I came across a link to Andrew Haldane’s speech at Port Talbot on 30th June 2016 in a WSJ article that was trying to dissect the UK election results. Andrew Haldane is the Chief Economist for the Bank of England.
I had analysed the UK election results briefly in my weekly column for MINT on Tuesday. The Conservative Party had managed to score two self goals in two years. My article also took a closer look at Eurozone economic health and outlook. First, about the UK.
Andrew Haldane asks the right questions in his speech. Significant that it was delivered in Port Talbot where the closure of the Tata-run steel plant dominated the news last year. He said that the recovery in the UK economy post-2008 has been felt largely by middle-to-old age Britons who own property or more generally, asset-rich and who live in London or more generally in the Southeast.
Clearly, this group would have voted against Brexit. But, will this group have voted for Labour’s James Corbyn? Unlikely. But, how much of their votes did the Conservatives capture? It will be interesting to know the breakdown. The Conservative Party also lurched towards the Left. The ‘Economist’ notes that here. Although, I must state that I did not find any of them necessarily wrong or incompatible with ‘Enlightened capitalism’. For example, minimum wages and caps on executive compensation are not necessarily incompatible with capitalism.
It is very likely that those who have not been touched by the UK economic recovery – that is a good, vast majority, especially the young and renting, compared to the very narrow that have benefited as mentioned earlier – chose to vote for James Corbyn. FT has an analysis here.
Tim Price has some good points to make of James Corbyn:
That 262 British parliamentary seats fell to a party led by a self-confessed Socialist is bad enough. That said leader lacks the support of 172 of his own MPs is troubling. But that someone who has publicly supported the IRA, Hizbollah and Hamas could attract 12.9 million votes while the United Kingdom is under attack by terrorists simply beggars belief. Sir Richard Dearlove, the former head of MI6, the British Secret Intelligence Service, points out that Jeremy Corbyn – who seeks the office of Prime Minister – would not be cleared to join either his former agency, or GCHQ, or MI5; and indeed would, in the past, have been actively investigated by the latter. [Link]
What is interesting and disappointing about Andrew Haldane’s speech is that he does not link his admission that the recovery has been narrowly based to the monetary policy of the Bank of England although he does cite one of the most important discussion paper of the Bank of England on the distributional consequences of asset purchases by the Bank of England (‘The distributional effects of asset purchases’, Bank of England Quarterly Bulletin, 2012). That paper is worth a read.
Haldane went on to reassure his audience that the Bank of England would further ease monetary policy in response to the Brexit referendum – the speech was after the Brexit referendum. But, really, to what extent would a further ease of monetary policy help broadbase a recovery? If anything, it would (and it did) boost asset prices, particularly home prices in London putting them further out of reach of the young who found homes increasingly unaffordable and were spending close to 30% of their income on rents.
It is astounding to me that, despite such a lucid analysis of the problem, he came up with a solution – further monetary easing – that would not only do nothing to solve the problem but would only aggravate it further. No surprises that the Labour Party did far better than it should have or it deserved to.
As Tim Price put it,
The millennials and Generation Z are right to be angry. But last week this anger manifested itself in the form of some Corbyn supporters burning newspapers. To anyone with a sense of history, the UK today feels like a very strange, and disturbing, place. [Link]