In an article in today's Financial Times titled "Only rebalancing will revive Britain's precarious economy", Martin Wolf looks at what is needed to deal with the huge crisis in the public finances. This is the critical paragraph:
"The decisive fact about the UK economy, then, is that it has to manage a huge, multi-year economic rebalancing. Policymakers must bear four points in mind; first, they must promote the essential strengthening of investment and net exports; second, they must realise that this big economic adjustment is a necessary condition for a durable fiscal improvement; third, they must also prevent the fiscal deficit from crowding out the necessary rebalancing; and, finally, they cannot assume that today's huge fiscal deficits can comfortably be financed indefinitely, should the rebalancing of the economy itself fail to occur."
I think that the key point, which he doesn't give enough attention to in his article, is number three.
New data suggests that the picture on exports isn't as dismal as it looked earlier this year. But things still aren't great, particularly considering how weak the pound is, which should bolster exporters. As Martin Wolf says more exports will make it easier to reduce the fiscal deficit.
Increasing exports will require reforms that make it easier for British firms to compete on world markets. To give one example of what might be included in that agenda, as I wrote on Monday we need to reform climate change regulations that push up energy costs for manufacturers sharply.
But the critical issue for business investment and exports, which I've written about a lot on this site, is that businesses need to have greater confidence that politicians are ready to cut spending and deal with the crisis in the public finances. Otherwise they are running a big risk investing now when the returns tomorrow could be taken to pay for today's borrowing. Public spending doesn't just have the potential to crowd out the private sector through financial mechanisms like interest rates, it also affects expectations.
Hopefully, in the more specific article about policy that he promises for Friday, Martin Wolf will give that issue due prominence and that piece will put a plan to cut spending at the centre of a strategy for improving the prospects for growth and the resilience of the British economy.