Tuesday, June 07, 2011
Can you have a short-term plan for growth?
Posted by David Smith at 11:30 AM
Category: Thoughts and responses

What would you do if you wanted to boost economic growth in the short-term? You might slash interest rates, possibly cutting them to a record low level. A sterling devaluation would also help. But that's already happened. If you believe in the efficacy of fiscal policy as a short-term growth booster (something that was out of favour before the global financial crisis) you might cut taxes and increase public spending.

What you would not expect is to be able to achieve a growth boost through supply-side reforms, at least in the short-term. Such reforms, whether they are improving education and skills, cutting red tape, eliminating restrictive practices and increasing competition are not hard to think of. They are popular, particularly with businesses, as this note from the Institute of Economic Affairs' makes clear.

I don't disagree with any of it, but we should be honest about the time lags involved. The Thatcher union reforms of the 1980s did not really benefit Britain's labour market until the 1990s. These things take time. Plans for growth are welcome but long-term.

Meanwhile we have further evidence of a soggy consumer sector. Retail sales values in May were down 0.3% on a year earlier, according to the British Retail Consortium. Halifax house prices rose 0.1% in may but were down 4.2% on May 2010.