn the lessons from itself. The Prime Minister, despite getting the virus in a life threatening way himself, is predisposed to tell good news stories, and so was too eager to relax the lockdown. Sunak egged him on, thinking only about how much money the Treasury

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Why neoliberalism can end in autocratic, populist and incompetent plutocracy

September 22, 2020

Is it a coincidence that the two countries that first championed neoliberalism (under Thatcher and Reagan), should end up with autocratic, populist and incompetent leaders (Johnson and Trump) in what is best described as a plutocracy? The thoughts below are, to use a phrase that Philip Mirowski once used about something I wrote, untutored, so comments via twitter (or DMs, or emails) will be gratefully received. Before addressing that question, there will be some who will think I am exaggerating. Both countries are still democracies after all. But being a democracy did not stop both Johnson and Trump being elected. Both leaders are undoubtedly autocratic, in the sense that they or a tiny group around them wield far more power than their predecessors did, and they spend considerable

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Whether its COVID or Brexit, this government is continuing to fail terribly at everything it does. Will Conservative MPs do anything about it?

September 14, 2020

Testing failureSo for many visits to grandparents are off. No one should dispute that the government needed to do something after a sharp increase in the number of positive tests. However there is also no doubt that one of the factors pushing them to act was the partial collapse of the test and trace infrastructure. Stories of people being told their nearest test was tens or even hundreds of miles away, or that no tests were available, abound, and now we have leaks of hundreds of tests being thrown away because they cannot be processed and cases returning to care homes. The specific reason for this failure remains unclear. Keir Starmer tried repeatedly at PMQs to get some explanation from the Prime Minister, but the best Johnson could manage is that demand was high. Which of course was

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In the UK Treasury cutting the deficit generally takes priority over the health of the economy

September 9, 2020

The UK Treasury bears some responsibility for the disaster of 2010 austerity, yet it has not accepted or understood the mistake it made. As a result it risks repeating the mistake, albeit in a milder form.The problem is that fiscal prudence is basic to the way the Treasury operates, and with few exceptions other priorities, including the macroeconomic health of the nation, are not allowed to get in the way of that goal. Only the most determined Chancellor can change that. It is a longstanding problem. Back in the 1960s Harold Wilson tried to solve it by creating a separate ministry, but the Treasury maintained its power.This was a key issue for the Kerslake review, of which I was a member. As we noted, the problem of prioritising the public finances over macroeconomic goals has got worse

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Will taxes have to rise?

September 1, 2020

That is the question addressed in this debatebetween Jonathan Portes and Bill Mitchell. I found the discussion very frustrating, because it is really a debate about medium term inflation forecasts dressed up as something more fundamental. Both Mitchell and Portes agree that there is no need for taxes to rise to ‘pay for’ the fiscal costs of the pandemic. In an age of ultra-low real interest rates, shocks to the debt to GDP ratio like the Global Financial Crisis and the pandemic should be allowed to gradually wither away as growth outstrips interest rates on that debt. Trying to reduce debt by running deficits close to zero, or even surpluses, as Osborne tried to do, threatens to derail a full recovery. I think it would be fair to say that the argument from Jonathan Portes is that we

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The political economy and psychology of COVID rebounds

August 11, 2020

You can call it a second wave, or a resurgence of the first wave. But whatever you call it we are seeing in some European countries a steady (and occasionally rapid) increase in new cases after a longer period when new case numbers have been coming down or been stable. A good reason to not call this a second wave is that the first wave never went away. Changing social behaviour, aided by government support and a lockdown, reduced new case numbers rapidly. However governments relaxed the lockdown before new cases fell to almost zero, and so domestic transmission continued at a low level. But why have the number of new cases started increasing in the last few weeks in many countries, after a period of apparent stability?The simplest answer to this question is why shouldn’t they. The natural

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The reality behind fiscal scare stories, or mediamacro is alive and well

July 21, 2020

If you listen to the broadcast media, you will have almost certainly picked up the message that at some point in the near future the Chancellor is going to have to raise taxes or cut spending to ‘pay for’ all the support to the economy during the pandemic. At least the Financial Times has learnt the lesson of 2010, and notesin this editorial that the Chancellor“must hold the line and resist attempts to push the UK into a premature fiscal retrenchment. Cutting spending in the middle of the worst recession since the creation of the country would be a historic blunder and make Britain poorer in the long run through unnecessary unemployment and business failure.” If only they had said the same in 2010. But they add “Eventually the bill for the crisis-fighting measures will come due.” This is

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Why the election for a new Liberal Democrat leader could be the key to voting Johnson out

July 14, 2020

I would normally have commented on what the Chancellor announced last Wednesday, but much of it was covered in my post last Tuesday where I talked about vouchers, VAT cuts on social consumption, green investment, and unemployment support. The only issue with what he did was that he should have done more of all those things. I did not, in that review of interesting policy options, talk about his cut to stamp duty or his £1000 bonus if firms re-employ a furloughed employee, because the former is tried and tested and the latter is not a good policy. The number of firms where that £1000 will make a difference is likely to be very small. The main beneficiaries are companies that do not need help to continue, rather than those who are in trouble because of the pandemic. Which is why the head of

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Sabotaging the recovery

July 7, 2020

I wrote last week about how a premature easing of lockdown in the UK would cost many more lives. This post will be about how it is also likely to create a weak recovery where some businesses will go to the wall and many jobs will be lost. A good starting point in thinking about the kind of recovery we could have is to think about synchronized holidays, like Christmas or the summer holiday in much of France. Most of the economy closes down for a few weeks, but starts up again without any long term harm done. You get a V shaped recovery, which we never notice because it gets seasonally adjusted out of the data. A few months is not fundamentally different from a few weeks, if the government provides sufficient support to firms, the self employed and individuals? The absence of such support

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Why does this government get away with murder?

June 30, 2020

In the government’s final press conference Chris Whitty, the Government’s chief medical officer, said““I would be surprised and delighted if we weren’t in this current situation through the winter and into next spring.” The significance of that statement cannot be overstated. Deaths in the UK from the virus are currently running 100 every day. (The true total may be higher.) The chief medical officer is saying don’t expect to see deaths running at an order of magnitude lower before the Spring of next year. I fear we have become desensitized over coronavirus deaths. We keep being told by the government that they are at a much lower level than they used to be, every graph shows deaths are much lower than they were at the peak, resulting in a danger that we regard daily deaths around a

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Did the UK really almost go bankrupt?

June 25, 2020

I normally publish posts in the first half of the week, but two separate attempts were overtaken by events, and they will have to wait for another day. I finally wrote somethingfor the Guardian on the Governor’s interview that led to nonsense headlines about the UK almost going bankrupt. The piece explains why they are nonsense, but I should note here that the headlines are classic mediamacro, appealing to the idea that governments are like households. Frances Coppola makesthe same point a different way. You could describe what happened in March this year as a short term liquidity problem. There is no suggestion the UK is insolvent. And the thing about countries with their own currencies is that they never have a liquidity problem because they create money. She also notes that no headlines

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What lockdowns do and what they don’t do

June 16, 2020

Just a short post to advertise my Guardian article‘Fear of coronavirus, not lockdown, is the biggest threat to the UK’s economy’. The key point I make is that the economy would suffer badly even if there was no lockdown. People, once they realised the extent of the threat, would stay at home. The three reasons I give for imposing a lockdown are classic reasons in economics for state intervention. The state has an information advantageThe government, because it talks directly to top scientists, can see the pandemic coming a lot faster than the majority of people. That didn’t work out too well in the UK, where people were leading the government, but if the state functioned well this would be true. The state deals with externalitiesWhile the majority of people would stay at home in a

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Locking down too late but ending lockdown too early

June 9, 2020

The major reason we have one of the highest death rates as a result of the coronavirus pandemic is that Johnson/Cummings had an intense aversion to imposing a lockdown, and an unusual disregard for human life. Any decent politician, after being told at the end of February that 500,000 of their citizens might die, would have moved heaven and earth to stop that happening. Anyone watching the recent Despatches documentarywould have heard about scientists worrying about how to stop the pandemic, with little pressure from politicians to do so. It may have been an ultimatum from French president Macron that finally forced Johnson/Cummings to enact a full lockdown on March 23rd. Unfortunately the same factors that delayed a lockdown have led Johnson/Cummings to relax the lockdown too early, when

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How Cummings continues to gaslight the nation

