Bold moves for Chess, infrastructure and (electoral) wall painting

TOTCs is back from a pleasant Easter break – it was nice to get away stay home, living the lockdown dream (hopefully for the last time). In retrospect it was a basic error not to have snaffled parenting duties for next week given that’s when the whole country will actually be celebrating something rising from the dead (i.e. English pubs and restaurants). You live and learn.

This week’s reads cover some of the big shifts in economic policy making, evidence that our risk aversion is shaped by our experiences (of chess as well as economic pain), and a deep dive into the economics of the upcoming by-election in Hartlepool (see COTW).

Have a great weekend all,

Torsten
Chief Executive
Resolution Foundation

Long Covid. A year into this crisis are we still the same people? Obviously we’ve got worse hair and lower life satisfaction, but has the pandemic altered our personalities? Using German survey data three economists have been studying just that. Experiencing financial losses mid-pandemic hasn’t had much impact on most personality traits (e.g. patience). But it does have the opposite effect of playing chess ie making people less willing to take risks – especially if they are on a low income. This is totally understandable – we’re all less keen to take risks when we find out the world is scarier than we thought. But it is also a route by which temporary economic damage can become permanent – for example, if people are more reluctant to take a risk on a new job. Previous work shows how recessions can shape attitudes, finding that bad economic circumstances during adulthood strengthen attitudes against immigration. The economy affects more than just our finances.

Feeding effectively. Marcus Rashford has shone a light on our support for families struggling to afford food. But feeding poorer households is obviously a much bigger policy focus in developing countries – it’s really important it’s done well. New research from Nobel laureate Abhijit Banerjee uses the roll-out of electronic vouchers in Indonesia as an experiment to see how their impact differs from the tradition direct provision of food (rice). Giving those in need purchasing power via vouchers did a much better job of targeting support – handing out food often meant it got shared with households less in need in the same village. This reduced poverty by about 20 per cent, with more freedom used to buy better quality rice. The UK situation is very different, but with new data showing 43 per cent of Universal Credit recipients are “food insecure”, there is a lesson: policy needs to be about what works (a decent social security safety net for example) not what gets the headlines (a week’s Free School Meal vouchers).

Biden’s New Deal. It’s almost hard to keep up with the flurry of announcements coming out of Joe Biden’s White House. But keep up we should, because they have the potential to amount to a new era for economic policy. As ever it’s good to focus on the big picture, so read Noah Smith’s thoughtful take on what Bidenomics amounts to. He rightly identifies Biden’s three-pronged approach to replacing Reaganomics: cash benefits, supporting care jobs, and massive investment in R&D/infrastructure. The most useful lesson for the UK isn’t the one everyone is keen to draw (e.g. spend more) – the UK is already increasing government investment to its highest level since the 70s. And Smith overdoes the political/policy sea change on unconditional/universal cash benefits. But we should learn from the clear-sighted objective that Smith identifies Bidenomics as having: to create “a dynamic, internationally competitive innovation sector, and a domestically focused engine of mass employment and distributed prosperity.” How to make both happen in post-Brexit/post-Covid Britain is exactly what we should be debating.

Tough gigs. I really enjoyed Adam Tooze’s Foreign Policy long read on the combined shift into political roles of ex-central bankers Mario Draghi (Italian PM) and Janet Yellen (US Treasury Secretary). Both face a huge immediate policy challenges – but Tooze sets them an even bigger challenge: to be the technocrats turned politicians that turn back the populist tide by proving that liberal democratic economies can drive sustained and broadly shared growth. In both cases they are being asked to do so at an age when I intend to be well and truly retired. Have a read not just for the comment on today’s policy challenges, but for the canter through the last 40 years of economic policy making that Yellen and Draghi have been at the centre of.

Chart of the Week

Elections are coming. 6th May is D-Day. They’ll be used to (over) assess the performance of Keir Starmer and, somewhat more importantly, our nascent City-region-based democracy, how Labour governs (in Wales) and, yep, the future of the Union. Plus the Hartlepool by-election will offer an early test on whether Boris Johnson can make progress in Red Wall seats. So what is the economic backdrop to this by-election? As out Chart of the Week shows, the area suffers from relatively low employment and relatively high child poverty. So far, so ‘left behind’. But that narrative can lead to lots of nonsense being talked about Hartlepool – in fact, employment growth in the area was almost 50 per cent faster than the rest of the UK over the past pre-Covid decade (despite what you hear, employment gaps between places have been shrinking not growing across the UK). The most common nonsense in Red Wall punditry is that the problem is that young people all leave. In fact, young people in Hartlepool are HALF as likely to have moved out of their local area over the past two decades as young people across the country are. So ‘staying put’ deserves a bit more attention alongside all the ‘left behind’ as Hartlepool (and the Red Wall more generally) have their well deserved moment in the political spotlight.