Alfie Stirling, Laurie Laybourn-Langton
It is widely accepted that macroeconomic policy in the UK and the USA has experienced two major periods of breakdown and significant transition since the start of the twentieth century. But has a third period of comparable change in the UK already begun?
To answer this, it is important to place the UK's present economic ‘moment’ in historical context.
The first period took place between the financial shock and global depression at the end of the 1920s, which led to the forty-year period of economic and policy approaches generally described as the ‘post-war consensus’, in the UK.
The second period came between the currency and oil shocks during the 1960s and 1970s, leading to the development of ‘Thatcherite’, or free market economic policies from the 1980s onwards.
Over the course of the decade since the 2007 financial crisis, it has increasingly been acknowledged that a cyclical crisis has become a structural crisis. Many western economies are exhibiting significant structural weaknesses, particularly the stalling of productivity growth and stagnation of average earnings.
We argue that we are currently experiencing a third period of faster than normal transition, with significant change in economic ideas and policy. Notable features of this include the 2007 financial crisis itself, as well as the failure of economic theory to predict it; the unprecedented deviation from historical productivity and earnings growth; and the challenge of setting monetary policy in a world where interest rates are already at their effective lower bound.
It remains to be seen whether the current acceleration in economic change proves to be the beginning of something akin to previous eras. There is not currently a credible candidate for an alternative programme, partly because heterodox theories, such as in complexity economics, necessarily present an existential threat to the very institutions—for example, the Office for Budget Responsibility, the Bank of England or private sector forecasters—that they would need to influence in order to enter mainstream policy.
And yet, powerful, normative demands for an alternative to mainstream economic practice already exist and have been expressed through democratic process in many countries. The conditions are apparent for considerable change in economics and on an historically significant scale, but as yet the missing ingredient is an alternative with the power to displace the existing ‘world view’.
Alfie Stirling is Senior Economic Analyst at the IPPR. Laurie Laybourn-Langton is a Senior Reearch Fellow at the IPPR.
This article is adapted from a piece in The Political Quarterly journal. You can read the full article here.