June 1, 2020

There is little sign of anything that can dislodge Dominic Cummings, the Prime Minister’s adviser in chief, from his boss’s protection. Yet there is no doubt the episode has been costly in terms of the popularity of the Prime Minister and his government. It is dangerous for the gang who say they are on the side of the people against the elite to reveal themselves as an unaccountable elite who couldn’t care a damn about the sacrifices others have been making during a crisis whose severity is largely that gang’s fault. The cost goes beyond popularity. The government is desperate, far too desperate, to end lockdown well before the experts thinkit is safe and before common sense says it is safe. The Cummings affair will only make that even more dangerous, as those so disposed flout the rules

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A government without common sense, and with class arrogance

May 27, 2020

Recently the Prime Minister urged workers and employers to use their ‘good solid British common sense’ to decide what was safe with the recent relaxation of the lockdown. Which prompts an obvious question (thanks @SuffolkJason). What has happened to the government’s common sense in dealing with coronavirus? When you see a pandemic sweeping China and with every chance of it coming to the UK, isn’t it common sense to prepare for that possibility by Checking your PPE stockpile and ordering what is missing Exploring how you could ramp up testing capacity quickly if that was needed When the first cases arrive in the UK, isn’t it common sense to do some things to help your test, trace and isolate (TTI) infrastructure by, for example, stopping flights coming from countries with many cases, or

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On V shaped recoveries, and where the Treasury’s deficit obsession will matter

May 18, 2020

I should perhaps go through some of the thinking that lay behind this Guardian articleabout not repeating austerity, because I fear there is a danger of worrying about the wrong thing. I have always been reasonably confident that we would not get an exact repeat of 2010, where the Chancellor says at the low point of a recession (i.e. before a recovery has begun) that we have to start cutting back spending because the deficit is too high. There are two reasons for that confidence. First, the circumstances that allowed 2010 were uniquely advantageous. We had just had a global financial crisis, so false claims about what financial markets might do seemed plausible. There was also a Euro crisis. Everyone was saving more (or borrowing less) as a result of the financial crisis, so you could

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The government is responding to pressure and not thinking clearly about defeating coronavirus

May 12, 2020

In this articlein the Guardian I lay out what the optimal strategy for handling COVID-19 should be for a country like the UK. How does the Prime Minister’s statement on Sunday evening compare to that strategy? The key to relaxing a lockdown is having a test, trace and isolate infrastructure in place, and very low infection levels. We do not have either. So why was Johnson talking to the nation on Sunday? He set out a general framework for relaxing the lockdown, all conditional on some function of infection levels and R. (He didn’t specify what the function was.) To set out an approach makes sense. To not tell anyone what exactly the conditions for relaxation are does not make sense, but it gives him flexibility to make it up as he goes along (or “follow the science” as he likes to call

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Why the media in UK and US has moved beyond manufacturing consent, and why that has led to a war about reporting COVID-19

May 6, 2020

Manufacturing Consent: The Political Economy of the Mass Media (hereafter MC) was a book published by Edward Herman and Noam Chomsky in 1988. From my point of view the key idea behind MC was that media organisations select the news and opinion that they show to viewers in a way that supports the existing economic, social and political system. This could be summed up as saying the mainstream media (MSM) is not subversive. The book talks about the “propaganda model for manufacturing consent” as involving various elements: the ownership structure and for profit goal, the importance of advertising, the importance of particular news sources, sensitivity to organised criticism, and organising filters like the cold war or terrorism. So, for example, in my idea of mediamacro you see the importance

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Did the scientists advising the government on COVID-19 make serious mistakes?

April 27, 2020

The government has now said it will begin to wind down the lockdown with an extensive test, trace and isolate (TTI) regime in place. Containment, having been abandoned on March 12th, is back but this time the UK government is serious about it. It has a much greater chance of success not just because there is more testing capability available, and there will be an app to help with tracing, but also because it will take place with a degree of social distancing. We can only hope that this works, and that government actions match their words. But what seems very puzzling to me is why the scientists advising the government seem to have been preoccupied with moderated herd immunity as the only way to deal with this virus, and largely neglected the possibility that containment could be made to

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Now is not the time?

