Cut red tape to boost growth? Start with immigration

With the economy persistently weak, there is a growing consensus among economists that premature austerity has done considerable unnecessary damage, and that there is a strong case for slowing fiscal consolidation -  at least to restore some of the unnecessary and damaging cuts to public investment (which have been the source of most of the deficit reduction so far). However,  others have instead argued that the problem is not on the demand side, but on the supply side, and that what is needed is a radical programme of deregulation - "cutting red tape" - especially in the labour market.  

The impact of alternative paths of fiscal consolidation on output and employment

NIESR has just published research estimating the economic impact of immediate versus delayed fiscal  consolidation in the UK.  The research was undertaken by Dawn Holland (NIESR), John Van Reenen, Professor of Economics at the London School of Economics and Director of the Centre for Economic Performance, and Nitika Bagaria, a Phd student also at LSE and CEP.  John and I have written an article for the FT(£). 

NIESR's UK forecast, August 2012

NIESR's quarterly forecast for the UK economy is published today. Highlights: 

• The economy will contract by 0.5 per cent this year, but grow by 1.3 per cent in 2013.

• Consumer price inflation will fall below the 2 per cent target by the end of 2012.

• Unemployment will peak at 8.6 per cent in 2013.

• We expect the cyclically adjusted current budget to be in surplus in 2016–17.

NIESR's world economy forecast, August 2012

NIESR's quarterly forecast for the world economy is published today. Highlights:

• Concurrent slowdown in every major economic region: world growth to slow to 3.3 per cent this year and 3.7 per cent next year.
• All major countries opt for the same policies of near zero interest rates and fiscal tightening.
• European countries face remarkably divergent growth paths next year: Germany above trend growth and Southern Europe in deep recession. Tensions will heighten further.
• World demand below potential output growth means rising unemployment – in some countries even higher than seen in the Great Depression.

Which (macro)-economists are worth listening to?

This post relates to the ongoing blog debate on "the state of macroeconomics", which I contributed to here, and which has drawn in a whole host of economics bloggers who know far more about modern macroeconomic theory than I do.  However, here I want to address a related, more mundane question, but one which is perhaps more relevant to most non-economists' concerns.   That is,  when economists argue about the correct stance of policy, who should we (policymakers, commentators, and the general public) listen to?

The IMF explodes the myth of fiscal "credibility"

There is a huge amount of interesting material in the full IMF staff report on the UK, released today, in particular the lasting damage ("hysteresis" to economists) done by this prolonged period of very low growth.  But in this post I wanted to draw attention to one particular paragraph (it is para 43 on page 38).   I reproduce it here in full: 

Some further slowing of consolidation is unlikely to trigger major market turmoil

43. Further slowing consolidation would likely entail the government reneging on its net debt mandate. Would this trigger an adverse market reaction? Such hypotheticals are impossible to answer definitively, but there is little evidence that it would. In particular, fiscal indicators such as deficit and debt levels appear to be weakly related to government bond yields for advanced economies with monetary independence. Though such simple relationships are only suggestive, they indicate that a moderate increase in the UK’s debt-to-GDP ratio may have small effects on UK sovereign risk premia (though a slower pace of fiscal tightening may increase yields through expectations of higher near-term growth and tighter monetary policy).  This conclusion is further supported by the absence of a market response to the easing of the pace of structural adjustment in the 2011 Autumn Statement. Bond yields in the US and UK during the Great  Recession have also correlated positively with equity price movements, indicating that bond yields have been driven more by growth expectations than fears of a sovereign crisis.

The Supporter's Fear of the Penalty Kick

Guest post by Alex Bryson, Senior Research Fellow, NIESR

 Like Marmite you either love it or hate it: the penalty shoot-out. Either way it is clear - we are not very good at them. Using data from http://www.penaltyshootouts.co.uk/countries.html on 95 national teams for 367 shoot-outs (including double-counting of head-to-heads) we find England is ranked 77th in terms of percent of shoot-outs won.  The only teams who are below England are countries that have never won a penalty shoot out. Figure 1 shows the win rates for all countries with at least one win. England has won just one of six, a 17% success rate. Sixteen countries have a 100% record, but 11 of these have only ever been in one shoot-out.  The shoot-out kings are Angola: they have won all four of their penalty shoot-outs.