Monday, 22 August 2022

Zombie businesses

 I've got an article in the Times today about the link between low interest rates and low productivity.

Thanks to inflation hitting double figures last month, average earnings have dropped below the level of 2008 in real terms. A decade of stagnation will soon become a 15-year slump. None of the usual excuses — Brexit, “austerity”, Russia, Covid-19 — adequately explains the economy doing so badly. When economic historians look back on this era, it is the rock-bottom interest rates that will jump off the page. What if they are the cause of our problems, rather than the solution?

The Bank of England began its experiment with ultra-low interest rates 13 years ago and the jury is now in. They manifestly have not stimulated the economy. Instead, they have kept fundamentally insolvent companies afloat, disincentivised saving, propped up the stock market, fuelled a massive housing bubble and encouraged unwise and risky investment.


Do read it if you can. 

I was also filling in for Mark Littlewood last month in the same slot, writing about self-funding tax cuts, and will return one more time in a fortnight.

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