Monetary marathons and miracle workers Top of the Charts 24 January 2020 Torsten Bell Afternoon all, Right, it’s time to put your money where your mouth is. You’ve all been scoffing about economic forecasters getting it wrong (as literally every single one has been for the past decade). Well, this is your moment to show us you could do better. The government is recruiting for a new forecasting supremo to take over from Robert Chote as Chair of the Office for Budget Responsibility. It’s totally straightforward – you just need to be a techy economics geek AND a whizz at communicating complex ideas clearly. Think Susannah Reid with an abacus. Now I’m sure loads of you would be great and I have total faith in your crystal ball spreadsheets. But let’s be honest, Robert’s going to be a hard act to follow. On the plus side this job is at least likely to be immune from the two big job-killing trends of our time – AI robots and George Osborne CVs. Have a great weekend reading/application writing, Torsten Chief Executive Resolution Foundation A model economy. Britain’s economy (low interest rates/low productivity) looks pretty different to ten years ago, but its underlying economic model does not. That will change next week – we’re leaving the EU (if you hadn’t noticed). We should spend more time talking about what comes next, not in terms of the next GDP data or trade deal, but in terms of where Britain is heading. Here’s a few reads that do exactly that. Two (unfortunately £) columns this week put this question centre stage. Simon Nixon urges a re-evaluation of the UK’s economic model, but is pessimistic about it happening. Slightly more perkily, Martin Sandbu argues that a genuine approach to ‘levelling up’ could put Britain at the forefront of dealing with a problem plaguing all advanced economies – regional inequality. For a more political economy take on the question, cast your eyes over Tom McTague’s argument that the model we should be planning to emulate is Canada, successfully coexisting with a big southern neighbour without merging with it. Miracle workers? Does who runs an organisation make much difference to its performance? We know it can for firms and schools, and obviously it makes a massive difference to think tanks, but what about much bigger and more complex public sector organisations? Not so much is the answer from a new study of the NHS. Hospital CEOs get paid very different salaries so someone obviously thinks there are good and bad ones. But despite these pay differences, transferring a CEO of a high-performing hospital to poorly performing one appears to make…. little difference. There were exceptions (CEOs with a clinical background did better in teaching hospitals) and hanging around in post for longer did generate more positive change. So for the NHS at least, time – not miracle-workers – seems to be the answer. Net zero. Population growth has us all worried about climate change – but that’s apparently not all we should worry about. What if the population starts shrinking? A new paper from Stanford takes this slightly unusual question and provides a moderately terrifying answer. If the widespread assumption that the global population will stabilise is confounded by the trend for richer countries to not have enough children to replace themselves, then a declining population could lead to an ominously named ‘empty planet’ result. Apparently we’ll stop creating knowledge and living standards will stagnate until we eventually die out (cheery). On the plus side, apparently policy can make a difference on the fertility rates front. So maybe we can just focus on the main problem of the planet burning, rather than humans disappearing. Marathon, not a sprint. Monetary policy is generally considered to have a significant – but only temporary – effect on the size of your economy. Interest rates can be cut/raised to reduce the impact of a recession/keep inflation under control, but have no impact on the long run size or growth rate of an economy. This is a reassuring message for both central bankers (as any mistakes won’t cause lasting damage) and democrats (helping to justify handing monetary policy over to unelected officials), and it’s obviously got lots of elements of truth to it. But new research from the Federal Reserve Bank of San Francisco offers a challenge to this accepted wisdom. It shows that monetary policy has, in practice, very long-term effects – we’re talking more than a decade – on economic output, because of their impact on the amount of capital in the economy and productivity. So, just in case anyone in the Bank of England was chillaxing, the message from the rest of us is… stay sharp. Healthy education. We know that those that stay in education for longer have better health outcomes than their peers escaping the classroom earlier. Policy makers have interpreted this correlation as meaning that increases in education will improve our health. Not so much, is the warning from recently published study in the Journal of Health Economics (£, but earlier free version). Exploiting two major education reforms in the UK (the 1990s HE expansion and 1970s increase in school leaving age to 16), the researchers find no significant effect on the likelihood of developing various chronic diseases such as arthritis or high blood pressure for those affected by these policy shifts. There is one exception – diabetes, with the increase in school leaving age reducing diabetes risk by 6 percentage points. The conclusion: education isn’t a health panacea, but does appear to affect lifestyle choices, and diseases like diabetes that are connected to them. Chart of the Week In Davos yesterday, the Chancellor reiterated his focus on ‘levelling up’ the economy to address regional inequality. But is the labour market assisting the Chancellor with this new levelling up agenda? No, is the answer from the latest stats this week. Thanks to new real time earnings data (provided by HMRC – so time to toast the tax collectors for once) we’re able to get a much more timely take on how pay growth is varying across the country. As Chart of the Week shows, real pay growth over the last 12 months has been strongest in highest paying regions like London and Scotland, which means regional pay differences are increasing (though there’s some welcome levelling up taking place between Northern Ireland and the rest of Britain). This recent picture contrasts with the broader post-crisis trend of regional pay (and employment) gaps closing. It’s ironic that just as levelling up starts to become politically fashionable, the labour market may have stopped delivering it.
