Three great macro articles today!

The Monday morning papers brought three contrasting but equally stimulating comment pieces on the future for the UK and international economy from Stephen King, Anatole Kaletsky and Larry Elliott.

Stephen King writing in the HSBC questions the ‘misguided thinking of those who say recession would purge the system.’ Several commentators have raised their heads above the trenches to declare that a recession might have rebalancing, cathartic effects on economies too dependent on debt and household spending. But King questions this in a persuasive manner.

‘Recessions are brutal econ-omic events, associated with massive and indiscriminate job loss, regional deprivations and political turmoil. They lead, in turn, to huge misjudgements of policy. Think, for example, of the Smoot-Hawley trade tariff at the beginning of the 1930s, or John Major’s disastrous commitment to the European Exchange Rate Mechanism at the beginning of the 1990s. Even worse, they can also lead to extraordinary errors of moral judgement. Consider, for example, George Bernard Shaw’s shocking embrace of Stalin’s Soviet Union in the 1930s. His disgust at the collapse of Western economies was only matched by his blind refusal to see the secret behind Stalin’s industrial success, namely the Bolsheviks’ complete dependence on slave labour from the gulags.’

Anatole Kaletsky writing in the Times takes a well-aimed pot shot at the complacency of the UK Treasury in believing that the UK economy is best placed amongst leading countries to whether the current global financial and economic turmoil. He writes ‘Since the start of financial turbulence last summer, I have believed that Britain, because of its exceptional dependence on finance and housing, would suffer more than other big economies and certainly more than the United States.’

Larry Elliott of the Guardian completes a fine triology with an analysis of the different strategies being pursued by the Fed Reserve, the European Central Bank and the Bank of England in managing the economic downturn at a time of rising inflationary pressures. He concludes that they cannot all be right ... ‘After a long period of steady growth with low inflation - the equivalent of a warm, windless day for golfers - central banks are now having to earn their corn. The spillover from the credit crunch is leading to slower growth, while strong demand for food and fuel, coupled with supply shortages, has led to higher inflation…....The idea that all three central banks are so masterly that they can calibrate monetary policy perfectly for the particular circumstances of their own economies is somewhat far-fetched. Even at the best of times, setting the right rate is hard enough for Britain given regional variations in economic performance; in places as big as the US or as diverse as the eurozone it is next to impossible.’