Thursday, 22 December 2011

So what did 2011 teach us?


Well, it's the end of a long year. I'm about to go on leave, and I'm exhausted. But I thought I'd leave you with what we might have learnt from this year - about economics, history and public policy. Which is, after all, the point of this blog. I guess I'd sum it up like this:

You can't deflate your way out of a crisis. You'd think, with all those clever advisers - including expert on the Great Depression and Chairman of the Federal Reserve, Ben Benanke - that politicians would have learned from the lessons of the 1930s. Don't all try to devalue. Don't threaten trade wars. Don't cut spending to try to gain a competitive advantage that others can just seize from you again with a fresh wave of spending reductions - a trap that circulates, round and round, until all semblance of forward motion has drained from the system. But do they listen? Do they hell. The US Congress, mightiest of legislatures, remains gridlocked and likely to stumble its way to some of the biggest spending cuts since the Depression. Good idea, guys.

Confidence does matter. Not many people listen to Ministers that much. Only policy wonks watch Newsnight and pore over the Financial Times. But when you cut through to the voters, you had better make sure you watch your Ps and Qs. UK Chancellor George Osborne neglected to think about this when he talked up (and up) the country's fiscal crisis in order to blame it all on Labour. What happened? Consumers took fright. And they kept taking fright until British consumer confidence bumped along near an all-time low. Governments have made this mistake before - notably when Labour took office in 1964 - but never with such deleterious consequences.

Good public policy takes time and a sense of historical change. I have, of course, gone on until I'm blue in the face about the failure of the British Government's new policy for Higher Education in England. It abounds with unintended consequences or half-guessed-at longer-term endpoints, not least the not-unlikely privatisation of the Russell Group elite over the next ten or fifteen years. What did Ministers need? They needed a Royal Commission. They needed a sense of the delicate balance of a very successful part of the economy. They needed a synoptic vision that saw the links between student visas and our general well-being. They needed both policy and history - something that's far from easy to achieve.

The West still does rule - for now. That's nearly the title of a fairly good book on this topic, and I think it's an important reminder. No matter how many dollars and how much gold builds up in Beijing's coffers, and no matter how fast the less developed countries' economy grow, each Chinese and Indian citizen remains far, far poorer and far, far less able to exert their views than does each American or European. In the 1960s, 'experts' thought that the Soviet Union would overtake the West; then, in the 1970s, it was the oil-producing Middle East; then, in the 1980s, Japan. All those models failed. India's and China's are experiencing extreme growing pains and will soon falter as they hit structural limits to their exponential growth - environmental and educational, to name but two. They may emerge triumphant in the end, but that's by no means a done deal.

So that's it then. I'm a whole new book, a whole new edited book, what I think is a really good article, two PhD completions for my students and two Third Year Special Subjects further forward. So it's time for a break. But I'll be back in the New Year.

In the meantime, Merry Christmas and a Happy New Year!

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