April 20, 2020

This post was written before the Sunday Times article on 19th April, and has been slightly changed as a result. The most serious failings of the government were already known to anyone who had the inclination to look. Rather than looking at the time line, this piece looks at the types of mistake made.  We keep hearing the phrase in the title (without the question mark), particularly but not only from those sympathetic to this government. Now is not the time to talk about what could have been done given hindsight. Instead we need to focus on saving lives. You could see why this might be true. Resources are finite, and we would rather politicians were focusing on getting things done right now rather than defending themselves over past (in)actions. If you follow this line of thought you might

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Some myths about government debt and how it is financed

April 14, 2020

That the Bank of England was temporarily eliminatingthe limit on the Ways and Means Facility caused a bit of a stir last Thursday (9th April). It in effect meant that the Bank of England could credit the government with as much money as it needed in the current crisis. That it should cause such a stir illustrates how pervasive many of the myths are around government debt. Here are three familiar examples. It doesn’t matter that we are in a developing economic crisis, like a recession or a health pandemic, we still need to worry about what is happening to government debt.This is false for any country that prints its own currency, like the UK. In a crisis you should worry about dealing with the crisis. Government debt is what allows the government to put all necessary fiscal resources

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Who still thinks austerity was a good idea?

April 7, 2020

It is getting towards autumn in 2020, and the new regime of test/trace and isolate with occasional local lockdowns seems to be working. The economy has begun to recover from the 30% fall in GDP compared to a year earlier in the second quarter. But the recovery is not what the media is talking about. Instead they are focusing on the massive government budget deficit that has been a natural consequence of that fall in GDP and the huge government support effort. In response to media concern, the government announces an immediate 5 year programme of cutbacks to government spending, although the NHS will be “protected”. If you think that last sentence is unlikely to happen, I would agree. But this is pretty well what happened in the UK and elsewhere after the Global Financial Crisis (GFC). The

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Following the Science or a National Scandal

March 30, 2020

We can see in the United States right now the dangers of having a populist [1] president running the country during a serious pandemic. Incredibly 90% of Republicans trustthe president to give them accurate information about the outbreak. A president who first called the pandemic a Democrat hoax, and then said it was under control and now wants to end social distancing to celebrate Easter. Some of those people will be paying with their lives for this misplaced trust, but by the nature of pandemics plenty of those who are not Republicans will also share this fate. The UK also has a populist government. Johnson and his cabinet are where they are now because they championed a cause that pitted the elite and experts, who thought being part of the EU brought benefits to the UK, against the

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The economic (and political) effects of this coronavirus pandemic

March 23, 2020

This is an update of an earlier postwhere I described the results of a study I did with others on a flu pandemic. (It also appeared in a VoxEU ebook.) I have had a lot of enquiries from journalists in Europe about this blog and the paper, and of course what everyone wants to know is how similar is our modelling to the impact of this coronavirus. The features of this pandemic are now clearer than when I wrote the post, so I can say a few things on this issue. Our study looked at two cases: a base case and a severe case. The key parameters were the attack rate (how many get the virus) and the fatality rate (how many who get the virus eventually die). The base case is far milder than this coronavirus, so I’m going to focus on the severe scenario we modelled. That had an attack rate of 50%,

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Coronavirus and the consequences of a compliant media

March 16, 2020

This hasn’t been the new government’s first nationwide crisis. That was widespread flooding hitting many regions of the UK. As I explained here, that was partly a disaster created by the Conservative party (with a little help from their coalition partners). Journalists had their chance to make a story out of this by using the hook of Johnson’s non-appearance at any of the flooded towns, but it didn’t happen, just it didn’t happen on all the previous occasions we have had widespread flooding. Which is why spending on flood defences continues to be inadequate. Lack of criticism encourages a certain laziness, but also gives politicians the courage to do things that those in democracies with more accountability would not do. I think we can see both in the coronavirus crisis. In the initial

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Fiscal rules: a primer for the budget

March 9, 2020

Do you want to know why fiscal rules should never involve targets for the debt/GDP ratio, or debt interest, or any stock measure, and why public investment should not be part of a fiscal rule? Read on, but first we have to establish two key principles. Principle 1: what are fiscal rules for? The way some economists are tempted to think about fiscal rules is in terms of economic optimality. What is the optimum debt to GDP ratio and what is the best way to get there? This misunderstands what fiscal rules are for. If every government was benevolent (always did the right thing for society) they would follow the optimal policy without the need for fiscal rules. Governments would just consult experts and do the right thing. Why try and formulate the optimal policy into a rule? Fiscal rules are

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