Here’s a quick read of an important lecture on Britain’s pre-Brexit economy delivered by a “modern, friendly economist with a pertinent message”: there’s “quite a lot of problems but most of them are not new” and “we need to get out heads around what’s going on much, much quicker to have public policy do its job.”
While that does quite a lot of violence to the 45-minute talk, “Public policy 10 years after the crisis,” offered by Paul Johnson CBE on the day after Halloween, but it’s one the economist himself offered at the outset. Johnson has published and broadcast extensively on the economics of public policy, with a particular focus on income distribution, public finances, pensions, tax, social security, education and climate change. This forum – the sixth annual SAGE Publishing Lecture presented by the Campaign for Social Science – saw him leaven his generally dour assessments with his own ample humor and an occasional ray of sunlight. (Slides from his talk can be downloaded HERE.)
The dourness includes the little gem that Britain’s economy has set many records in the decade since the Great Recession started – “all of them in the wrong direction.” Median earnings, for example, are lower than in 2008 – a negative growth rate last seen sometime in the middle of the 19th century. While that adds credence to the moniker ‘the dismal science,’ it’s not entirely bad – employment is up over that same period and, taking a longer view, average household income has doubled since mid-1980s, trebled since Johnson was a tot in the mid-1960s.
As Johnson presented in an abstract for his lecture:
The political uncertainty we currently face is obvious. From the result of the Brexit referendum to the election of Jeremy Corbyn to lead the Labour party and the result of the last election expectations have been consistently upset. It is unlikely to be a coincidence that these follow a set of economic changes which are historically unprecedented.
The economy is at least 14 percent smaller than we might reasonably have expected it to be back in 2008. Household incomes have grown at their lowest rate in more than half a century and, remarkably, median earnings remain below their 2008 level. The old have done much better than the young, though contrary to much belief, high earners have actually done less well than low earners.
While that’s bad, it’s by no means unexpected, he explains. “A lot of the things we’re worried about [are] all stories that we should have known pre-crisis,” Johnson told the audience. Brexit or no Brexit, we need to think much harder about the role, size and scope of the state and how to fund it.
If there is one lesson from the period since the crisis it is that long-term policy needs to be developed across government based on a broad understanding of the social and economic trends. There is little evidence that this lesson is being heeded.
One big lesson of all this is that policy and perception often takes far too long to catch up with reality. Income and earnings growth were already slowing in the 2000s. Income inequality was growing for a long time, especially at the top. Policy has been propelling pensioners forward, often at the expense of the young, for much more than the last decade. House prices and home ownership levels were big issues long before 2008. Regional inequality is a long standing issue in the UK.
Dealing with all these challenges will be hard enough. More challenges for the future are already clear. The low skilled and the low educated face a desperately tough future in the labour market, and all face uncertainty was technology develops. The next generation of pensioners will, individually, be bearing absurd amounts of risk in a hugely uncertain environment. The current inequalities between generations will hinder social mobility. Perhaps most importantly we are going to have to grapple with funding a welfare state that, because of ageing, will become more expensive. There is nothing left to cut to fund more health, pensions and social care, which is likely to mean more taxes.
Johnson is the director of the Institute for Fiscal Studies, which hosts two ESRC research centers and was the first organization to win the Prospect ‘Think Tank of the Year’ award two years in a row (2014 and 2015). His career has included leadership roles at HM Treasury, the Department for Education, the FSA and the Government Economic Service. Johnson is currently visiting professor at University College London. He received his CBE In 2018 for services to the social sciences and economics.