Andrew Marr had two good interviews on his LBC programme last night that are worth sharing to demonstrate that Danny Blanchflower and I are not alone in opposing what the government and Bank of England are doing.
The first was with Prof Robert (Lord) Skidelsky, Keynes' greatest biographer:
'Arrange the taxes so they hit the people who are best able to bear them and spare the poorest people.'
British Economic Historian Lord Robert Skidelsky says unemployment isn't the only way to 'reduce inflationary pressure'.@AndrewMarr9 pic.twitter.com/WKOQMyOF8k
— LBC (@LBC) November 3, 2022
Robert and I have shared many conversations. He is right here.
The second is by Professor Mariana Mazzucato, whose analysis is interesting and worth sharing because it is clear she shares the broad view that the Bank of England has most things wrong right now with all the unfortunate outcomes that I think likely:
We risk moving from recession to 'full-blown depression'.
Professor Mariana Mazzucato breaks down 'dysfunctionalities' in the economic system which should be tackled instead of 'punishing consumers and families' who already face high costs of living.@AndrewMarr9 | @MazzucatoM pic.twitter.com/nnxKFnE4or
— LBC (@LBC) November 3, 2022
The videos in both tweets are live.
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All good – let’s keep getting this out there – I’m doing my best at work talking about this stuff too when I’m with people. Already the MSM and the Tories are trying to help us to forget about a windfall tax.
Let’s remember what Milan Kundera said:
‘The struggle of man against power is the struggle of memory against forgetting’.
Let’s struggle on guys.
He also said this :
‘Yes, it’s a well-known fact about you: you’re like death, you take everything.’
Seems rather apt when talking about Sunak and Bailey!
This is something of a side issue but Professor Mariana Mazzucato mentioned share buy backs.
Presumably the BofE would see nothing wrong with that. It is not quite the same thing but it strikes me as very similar to a central bank buying back its bonds.
Why is one considered OK but the other considered evil?
Amusing comparison
@ Bernard Hurley,
The BoE is largely buying Gilts during the QE process which are Treasury bonds and not “its own bonds”. It’s essentially an asset swap which has the effect of reducing longer term interest rates. It’s a bit of a stretch to compare this with a company buying up its own shares which is a manipulation of the stock market.
The BoE is indemnified by the Treasury on QE, which means the Treasury actually does QE, not the BoE
I am usually somewhat of an apologist for the BoE. Generally, I prefer to see them “useful idiots” doing their political masters’ bidding… with the blame mainly accruing to government
However, I do think your anger specifically at the Bank is legitimate in this case,
First, inflation forecasts already have it falling next year (for all the reasons you state). The argument that inflation is only forecast to hit target BECAUSE of the rate hikes is nonsense as we know the of lagged effect of policy changes. If monetary policy is effecting inflation next year it is the hikes already implemented that are doing the job…. although we all know that it is largely “base effects” that will cut inflation…. and they are “baked in”.
Second, there was a perfect opportunity to keep rates unchanged (or just given us a token 25bp rise). We will have a major fiscal policy announcement soon and, unless the bank has had advance sight of this (and it won’t) why not just wait? Markets would have been perfectly content with this approach.
Agreed
I am struck by Carney’s (ex-Governor BofE) comments on Brexit yesterday on the BBC. He said this, in establishing context to BofE action: “The economy’s capacity would go down for a period of time because of Brexit, that would add to inflationary pressure, and we would have a situation – which is the situation we have today – where the Bank of England has to raise interest rates despite the fact that the economy is going into recession.”
I find this a striking characterisation; particularly because it brings out something I muse may be an over-suppressed policy context (suppressed, bluntly because it is a political taboo). The implication I am tempted to draw, is that the BofE is pursuing a rate increase policy, by claiming it is to squeeze out inflation (although the inflation is due to external factors over which it has no control, and possesses no mechanism that could influence external inflationary effects – we are back, broadly in 1973 oil price rise territory).
In fact whatever the BofE policymakers think they are doing. I hypothesise that when the Bank refers to consequential homegrown inflation as a risk; in fact what the Bank is doing is doing (partly, or even principally), is using interest rates to reduce the size of the pre-Brexit British economy to a scale commensurate with a significantly smaller functioning post-Brexit economy that no longer has the resources (especially, but not exclusively labour) to match or sustain the scale of the pre-Brexit economy. We are levelling-down the economy to our new circumstnces.
Nothing is permanent in economic life, but the BofE seems to be assuming Britain’s economy will be continuously, markedly impaired (relative to its past position and opportunities) for the foreseeable future.
