The Office for National Statistics has issued new GDP data this morning. Their tweets say:
Mainstream economists believed that the figure was going to be more like 0.5%, with that being used as further justification for interest rate increases.
They were wrong. They were also actually more wrong than the headline data even implies. Take this next tweet from the ONS:
First, second hand cars contributed only because of a shortage of new cars - meaning that this was a measure of stress and not success.
Second, the fall back in restaurants showed that as autumn arrived the sensible part of the population who had been eating outside during the summer simply stopped going out. The Covid impact on the economy was far from over.
And as for the construction fallback, the sign is very clear that the supposed spending boom after Covid lockdowns ended is over. Already people are pulling back and are keeping their cash expecting there to be worse to come.
Now remember what was being said in October by the likes of the Bank of England. They were saying that the economy was heating, that interest rates would need to rise soon, and that there was a real risk that without intervention inflation would continue.
What we are actually seeing is what Danny Blanchflower and I suggested was the case. This was an economy that had already heated, and where it was only supply chain issues that were causing any economic stress. As we argued, there were no underlying causes of concern, sorting supply chains apart, and since increasing interest rates could do nothing to sort those out there was no evidence of any need for a reaction from the Bank of England.
Danny and I have been proved to be right.
The economy was not overheating. Indeed, if supply chain issues had been taken out of the equation there could have been a drop in GDP in October.
The moral is straightforward. The Bank of England needs to get its head out of the textbooks and at the very least take a walk down the Mile End Road - which is the route out of the City to the northeast which very rapidly reveals what is going on in the real economy in a way that the rarified atmosphere within the City walls never does.
If only they did they might deliver better economic signalling. Even more importantly they might deliver better economic policy.
So, a quick note on what is happening now? The economy is in decline. The service sector will be having a more difficult time. Spending, Christmas apart (and maybe not even that) will be under tight rein. The last thing we need is an interest rate rise.
What we do need is a Chancellor at the Desoptach Box saying what he is going to do to aid the economy.
Will we get the economic policy we need? Only if the Chancellor and the Governor of the Bank take that walk down the Mile End Road and so many o9thjer streets like it across the UK.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
[…] have already noted one aspect of the ONBS press releases, issued this morning, on the economy in […]
What you are claiming the data says and what the data actually says are not the same. You are at some points twisting the truth and at others outright making statements that are false.
For example, construction spending was reduced because of a shortage in raw materials, particularly timber and steel, and you make claims about people’s behavior regarding the hospitality sector that you simply can’t justify.
Where you go dramatically wrong though is on inflation. It is clearly not only supply chain issues which are causing highly elevated inflation. CPIH is at 3.8% and RPI at 6%. The cost of living is increasing dramatically and inflation is projected to be far higher for far longer.
As monetarists predicted, if you dramatically increase the money supply along with government spending, you will eventually see inflation. Interest rate rises will be needed to counter it.
I think the hubris you show when claiming you are right, despite the fact that inflation has already reached levels not seen since the 80s, says a lot about you.
Then you get things completely the wrong way around. Supply chain issues didn’t boost GDP – it caused it to be smaller than expected. The opposite of what you are saying. Nor is the economy in decline. The UK economy is set to regain all the ground lost to the pandemic faster than previously expected and the UK is growing faster than all our European peers.
I think the moral here is that not about the Bank of England. I think it is really about people like you. You have no data of your own, no real experience in the economics field and really what you are doing is making stores up to suit your political ends. I assume the “economic policy we need” involves a left wing government which prints and spends money in ever greater quantities. You clearly hate the Conservative party and this colors literally everything you say. It also makes everything you say essentially worthless as it is pure propaganda as well as being factually and in economics terms quite incorrect.
Harry
Why don’t you tell us what you do for a living, and who for, so that the audience here can appraise your bias?
I think that might explain some of your prejudice, because this most certainly is not reasoned
Richard
Not sure what I do or who I am has anything to do with this.
We are discussing your claims about the data produced by the ONS.
Which are in some cases just wrong, and in others you have literally turned the facts on their head. It is obvious you are simply unable to say anything good about anything when the Conservatives are in government, and it is also pretty clear that what you do say is heavily politicized to the point where you are willing to mangle the facts to suit your agenda. Let alone the terrible economic knowledge you show, from your armchair clearly as you seem to have no other real experience in the field, let alone training.
Do you feel comfortable lying to your audience?
I am not lying Harry
All you are doing, I am quite sure, is offering the standard City view
And al so the standard neoliberal view, that what neoclassical economics says is neutral politically and anything else is political
It is you who is not telling the truth
Please do not call again
Just to pick on one thread (apart from Harry’s occasionally American spelling) – can he tell us how much of the current inflation is due to supply chain constraints (including in particular fuel costs, which any fool can see have increased dramatically for no reason related to money supply) and how much is due to other issues?
