Civil Engineering Reference
In-Depth Information
12
Managing the Macroeconomy
The management of macroeconomic issues appears to dominate the pages of the
national press. In the 1930s economists and politicians of the industrial world
wrestled with the
great depression
, which led to millions being made unemployed.
Forty years later, during the 1970s, the big problem was
stagflation
, a combination
of stagnation (slow or zero growth) and inflation (rising prices). Now in 2012,
another forty years later, the macroeconomic issue is the crisis in the global financial
system, resulting from the
credit crunch
and sovereign debt problems. This has
disturbed the long-standing equilibrium in the financial markets and caused rising
inflation and a deep recession. Against this background, governments strive to
deliver economic stability or, as it is sometimes expressed by politicians in the UK,
to achieve high levels of growth that meets the needs of everyone.
In this chapter, we review the policies that underpin this vision of economic
growth that meets the needs of everyone. We shall also consider economic
forecasting. All this has direct relevance for anyone who needs to understand,
manage and/or plan construction capacity over a medium-to-long time period, as the
demand for construction products is always derived from activity in other sectors.
Inevitably, then, construction economists need the ability and confidence to interpret
economic statistics relating to the wider economy. Economic statistics are considered
throughout
Chapters 12
and
13,
so the chapters should be read as a related pair.
FIVE MACROECONOMIC OBJECTIVES
All governments, regardless of their political persuasion, seek to achieve economic
goals. In economics, these goals are referred to as
macroeconomic objectives
.
There seems to be some political and economic consensus about the five dominant
macroeconomics objectives: price stability, full employment, a sustained rate of
economic growth, a positive trade balance with overseas partners and effective
protection of the environment. Each of these objectives is considered in turn below.
Recent macroeconomic statistics for the UK economy, which show the extent to
which these objectives are being achieved, are presented in
Table 12.1
(see page 204).
Stable Prices
Stable prices are crucial for business confidence, facilitating contracts and enabling
the exchange rate system to function smoothly; in contrast, persistently rising
prices cause problems for most sectors of an economy. Price stability has become
the primary objective of most governments that wish to secure long-term growth
and full employment. Economists no longer believe that tolerating higher rates of
inflation can lead to higher employment or output over the long term. In the UK,
the government's target is to keep inflation within a range of 1-3 per cent and the
