Chart of the Day, 2 March 2015: One Chart before You Vote

Business Insider has come up with the novel ideal of asking a cast of business, financial and academic economists to each  propose one chart that they recommend every member of the UK electorate look at before they vote.

Whilst this is UK specific, the issues raised transcend parochial UK concerns and encompass global challenges like growth, productivity and inequality. I highly recommend that you flick through the 21 selected charts, which can be found here.

So what would my chart be? It would have to be this one:

Big 3 Interest Rates jpeg

The stunning structural decline in interest rates across the UK, US and Germany is not just a reflection of inflation but low growth itself. The market is telling us that it cannot find anywhere to put its money in order to secure a real, that is inflation-adjusted, return. If there are no investments to be had yielding above inflation returns at the right risk,  there will be limited (or no) real growth in future. Message to UK government (and everyone else): start planning around this fact.

Furthermore, if the market cannot find a private-sector home to invest its money, then the government should provide an alternative. This is a golden opportunity to embark on a massive green infrastructure roll-out and tackle climate change, security and social justice issues all in one go. Projects should include renewables, energy efficiency, new low energy urban housing and public transport systems.

A demand for government-backed green bonds obviously exists (as why else would people be prepared to buy government bonds at a zero real return) and inflation expectations are self-evidently from the chart non-existent.

The green infrastructure would also distribute demand across the UK economy, reduce inequality, lower regional unemployment, increase energy security and provide investors with long-term relatively predictable returns.

A policy of turbocharged austerity in the next parliament with interest rates so low is absolutely bonkers.Rock-bottom interest rates are an opportunity–and this opportunity should be used.




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