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March 28, 2011


Ralph Musgrave

That’s all a bit depressing. Wynne Godley was saying something similar to you about 20 years ago. What are the options for a country which is hemhorraging money? Mass emigration, like Spain? A long period of extreme deflation like Ireland? Can we have your thoughts on this?


Hi Ralph,
Great to hear from you. I am working on a more extensive paper "Fifty Years of UK Trade Data" - sounds exciting doesn't it, hence the fact I was listening to Harold Wilson's address to the nation in 1967. I also have in my possession a publication from HMSO dated 1947 and entitled "We live by exports - a simple explanation of exports and imports - illustrated by Picture Charts." And what great picture charts!

The UK visible accounts deficit was 6% of GDP in Q4 2010. This is a major structural problem which will only get worse. The classic reaction to mitigate (and I say mitigate) the problem is to accept a lower rate of growth relative to world growth for the UK. This returns to the the concept of the Balance of Payments as a "constraint to growth". Unfortunately, this offers no solution, just prolonged misery.

The answer is to build on the strengths of service sector surplus and enhance the service sector growth especially banking and professional services to offset the structural visible account deficit.

Alas it appears the coalition government is intent on driving some of the big earners off shore. "Hollowing out" is set to follow in the service sector unless we are very careful.

I will let you know when the paper is published. Meanwhile check out the pro.manchester Economics Quarterly - rebalancing the economy.

Thanks for your comment,


גלי הלם

Hours pound abroad is worth less, but that does not mean pounds in your pocket or purse or in your bank has been devalued

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