As I’ve noted rather a lot over the years there is a point to using someone who knows their economics to write the economics pages of newspapers. The knowledge necessary being to note that all those bits and bobs do actually join up. We do actually have a whole economy. That thigh bone is connected to the hip bone. Therefore, if something happens over there then something else happens over there. That electrical signal running down the spine does make the toe curl.
This being what makes this current whine so amusing.
“The early evidence suggests the UK is already in a recession and that we’re just waiting for more data to prove it,” says David Blanchflower. As a rate-setter at the Bank of England in 2008, he was one of the few policymakers to spot that crash coming; but when central bankers and government ministers did finally wake up, at least they had plenty of firepower to draw on. Within a few months, Blanchflower and his colleagues slashed the base rate from 5.25% to 0.5%. Having put up one hell of a fight back then, the bank is in no position to go into another today: a bombed-out economy means that a decade later the base rate is still holed below 1%.
The UK is suffering an intense version of an international problem. Around the world, central bankers from the eurozone to Australia can see a sharp slowdown on the horizon – and are warning they have little in the drawer to head it off.
Well, for a nation that does a lot of trading the thing you’d want to do if you could do nothing else is depreciate the currency. Actually, this is what the European Central Bank has been trying to do with the euro for half a decade now, this is the major channel through which their QE works – lowering the euro/$ exchange rate.
So, imagine, we’ve no agreement upon anti-recessionary fiscal policy, we are, so the claim is, out of monetary policy, what can we do? Depreciate the pound. Ah, you say, but how do we do that?
And a political class that still kids itself it can get a better Brexit deal out of the rest of the EU, or even that it will survive a crashing-out with only a few nicks and grazes. This might make good copy in Westminster, but the turbulence of either scenario will push businesses and families to the wall in the Midlands, Wales and the north. As Birmingham-based economist Paul Forrest points out, in the run-up to the last exit date Jaguar Land Rover announced the shutdown of four plants in Castle Bromwich, Halewood, Solihull and Wolverhampton for two weeks, to avoid “potential Brexit disruption”. Imagine what that employer of 43,000 staff might do this autumn. Then think of Nissan, Honda, Peugeot … and imagine how the speculators will pile on the pound, pushing it down to $1.10 and then below.
Yes, there we go, pushing the pound down to $1.10 would work. Imports would become more expensive, doing two things. Firstly, there’d be a jolt of inflation. This would lower real wages in the UK and thus make it a more attractive place to employ people. Secondly, after a bit (there’s this thing called the J Curve) we’d have fewer imports as people turned to more reasonably priced domestic goods. Further, our exports would boom as British made stuff becomes cheaper relative to the rest of the world.
We get an export led boom and import substitution. Well known method of growing the economy. Especially useful in getting over significant bumps in the road.
So, how do we engineer this desirable policy? We do exactly what Chakrabortty fears. We go for Brexit, today by preference, and we do it on no deal terms. Pound plunges, we’re copacetic.
And the thing is we do in fact know it works. It’s what the Tories did when they took power in the 1930s, come off the gold standard, depreciate the pound by 25%. In fact, the policy was so powerful, so successful, that they were able to tighten fiscal policy at the same time – this is expansionary austerity – and still engineer a lovely boom in the economy. It was also the last time the private sector build 300,000 houses a year. Can’t see anything wrong with the plan myself.
Well, OK, a little bit. I – partially – earn in sterling and spend in euros so it’ll screw me. But, you know, greater love hath no man than to lay down his wallet for his countrymen…..