Sorry to leave your inboxes empty last Friday, but rightly so the focus wasn’t really on economic policy. The missing TOTCs would have covered the very broad energy price guarantee of the new Prime Minister, whose full analysis of the resolution is now available late for the most enthusiastic among you.
The unprecedented conjunction of major political and constitutional changes has made Westminster very strange this week, with beautiful public moments of reflection on a life of service playing out alongside the more private than normal affairs of a new government taking shape .
This continues into next week, which concludes with the Queen’s funeral and the Chancellor’s mini budget. The latter does not look small given the huge tax cuts involved and the much-needed details to come on energy support for businesses and Northern Ireland. So expect later-than-normal TOTCs as the spreadsheets swirl through the resolution rounds to bring you the details of what’s been announced.
Have a great weekend – whether you’re a grateful subject queuing to celebrate the Queen, or a banker celebrating your soon-to-be-uncapped bonuses.
Magical monarchy. The monarchists among you – if you’re the constitutional type – may know that research shows that such arrangements are associated with faster growth because constitutional monarchy imposes limits on the nature of political competition/behaviour ( for example, supporting stable property rights). Note that the majority of long-term successful democracies in Europe are monarchies – we are not alone. But I thought you might appreciate a Slovenian article from 2021 that says we got it all wrong – monarchies don’t cause growth, growth explains the survival of constitutional monarchies. Republics arose in Europe where countries were poor, or lost world wars (obviously). Interesting, though slightly irrelevant to determining many of our monarchist/republican viewpoints (I’m with Attlee thinking the idea of politicians living in palaces is overrated).
Speech on taxation. As we are halfway through the survey of the 2030 economy, we are obviously overwhelmingly in favor of anyone stepping back to consider the great long-term challenge facing their country. You should therefore definitely read the Irish Tax and Welfare Commission report which was published this week. It is thoughtful, if not massively original, to remind those overseeing advanced (and aging) economies that the direction of tax levels is up, not down, which should encourage to focus on what good taxes look like. The detail of the proposals is specific to the Irish tax/social security systems, but the principles are of wider interest. They call for broadening the tax base (those of different ages and income sources should not be treated differently). Yeah. Wealth taxes need to bear more pressure. Too fair. And our tax system needs to recognize that net zero is coming – which means road user charging. It does. Another lesson? These types of proposals are not free from controversy – Leo Varadkar (who is due to become Taoiseach again shortly) has rejected them all.
Amazing ships. To make sure your productivity doesn’t increase once you get bored of DCMS queue tracking, I recommend you check out an excellent visualization of the (until recently) entirely overlooked backbone of our economy. globalized: ships. Shipmap is… a map of ships, using data from the UCL Energy Institute to create a time lapse showing ships carrying different types of cargo around the world in 2012. It’s a good combination of mesmerizing/interesting – until you notice how much CO2 these ships emit…
Boost breakups. It’s a good piece of economic history. 1952 saw the breakup of Germany’s largest chemical company (IG Farben), driven in large part by the company’s role in the Nazi war economy. What was the effect on innovation of the dismantling of such a dominant company? Positive finds a new article, with an increase in patents in areas where the giant had been strong in both its successor companies and the industry at large. Food for thought in current debates over whether superstar firms drive innovation because of their size/resources, or hinder it because of their dominance. And an important reminder of the quality of certain ruptures.
Amazing agglomeration. Cities are productive places but they are also expensive (especially if you are trying to rent somewhere right now). So when it comes to companies trying to come up with new ideas, what tips the scales: higher productivity or higher costs? The big new research comes out firmly on the higher productivity side of the argument in the context of R&D. He finds that adding more scientists to a city that already has a lot of scientists increases productivity and costs, but the productivity benefits are far greater – in fact, they are six times greater. The agglomeration is alive and well scientifically, except in the most expensive cities. As always in life, you can have too much of a good thing.
Chart of the week
Many aspects of Queen Elizabeth’s reign are celebrated, but we risk missing the most important: she oversaw the fastest economic growth of any monarch in Britain’s distant past, and quite possibly our future as well. . COTW gives you the increase in GDP per capita from 1271 to the present day per monarch. Those before Victoria are grouped together because growth hasn’t really been a thing for most of human history. Elizabeth II not only survived and overtook Victoria, she also massively overtook her: although the Industrial Revolution began in the 19e century it really is the 20e century when the escalator of human growth hums (my discussion this week with economic historian Brad Delong on his great new book covers exactly that). With economists generally saying the UK economy’s sustainable growth rate is now well below 20e From century highs, our new king may be worried that he won’t be able to match his mother on this metric (COTW shows OBR’s current best estimate of our future growth rates). But we shouldn’t be fatalistic about this new era – as we’ve covered before, there’s no reason we can’t outrun the disaster of the past 15 years. The good news for our new King’s odds on this metric is that Liz Truss is rightly focused on improving the UK’s game. The bad news? For this to become a reality, it takes much more than giving the Treasury a growth target of 2.5%