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Bank of England backtracks on its doomsday Brexit scenarios

Earlier this month (March 5, 2019), the Governor of the Bank of England fronted the House of Lords Select Committee on Economic Affairs for his annual grilling. The details of his evidence, covered in the transcript produced – Uncorrected oral evidence: Annual session with the Governor of the Bank of England – should have generated headlines in all the major British press outlets but the UK Guardian, noticeably, avoided reporting the details. The Guardian has jumped on every negative projection since before the 2016 Referendum and published volumes of Op Ed pieces from various correspondents amplifying the negativity. But it largely failed to report the Mark Carney’s backtracking. Turns out that the Bank of England thinks Brexit will be considerably less damaging than its headlined Project Fear estimates published last November, And that is without factoring in any fiscal response from government. It seems that the Bank now believes that a no-deal (disorderly) Brexit won’t be all that damaging at all and an orderly Brexit would be associated with an over-full employment boom over the next three years. Quite a different story to that offered in November 2018. The latest revelations will give Remainers some headaches – their collapse scenarios are evaporating.

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    The Weekend Quiz – March 16-17, 2019 – answers and discussion

    Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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      Travelling across the world today to escape the famine that MMT will cause

      I am travelling all day today and I will resurface, in blog terms, on Monday. A quiz will pop up tomorrow as usual. For now a brief excursion into the Dutch press, which has decided to join the wannabees attacking Modern Monetary Theory (MMT). The scenario outlined in the article I read earlier today takes the criticisms to a new level. We are no longer worried about hyperinflation, crowding out, sky high interest rates. No, things are likely to get much worse than that. If any government takes on MMT (noting it is not a regime that can be taken on) to operationalise a Green New Deal then tax rates will have to rise to around 100 per cent, households and firms will stop working and producing, and a massive famine in possible where millions die. Sort of Project Fear stuff that has marked the Remain position in the Brexit debate!

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        Another fictional characterisation of MMT finishes in total confusion

        I am travelling across Europe today and so am just writing this in between various commitments. I will soon be back home in Australia and have received a lot of E-mails about the way the Australian media has been treating the recent upsurge in attention about Modern Monetary Theory (MMT). The short description is appalling – one-sided, no balance and hardly about MMT at all, despite dismissing our work as garbage. So par for the course really. While most of the articles have just been syndicated hashes of the foreign criticisms that have been published elsewhere from Krugman, Rogoff, Summers and others. But there was one article by a local journalist who tried to predict which side of history would end up looking good in all this and chose, wrongly I think, to throw his cap in with the New Keynesians. More alarmingly though is that this local effort clearly followed the international trend by setting out a fiction and then tearing into that fiction claiming to his readers that this was about MMT. He missed the mark and ended up totally confusing himself. So par for the course.

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          Event news and podcast

          I am moving from well north of the Arctic Circle today to eventually get to Vienna for an event that I am talking at tonight as part of a new lecture series “Talk Europe #offenegesellschaft”. So no time to write a detailed blog post today. But I have information about the event tonight and the media for a podcast I did last week in Helsinki that should be sufficient for today. Normal transmission resumes tomorrow.

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            US labour market weaker than it was at the end of 2018

            Last week’s (March 8, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – February 2019 – is a little hard to believe and shows the sampling variability involved in survey work. In January, the BLS estimates that total non-farm payroll employment rose by 311,000 (revised up from 304,000). This month the estimate was only 20,000. So either the US economy is crashing (given employment is a lagging indicator) or some one-off factors (bad weather, shutdown, you name it) were present or the results are too variable to be believed. The most likely explanation is that employment growth is fading and the strength in the US labour market coming into 2019 is gone. Taking the Household Survey results, we saw employment rise by 255 thousand and the official unemployment rate fell by 0.2 points to 3.8 per cent on the back of a steady participation rate. Even with all this volatility in the estimates, the best guess is that the US labour market has probably weakened somewhat from where it was at the end of 2018. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.

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              The Weekend Quiz – March 9-10, 2019 – answers and discussion

              Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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                The conga line of MMT critics – marching into oblivion

                The US-based Eastern Economic Association, which aims to promote “educational and scholarly exchange on economic affairs”, held its annual conference in New York over the weekend just gone. One of the panels focused on “New Views of Money” and I am reliably told turned into a bash MMT session as yet another disaffected economist, feeling a little attention deficit, sought to demolish our work. The technique is becoming rather standardised: construct MMT as something that it is not; refer to hardly any primary sources and only those that can be twisted with word ploys to fit into the argument; use this false construction to accuse MMT authors that are not cited of a range of sins; conclude that MMT is useless – either because the things it has right were known anyway and the novelties are wrong, proceed as normal. In denial. Afraid to admit you are part of a degenerative paradigm that has lost credibility. Bluster your way forward muttering something about optimising transversality conditions that need to be met. Feel happy to be part of the conga line. Well that conga line is heading for oblivion I hope. Where it belongs. On the scrap heap of anti-knowledge.

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