Have we finally learnt how to run economies?

Economic policy has been turned into a professional activity usually capable of solving problems

Share
Related Topics

Do we need to worry about economic prospects any longer? Can't we just leave it to the specialists? In what are the best figures for 30 years or so, the International Monetary Fund (IMF) is forecasting 5 per cent growth for the world this year, slowing to 4.3 per cent next year. This good performance coincides with our own experience. The British economy has been growing non-stop for more than a decade. The pace has been modest but it cumulates. That is why unemployment has fallen so low that it has ceased to be a subject of debate.

Do we need to worry about economic prospects any longer? Can't we just leave it to the specialists? In what are the best figures for 30 years or so, the International Monetary Fund (IMF) is forecasting 5 per cent growth for the world this year, slowing to 4.3 per cent next year. This good performance coincides with our own experience. The British economy has been growing non-stop for more than a decade. The pace has been modest but it cumulates. That is why unemployment has fallen so low that it has ceased to be a subject of debate.

Of course, if you want to give yourself nightmares, there are plenty of reasons for doing so. What about house prices - are they not on the verge of collapse and wouldn't that be very damaging? Possibly, but house prices have been teetering on this brink for some time. And once the plunge in values begins, if it does, the Bank of England would cut interest rates.

Then one can look across the Atlantic and find really disturbing aspects of the American situation. The country is running a massive balance-of-payments deficit. And as we shall be reminded in the presidential debate later this week, the US government is having to borrow record amounts. True, but I have to struggle to remember when this was not the case (the budget deficits did disappear for a year or two under President Clinton). Yet somehow life has gone on and the US has had the best performing economy in the world for some time.

I accept that the stock market has not presented a uniformly pretty picture over these past few years. The collapse of the dot.com boom and the big drop in share prices from mid-2000 to 2002 was rightly classified as a major bear market. But while the performance of stock markets is anchored in the behaviour of economies, share prices often exaggerate trends; indeed that is their nature. The dot.com revolution, for instance, goes on every day to our great benefit even though the share prices of many of the pioneering firms collapsed to zero.

May I give what many will think is a surprising explanation for the relatively benign outlook for employment, prices and prosperity? We have learnt how to run economies. Economists have become good at their jobs. This wasn't the case when I first began writing about financial matters in the early Sixties. In those days we lurched from crisis to crisis, from boom to bust and back again, and Britain's problems always seemed worse than anybody else's. Economics dominated Mr Wilson's first government with devaluation of the pound in 1967 as its centre piece. Strikes, rising oil prices and plummeting output confronted Mr Heath between 1970 and 1974.

Well, once again we face rising oil prices, but see what the IMF said last week? The impact on global growth would be moderate, perhaps of the order of half a percentage point. As compared with the Seventies, "central banks had established far better anti-inflation creditability". In other words, the economists now know what to do.

Economics is a relatively young discipline. The first major textbook in this country was written by Alfred Marshal and published in 1890 - The Principles of Economics. Marshall was, as Keynes called him, the first great professional economist. But he was not able to persuade the University of Cambridge to establish economics as a separate degree course until 1903. For the next 50 years, progress was slow.

When I sat the A-level examination in economics in the mid-Fifties, I was among the first boys in the north of England to do so. Since then, however, the number of economists going into the Treasury, into the Bank of England and into the satellite think-tanks of these great institutions has expanded greatly.

Economists have spread into companies and into the City, where a highly paid elite is concentrated. At the same time they dominate a series of international institutions from the Organisation for Economic Co-operation and Development (OECD) to the World Bank, all created since 1945.

However, this might not have been enough to turn economic policy into a professional activity usually capable of finding solutions to problems, had it not been for a change for which the Chancellor of the Exchequer, Gordon Brown, deserves great credit. By giving the Bank of England independence, he took political interference out of the setting of interest rates, a move that has been followed around the world. It was a further professionalisation of economic policy.

Only one advanced economy has proved to be an enduring puzzle - Japan. Economists weren't able to prevent the country falling into a debilitating deflationary downturn in the mid-Nineties and they haven't really been able to see how to emerge from the quagmire - except that, more or less spontaneously, the Japanese economy has recently revived.

What I am arguing is that just as big advances in, say, public health have come about as medical knowledge and technique have cumulated, so in a similar way prosperous economic conditions have been established in the advanced economies. As with public health, however, the Third World has yet to benefit. But in both cases, what to do is known. In the West, it is being done and we can relax.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Year 5 Teacher

£21000 - £35000 per annum: Randstad Education Chelmsford: Would you like to wo...

Teacher

£90 - £120 per day: Randstad Education Chelmsford: Are you a flexible inspirat...

Foundation Teacher

£90 - £120 per day: Randstad Education Chelmsford: Would you like to have a ni...

year 5 teacher

£21000 - £32000 per annum: Randstad Education Chelmsford: Would you like to wo...

Day In a Page

Read Next
 

Palestinian natural resources lie beneath this terrible conflict

Shawan Jabarin
 

The daily catch-up: heatwave update; duck tape and market socialism

John Rentoul
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform