Society of Professional Economists - Econ Thoughts

Filippo Gaddo, Managing Director at MAP and SPE member, held a discussion with Diane Coyle, Bennett Professor of Public Policy at the University of Cambridge, on the future of productivity, what are the key drivers and obstacles going forward and how we could find a better way to measure progress and flourishing.

During the interview, Diane expressed her concerns about the slowdown of productivity over the past couple of decades – particularly in the UK – and the low level of investment and lack of spending on infrastructure that could hamper a return to higher levels of productivity. Nonetheless, Diane remains positive and optimistic and see opportunities in new technological development not only in Generative AI but also in bio-medicine, new materials and energy transition. The conversation also discussed on the role of policy in developing an environment that could help reduce the inequality in performance between ‘superstars’ companies and workers and the average firm and people.

Towards the end of the interview Filippo and Diane explored ideas and initiatives around different and new metrics to measure progress and prosperity beyond ‘material’ GDP, that includes natural capital, human capital, social capital and life satisfaction. As the current metrics for GDP took time to develop through national accounts, there is hope and a good chance that in a few years these new measures will be used as extensively in public and private decision making. The Bennett Institute is doing excellent work in this space and the work of Charles Jones and Peter Klenow is also mentioned http://klenow.com/Jones_Klenow.pdf.

Professor Diane Coyle is the Bennett Professor of Public Policy at the University of Cambridge. Diane co-directs the Bennett Institute where she heads research under the themes of progress and productivity. Her latest book is ‘Cogs and Monsters: What Economics Is, and What It Should Be’, exploring the challenges for economics particularly in the context of digital transformation. Her current research focuses on productivity and on economic measurement: what does it mean for economic policy to make the world ‘better’, and how would we know if it succeeds?  Diane is also a Director of the Productivity Institute, a Fellow of the Office for National Statistics, and an expert adviser to the National Infrastructure Commission. Diane was Professor of Economics at the University of Manchester until March 2018 and was awarded a DBE for her contribution to economic policy in the 2023 King’s Birthday Honours.

Filippo Gaddo, Managing Director at MAP and SPE member, held a discussion with Ricardo Reis, from the London School of Economics, on the causes of the recent inflation cycle, the role played by expectations in moderating the impact of inflation, and the future of interest rates and r*, the natural rate of interest.

During the interview, Ricardo outlined four explanations for the burst of inflation seen in 2021-22, focusing on the role of a sudden burst of consumer demand coming out of lockdowns, expansionary monetary policy, fiscal policy stimulus, and the initial slow response from central banks, which were still looking at the increase in prices in early 2021 through the lenses of their pre-covid 19 experience and framework. Even if Ricardo does place some of the blame for the rise in inflation on the inadequate response of monetary authorities, the conversation also highlighted the level of noise in the data at the time that may have clouded somewhat the ability of central banks to correctly identify the signals of the fast coming increase in the price levels.

The discussion touched upon the role of short term inflation expectations in providing signals to the market and how they are currently pointing towards a return to a slightly higher than average inflation rate in the near future.

The conversation concluded with a view of where r* may be headed and what are the drivers that will keep it higher than the recent historical average. Ricardo offers some scenarios on the level for nominal Fed rates – listen in to hear a prediction.

Ricardo Reis is the A.W. Phillips Professor of Economics at the London School of Economics. Recent honors include the 2022 Carl Menger prize, the 2021 Yrjo Jahnsson medal, election for the Econometric Society in 2019, the 2017 BdF/TSE junior prize, and the 2016 Bernacer prize. Professor Reis is an academic consultant at the Bank of England, the Riksbank, and the Federal Reserve Bank of Richmond, he directs the Centre for Macroeconomics in the UK, and he serves on the council or as an advisor of multiple organizations. He has published widely on macroeconomics, including both monetary and fiscal policy, inflation and business cycles. Professor Reis received his PhD from Harvard University, and was previously on the faculties at Columbia University and Princeton University.

Jonathan Cribb is an Associate Director at the IFS and Head of the Retirement, Savings, and Ageing sector. Jonathan firstly examines how there was a broad brush expansion in labour demand since the pandemic began to end, albeit with some sectoral and regional differences. The discussion moved onto various factors which have affected the supply of labour since 2020: Brexit, a proportion of the population is suffering from greater health issues, and some evidence of a skills mis-match, especially facing younger workers. Lastly, Jonathan discussed the recent IFS report with his colleague Bee Boileau about the various reasons behind the growing demand for early retirement, by employed and self-employed people.

Mark Cliffe is currently a Senior Adviser to KPMG on environment, social and corporate governance and climate risk matters, having spent years prior as a senior economist at several major banks. In the course of his conversation with Andrew Milligan, he explains how and why his experience as a banking economist, and a growing interest in market failures, led him to focus on sustainability issues. Mark highlights the many failings of standard macro-economic models and how official climate scenarios understate the true scale of the risks and opportunities that the world faces. Despite the current confusion and hype, Mark was positive about the longer term prospects for ESG investing, as progress on data standardisation and disclosure promise to make it mainstream.

Jon Anderson is an international economist with considerable experience of emerging markets. He began the discussion by explaining his life-long interest in the subject, especially the variety of countries and topics to research. The main part of the interview covered the outlook for three key countries, Russia, China and India. Turning to broader EM issues, Jon considered how well the emerging market complex will cope with the tightening of monetary policy which the US and other major central banks are engineering, before describing some of the more important economies to consider from the point of view of financial markets.