For once I have to disagree with you
I see no reason to impair the economy in that way
We need yo change what we do, but not restrict it
Sorry, Richard I am not sure of the point with which you disagree? I saw in Carney’s words a description of an underlying, suppressed reason the BofE is pursuing its interest rate policy. I am not prescribing the policy, with which I strongly disagree, if it is as I describe; but it seems me to illuminate the Bank’s otherwise somewhat perversly destructive policy logic.
Therefore, are you disagereing with me on a point of fact; i.e., you do not think that my surmise is BofE policy, suppressed or not? Or, alternatively have you assumed I was actually proposing the policy (But in the event misconstrued my intention). It may well be that my own position was not expressed clearly enough; although I confess I cannot immediately see an obvious ambiguity in my wording.
I am not sure they are as rational as your suggestion implies: my suggestion is they are more destructive than you imply, that’s all
Emphasis only……
With you and Danny getting Express and Mirror coverage, and Mazzucato and Skidelsky getting coverage on Andrew Marr LBC, – the fact there exists a different choice for the Bank and for the government, must be entering at least some parts of public consciousness.
I hope so
An analogy for the use of raising interest rates to control inflation, that comes to my twisty mind, is to try and control a car just by using differential tyre pressures in the front tyres. It has some effect but will result in a crash.
Or maybe the BoE have struck a desk with the government that putting 0.75 points on will be overturned by the government to a 0.25 increase, thereby giving the impression of a ‘strong’ government ?
very very unlikely
thx
esp 4 the superb 3 min analysis by Professor Mariana Mazzucato
+ the supply side inflationary costs she touched on eg food & distribution would be lessened by us aligning closer to EU reducing friction costs & easing staff shortages
GE is the ultimate solution
Professor Mariana Mazzucato’s superb analysis touches on mining;
environmental taxation is/will be required as well as the reasons she highlights, but that taxation may well contribute to Inflation if the Mining Companies continue their profit/dividend chase by passing on the extra tax as costs, but that should not dissuade us levying these necessary environmental costs, as Climate change waits for none of us.
The resultant higher product cost must though be absorbed in new green thinking where we as consumers consume less, upgrade less, repair more & Manufacturers factor in better repair-possible design & better recycle swop 4 new or re-manufactured options.
Green climate aware policies will need to reduce our consumerism as finite raw materials increase product inflation world-wide but it is an unavoidable & necessary inflationary cost.
discuss!
Remember Levelling Up? The Government is taking advantage of the new hystria about the national debt, and outsourcing responsibility for interest rates to the BofE (as Skidelsky notes) it is going to butcher Levelling Up while the opportunity is there (it was just a slogan, it was never intended to do anything). The North of England version of Crossrail is now in the cross-hairs to be terminated. Meanwhile Bond Street, London has just celebrated the opening of a £600m passenger station.
You didn’t think it was all actually going to end any other way?.It is extraordinary how easily the Conservatives ‘get away’ with a political scam, when the con is so blindingly obvious. Candidly, there comes a point that you have to query the basic, simple sense of the electorate.
Scotland didn’t fall for the political scam; which is why it was excluded from HS2 – effectively forever, from the very beginning; but since nothing was ever going to be spent north of the London-Birmingham corridor in anyone’s lifetime, it isn’t much of a loss.
I think you are right
As you might guess, the use of such a blunt instrument as BBR to manage the economy is plain wrong. There are many interest rates, all tending to move with the UK BBR, but importantly the spread across the different rates at one time can be influenced by policy. This would allow the Bank of England to focus on segmented policies according to national and regional debt markets. For example, the mortgage market could be manipulated to reduce the most damaging effects of the unexpected rise in rates. Or Green New Deal projects could be favoured by no rise at all.
However the Bank has also to take into account the effects of the USA rate increases on Sterling. When the BBR rises, Sterling tends to follow as more funds move the the UK attracted by higher rates.
So what is your argument? I can see none, but I can see hints of excuses
You’ve had quite a lot of criticism for the Bank of England and you’ve also targetted the US Fed who have been leading the way. These comments from Christine Lagarde show the ECB doesn’t want to be left behind.
“Christine Lagarde has indicated a recession in the eurozone would not be enough to stop the European Central Bank raising rates further, underlining policymakers’ determination to quash inflation despite the risks to growth.”
There’s many similar recent quotes from her on the net. If a recession isn’t going to be enough, what would be? A depression?
The coming catastrophe is internationally orchestrated. Tempting as it might be to put all the blame on our own Tories we have to recognise that there are “Tories” everywhere although they might choose a different political label.
https://www.reuters.com/markets/rates-bonds/ecb-cant-just-mirror-fed-moves-lagarde-says-2022-11-03/
The group think is frightening