Thursday 21, July 2022
Wrap
The BoJ is not expected to react to core inflation in Japan exceeding 2% for the third month in a row. Biden has Covid, but nobody seems to be worried. Reports suggest that Russia and Ukraine will do some sort of deal to allow export of grain from Black Sea ports. The ECB had a meeting, which everyone seems to agree was a fiasco. This (The ECB has gone from ‘Whatever it takes’ to ‘Whatever’) sums up the general reaction. Lagarde seems to be held in barely concealed contempt by all those who report on these things, which cannot be good for the Eurozone economy.
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Thought
“Productivity isn’t everything, but in the long run, it’s almost everything.” Paul Krugman’s quote is justifiably famous, but it’s really so difficult to understand what drives improvement in productivity. We know that there was an explosion in productivity in the industrial revolution, something that coincided with a certain separation of management from ownership, and a large amount of scaling up of manufacturing, but it’s not obvious why this happened when it did, or even if it accounts for all the improvement. Certainly, it seems to have been accompanied by a dramatic democratization of many countries. In the UK, the 1832 Great Reform Act must surely have been a factor in improving UK governance.
We seem to be at a loss for the collapse in productivity growth in the UK since the 1980s. My suspicion is that we’ve enacted some innocuous sorts of regulation that individually might cost us ‘only’ 10bp of productivity growth, but together have driven it right down to zero. It’s hard to quantify things, but the increased levels of regulation in many sectors of the UK economy make things today seem very different to the 70s. Regulations to reduce risk are all very well, but there is an optimum level of risk, and it’s certainly not zero.
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