“Where you go dramatically wrong though is on inflation. It is clearly not only supply chain issues which are causing highly elevated inflation. CPIH is at 3.8% and RPI at 6%. The cost of living is increasing dramatically and inflation is projected to be far higher for far longer.
As monetarists predicted, if you dramatically increase the money supply along with government spending, you will eventually see inflation. Interest rate rises will be needed to counter it.”
They’ve been predicting this for 15 years since their model crashed and burned in the financial crisis.
All they got to show for the incessant screeching was a measly short-lived spike in 2011 as economies recovered from the damage done by monetarist dogma, and a modest one now which has similar causes to 2011 plus predictable negative Brexit effects. There’s no way raising the cost of mortgages and business loans does anything to address this that won’t do yet more monetarist driven damage.
Agreed
Hi Richard, I wondered if you noticed the piece by Satyajit Das in the Guardian today, attacking MMT, by minimising the role of tax, claiming it is a policy of unlimited spending without taxation, and mischaracterising MMT as a policy of freebies. I guess, though, being that he is dealing with questions of political economy, one could argue that all economic policy is a policy of freebies? The more pertinent question might be who gets to pocket the freebies produced by any given policy?
I find it unsurprising that, just as the likelihood of a Tory government failure increases, that the liberal media is quick to bring out pre-emptive attacks on any ideas that could come to influence policies of a potential future Labour government (as implausible as that may be given its supine leadership).
At some point before too long, in order to maintain the charade that we have a functioning democracy, we are going to have to see the fake-tories in power. Hence, the desperate and immediate need to purge Labour of the intolerable virus of hope for change, or progressive ideals. Better to complete the Labour house-clean now, to make them ready to take their eventual, and occasional turn at the wheel. And that includes ensuring that neoliberal orthodoxy remains sacrosanct when it comes to economic thought.
I will write a counter argument, but not today. Sorry.
But it will happen.
It seems to me that one major problem is that if you say “taxation does not fund government spending” then what many people hear is “there is no relationship whatsoever between taxation and government spending” which, of course, is absurd. What has to be emphasised is that, yes, there is a relationship between the two but it is not the direct relationship that most people imagine and this makes an enormous difference to how one approaches both spending and taxation.
I also think there is a suspicion on the part of some people on the left that MMT is a way of making excuses for not taxing the super-rich. Personally I would tax billionaires out of existence, but the logic of the argument that taxation funds government spending is that we should not do this. After all don’t we need the super-rich so that we can tax them in the future to fund future government spending? Why would anyone who believes that taxation funds government spending want to destroy the possibility of having such a lucrative revenue stream?
I think MMT is the reason why the super-rich should be taxed
I too had rather expected you to comment on that Guardian article.
There seems to be a big problem in that commentators on MMT, presumably from a conventional eonomics training, don’t realise what I have learnt from this blog: that there is a limit to money creation. Assuming governments and central banks have a policy of avoiding excessive inflation you show that there needs to be a compensatory removal of money from the economy via taxation.
I know I have asked you before what fraction of money created needs to be recovered by tax and you said there was no fixed fraction, it all depends. But I think MMT is always going to be criticised unless there is some serious academic approach to working out the implication of money creation for taxation. There is surely some evidence to work on – you have pointed out before that no government receives as much revenue as they spend (regardless of the economic dogma they profess) so it may be possible to use historic data to gain ideas about how much “excess” spending can be tolerated.
(The other point of criticism in the Guardian piece was about UBI. It is extremely unfortunate that there are some very vocal proponents who embrace both MMT and UBI, leading people to think they are linked so that criticising UBI automatically invalidates MMT. UBI is essentially a political proposal not dependent on the economic model, and needs to be kept well apart from serious discussions of MMT).
Give me time!
I have a day job!
What spambot Harry seems to miss is the fact that current inflationary pressures on prices and costs of living are almost entirely the result of current post Brexit/post COVID supply chain/worker shortage issues, and not, as he claims, the result of massive increases of the money supply. Oil/Gas price increases(due mostly to production/supply chain issues resulting from the difficulty in quickly ramping up production in keeping with economies reopening post covid), added to Brexit-related increases in costs of imported goods, added to housing supply/building shortages/pressures(short term supply chain shortages and long-term lack of government investment in social/affordable housing), added to farming and hospitality worker shortages (down to Brexit, again)have all led directly to price increases, with particular impacts on the bulk of what makes up the basket of goods and services used to calculate household inflation. Is spambot Harry able to even explain, never mind prove the specific, direct links between money supply increase and inflation, in the current specific context, aside from his generic appeals to level 1 economic textbook theories? And can Harry please explain how increasing interest rates and or further austerity measures/spending cuts can be expected to solve supply-side shortages? Besides, if, as he claims, there has been a massive injection of money supply, I’d like to know where it has gone, bank/corporate failure bailouts, PPE fraud and corruption aside. Local governments funding is, the last time I checked still some 40% or more decreased from before austerity, and as a government employee, over the past decade I’ve not seen my pay keep up with even the low levels of inflation we’ve seen.