NICVA 16 Sept 2011

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Kate Barker's presentation from NICVA's Centre for Economic Empowerment masterclass on government's economic levers

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NICVA 16 Sept 2011

  1. 1. Understanding Government's Economic Levers<br />Kate Barker<br />NICVA CEE<br />September 16 2011<br />
  2. 2. Topics<br />Macro policy tools: fiscal<br /> monetary<br />Micro policy tools: labour market<br /> competition<br /> tax structure<br /> skills<br /> infrastructure<br />Which administrative level deploys?<br />
  3. 3. Limits of economic knowledge<br />“But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. <br /> The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time.”<br />(Keynes, 1930)<br />
  4. 4. Post WWII macro policy approaches<br />1950s/60s: fiscal activism<br />1970s: oil crises/monetarism<br />1980s: fiscal austerity/Washington <br /> consensus<br />1990s: inflation targeting/micro reform<br />2000s: financial liberalisation/globalisation<br />2010s: age of austerity/financial repression<br />
  5. 5. Today’s consensus<br /><ul><li>Macro economic policy used to limit cycles</li></ul>Best tool for this is monetary policy<br />Fiscal policy usually follows prudent rules – may be needed in a crisis (disputed?)<br />Government share of economy limited?<br /><ul><li>Micro policy used to improve growth rates
  6. 6. But there is a link between cycles and growth</li></li></ul><li>Who should do what? <br />Principles:<br />Optimal currency areas<br />Spillovers (single market/fiscal strains)<br />Subsidiarity<br />Democratic legitimacy<br />
  7. 7. Brussels, Westminster, Belfast<br />Fiscal policy : Westminster Brussels<br />Monetary policy:Westminster<br />Taxation: Westminster Brussels (some VAT, investment-distorting taxation)<br />Competition policy: Brussels (market power/state aid) Westminster (domestic market/consumer detriment)<br />
  8. 8. Brussels, Westminster, Belfast<br />Labour market: Brussels (social contract, WTD) Westminster (most employment legislation, minimum wage, NICs) Belfast (training credits?) <br />Skills:Belfast (schools, universities)<br />Transport/infrastructure/planning: Belfast<br />Regional policy: Brussels (Selective Financial Assistance) Belfast (Invest NI)<br />
  9. 9. Has policy worked?<br />GDP per capita – annual growth rate<br />Source: International Monetary Fund (IMF)<br />
  10. 10. Unemployment – a success story? <br />Pct<br />Source: Office for National Statistics<br />
  11. 11. CPI inflation – a less happy story?<br />Percent<br />Switch to CPI target <br /> MPC formed<br />Source: ONS<br />
  12. 12. Globalisation speeds up<br />Exports and Imports as % of GDP<br />Source: IMF<br />
  13. 13. Regional convergence?<br />Gross value-added per head: UK average =100<br />Source: Office of National Statistics <br />
  14. 14. What don’t we understand? <br />Effects of globalisation<br />Impacts of fiscal policy<br />What really matters for growth<br />How financial markets behave<br />Future of technology<br />Environmental costs/benefits<br />How people behave<br />
  15. 15. What do we want? <br />ONS well-being study:<br /><ul><li>Relationships, health, work, environment, fairness</li></ul>Does GDP still matter?<br />Northern Ireland – closing gap with neighbours: but doing it BETTER<br />

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