Macroeconomics Blog

Conducting theoretical and empirical work across macroeconomics and finance

A tale of steel and deficit

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Economics is once more dominating the news, which oft times means that the news is not good. Today there are four stories which caught the attention. These are the problems of the steel industry, the tax havens story, the UK's record current account deficit and the onset of a new minimum wage. The tax havens story is a sad reflection of the age we live in, of how those with already very substantial wealth are reluctant to pay for the public services economies around the world depend upon. It has reflections in the tax avoidance schemes often followed by many multinationals. But in this blog, we focus  not on that, nor the minimum wage but the steel industry and the current account deficit.

I heard on the radio the beginnings of a discussion along the lines - what is so special about steel jobs, if jobs in the service sector can replace them. The answer is simple, many, but not all, service jobs do not help with the trade balance. If we stop producing steel in this country, then we will import more steel and export none. This will not help the current account deficit, indeed it will make it worse. A country, like an individual, has to pay its way in the world. If not then the country moves into economic decline.

Now I am not saying here that we should save the steel industry, although to my mind it would be regrettable if the country which gave birth to the industrial revolution were no longer to make steel. But I am saying that we need a vibrant manufacturing industry as one of the pillars on which a thriving export sector can flourish. We also, of course, need firms in the service sector which do the same. But it would be, I think a mistake to rely on services alone. Hence the need as a country to reverse the long steady decline in manufacturing.  Key to this is not just investment in infrastructure and people, but innovation. Developing new products and services the world wants to buy.

 

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