Among the developed economies, only the US has bettered our own performance, and we have left our fellow Europeans behind.This should matter to voters, for the expansion under Labour has created two million new jobs and brought unemployment rates down to the lowest for a generation – the same with inflation and interest rates. One is that financial markets are wobbly at the moment – both the exchanges and share markets. Another is that inflation numbers in the US look tricky: amber lights are flashing, though they have not yet switched to red. Still another is that the political bow-wave ahead of this kind of appointment is such that there is a lot to be said for surprising people by doing the job early.The three main names in the frame are: Martin Feldstein (a former Reagan adviser and president of the National Bureau of Economic Research); Glenn Hubbard (former head of the Council of Economic Advisers under George Bush); and Ben Bernanke (the Fed governor who is soon to move to the Council of Economic Advisers).One concern is that if you look at all the appointments Mr Bush has made so far, they’ve been based on loyalty and not necessarily experience in the job. Messrs Hubbard and Feldstein are well known as competent academic economists with a lot of experience in public life.
Mr Bernanke is more tetchy and best known for his emphasis on inflation targeting, not favoured by Mr Greenspan. An outsider, who would go down well on Wall Street, and is apparently Mr Greenspan’s favourite, is Don Kohn. He would please the markets because he is a very stable and safe choice and an expert on inflation and interest rates.But if you really know what will happen, go to Paddy Power’s online betting shop. On Friday the odds were Bernanke 13-8; Hubbard 2-1; and Feldstein 4-1. We cannot vote in this election but we can at least put some money on it.. The French will not be voting for a new set of economic policies any more than the British will be giving a specific endorsement of Gordon Brown’s economic management. But it would give a profound shock to the European economic policy makers.The question, then, would be whether Europe can change direction Not a lot can be done on a broad macro-economic front.
Arguments as to whether the European Central Bank should drop interest rates by one quarter of a per cent seem a bit like those medieval ones about the number of angels who could dance on the head of a pin. Anyone who thinks people react to such fine adjustments have no feeling for the drivers of economic change. You have to thump interest rates to change behaviour.Not much can be done on fiscal policy either. All the big economies in the world have governments running deficits near the top of the acceptable range – in some cases, above it. Tiny changes in that percentage either way don’t have much effect.The economic question that the French referendum will pose – assuming a “no” – is whether a key EU electorate is seeking a move towards serious reform or simply to impose paralysis on French policy.
