No one should buy this bogus rationale, Haldane

The Bank of England, which set a gloomy forecast in November for the economy.Let’s face it, elite insiders around the world have been caught out.  And among the most egregiously behaved were the economists (and governor) of the Bank of England who overtly campaigned for REMAIN.  (We should also throw in the economists at HM Treasury.)

The opposition of these elite insiders to Brexit had nothing to do with genuinely held views about the economic consequences of the UK leaving the EU but everything to do with their support for supranational governance and a complete lack of concern for the opinions and welfare of ordinary folk which latter they never encounter.

For the BoE’s chief economist to blame the models is akin to blaming the deaths in the Christmas market in Berlin on the truck.

Everyone knows these models are essentially rhetorical; that they are used to provide faux empirical ‘evidence’ to support the values of the institutions which develop and own these models.  The idea that the models made the BoE support REMAIN is just laughable.

Just read this self-serving guff from Haldane who is a firm believer in behavioural economics which is code for believing that most people are idiots, but not him of course.

Note also the following:

Haldane and Martin Brookes co-founded a charity “Pro Bono Economics”, which aims to persuade economists to donate their time and expertise to help charities on a pro bono basis.[17] It has partnered with charities such as St Giles Trust and Barnardo’s. They tapped Gus O’Donnell to help promote the initiative. It is also backed by Gavyn Davies, former BBC head; Sir Howard Davies, London School of Economics director; Rachel Lomax, former Bank of England deputy director on the Monetary Policy Committee; Adair Turner, who chaired the now-defunct Financial Services Authority; and Jim O’Neill, the Goldman Sachs economist who came up with the “BRIC” term.[18]

What possible use would economists be to charities?  Quite bizarre but excellent virtue signalling.

Here is the piece from the Guardian.  I love the last bit – all those innumerate tossers in the UK he dislikes are holding back productivity growth, even though slow productivity growth is a world wide developed country phenomenon.  Clearly, our Andy is not very bright even if he can count.

The Bank of England’s chief economist has admitted his profession is in crisis having failed to foresee the 2008 financial crash and having misjudged the impact of the Brexit vote.

Andrew Haldane, said it was “a fair cop” referring to a series of forecasting errors before and after the financial crash which had brought the profession’s reputation into question.

Blaming the failure of economic models to cope with “irrational behaviour” in the modern era, the economist said the profession needed to adapt to regain the trust of the public and politicians.

Haldane described the collapse of Lehman Brothers as the economics profession’s “Michael Fish moment” (a reference to when the BBC weather forecaster predicted in 1987 that the UK would avoid a hurricane that went on to devastate large parts of southern England). Speaking at the Institute for Government in central London, Haldane said meteorological forecasting had improved markedly following that embarrassing mistake and that the economics profession could follow in its footsteps.

The bank has come under intense criticism for predicting a dramatic slowdown in the UK’s fortunes in the event of a vote for Brexit only for the economy to bounce back strongly and remain one of the best performing in the developed world.

Haldane is known to be concerned about mounting criticism of experts and the potential for Threadneedle Street’s forecasts to be dismissed by politicians if errors persist.

Former Tory ministers, including the former foreign secretary William Hague and the former justice secretary Michael Gove, last year attacked the Bank of Englandgovernor, Mark Carney, for predicting a dramatic slowdown in growth if the country voted to leave the EU.

Prominent Brexit campaigners have also besieged the central bank. Before the vote, the foreign secretary, Boris Johnson accused the bank of risking undermining economic confidence by issuing warnings about the potential effects of a vote for Brexit. During her conference speech following the vote, on 6 October, the prime minister, Theresa May, criticised the bank’s reaction to the vote after it cut interest rates further and boosted its package of stimulus measures by £60bn to £435bn.

Gove said last week that when he said experts needed to be challenged, he meant economists in particular. In a debate with Stephanie Flanders, the former BBC economics editor, he cited an academic study to support his argument that expert economists were not good at making predictions.

Gove said: “Sometimes we’re invited to take experts as though they were prophets, as though their words were carved in tablets of stone and that we had to simply meekly bow down before them and accept their verdict.

“I think the right response in a democracy, to assertions made by experts, is to say ‘show us the evidence, show us the facts’. And then, if experts or indeed anyone in the debate can make a strong case, draw on evidence and let us think again – then of course they deserve respect.”

Flanders, who now works for JP Morgan, agreed that economists had a long record of being wrong on direct forecasts while expressing concerns about the consequences of expertise being dismissed out of hand. “I think we’ve seen over the last few years economists and indeed the elite, the technocrats, can be wrong in some pretty big areas,” she said. “They were wrong in their assumptions about certain financial instruments and developments, which helped contribute to the financial crisis.”

Official figures have shown the economy was outstripped only by the US among the large economies last year after growth in the third quarter was upgraded to 0.6%.

Forecasts by the Treasury, the International Monetary Fund and the Paris-based OECD, all pointed to a recession after the vote, based on assumptions of steeply declining consumer spending and business investment.

Haldane said: “It’s a fair cop to say the profession is to some degree in crisis. It’s not the first time it has happened. It happened back in the 1930s and [during] the Great Depression. But out of that something good spread. It brought us [John Maynard] Keynes and the birth of modern macro-economics. Out of this crisis, there could be a rebirth of economics. I’m not someone who would say that all that’s been done in the past is terrible. It’s just that the models we had were rather narrow and fragile. The problem came when the world was tipped upside down and those models were ill-equipped to making sense of behaviours that were deeply irrational.” (OH DEAR)

He blamed the profession’s reliance on models that were built for an age when consumers and businesses, and especially banks, “behaved rationally”. Since 2008, consumers have maintained their spending when the classic economic models would have expected them to be more circumspect.

Haldane, who is regularly cited as a dove on the bank’s interest rate-setting committee, has argued that the economy remains weak and that rates should stay low to boost growth.

Answering critics of the bank’s gloomy November forecast for the economy, he admitted that the bank did not anticipate the resilience of consumer spending after Britain voted to leave the EU. But he said that he thought the bank was wrong about timing not about the fundamentals, and that the Bank of England still expected Brexit to harm growth. (OH DEAR)

“I think, near-term, the data, the evidence we’ve been accumulating since the referendum, has surprised to the upside. [There’s been] greater resilience, in particular among consumers and among the housing market, than we had expected. Has that led us to fundamentally change our view on the fortunes of the economy looking forward over the next several years? Not really.

“This is more a question, I think, of timing than of a fundamental reassessment of the fortunes of the economy. So back in November we published a forecast for inflation which was the highest we’ve ever published. And the forecast for growth in the UK economy, that was the lowest we have ever published.

“We are still expecting this rather difficult balancing act for monetary policy with a slowing, not a huge slowing, but nonetheless a material slowing, during the course of next year as the effects of higher prices in the shops begin to chew away a little at the spending power of consumers and cause them to rein back a little in their spending. That remains our central view, with huge amounts of uncertainty around it.”

He blamed decades of education policies – that had left numeracy levels in England only just above Albania – for holding back improvements in productivity. He said the lack of numeracy skills was stark in comparison with other countries, which placed more emphasis on workers having more than a basic level of maths.

Haldane said: “I’ll give an example of where Britain is punching well below its weight and that’s in core numeracy skills. There are 17 million people who have levels of numeracy that are no better than those expected of primary age children. In a recent OECD study that looked at numeracy as it applies to financial literacy, the UK came 17th, just above Albania, on questions of financial literacy.”

He added that the UK’s lack of numeracy skills across more than half the working population was a key reason for its lack of productivity growth since the financial crisis. (OH DEAR Squared).

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12 Responses to No one should buy this bogus rationale, Haldane

  1. chrisl

    Ok what can economists actually predict?
    Human behavior?
    Fashion trends?
    Technological advancements?
    Changes in government policy?
    Anything?

  2. Entropy

    Ok what can economists actually predict?

    The next crisis will require a greater role for economists in managing the economy and moar, moar spending.

  3. sabena

    “Irrational behaviour” is simply people acting normally-economists have never heard of this.
    My late mother used to recount to me the story of Labor minister John Dedman banning further production of pink icing during what was left of World War II.He made the announcement solemnly seeking Australian mothers to do the right thing.They didn’t,all the existing stocks of pink icing were quickly snapped up.

  4. James Hargrave

    Well of course I believed Mr Carnage at the Bank of England… (at least his predecessor seems to have grown some sense in retirement; pity it wasn’t earlier), as much as an acquaintance who was one of those who signed that well-timed letter to Mrs Thatcher 35 years ago, just as I did my former economics teacher at school the day I saw him after the UK’s brilliant entry into the ERM. And when my builder finishes the balcony I shall redirect him to making a nuclear fall-out shelter in the basement to deal with the projected fall out from Mr Trump’s presidency.

  5. The Pugilist

    The modern economics profession can only predict behaviour when the wise economic overlords tell people what to do…duh!

  6. MD

    To quote Murdoch’s axiom:

    I’m not an economist and we all know economists were created to make weather forecasters look good.

    Speaking of which, how many of the arguments in this article could equally be applied to that other obsession of the ‘elitist’ Left, climate change? For example:

    The opposition of these elite insiders to Brexit had nothing to do with genuinely held views about the economic consequences of the UK leaving the EU but everything to do with their support for supranational governance and a complete lack of concern for the opinions and welfare of ordinary folk which latter they never encounter.

    And:

    Everyone knows these models are essentially rhetorical; that they are used to provide faux empirical ‘evidence’ to support the values of the institutions which develop and own these models. The idea that the models made the BoE support REMAIN is just laughable.

    And:

    Haldane is known to be concerned about mounting criticism of experts …

    The most important point to remember is that politics is about people: understand the person and you understand their politics. Politics is not an abstract; it is a product of the psychological make-up of the person. For example, bureaucrats who want supranational government start with that as their aim and then invent models and arguments to support it. Climate change alarmists, either through stupidity or a desire to feed at the trough, start with the conclusion that there is a ‘climate emergency’ and then invent models and propositions that support it. In ideologically-charged cases leftist judges decide a case before having heard opposing arguments and then invent legal arguments that justify their decision, which was based entirely on their personal beliefs and prejudices.

    It is all about people – that is the beginning and end of it. And as we have seen with Trump Derangement Syndrome, where the Left are concerned we are talking about people who have some very serious mental issues, and those mental issues are manifest in their politics.

  7. MD

    Edit to previous post:
    Substitute ‘Leftist climate change alarmists’ for ‘climate change alarmists’. Not all people are evil.

  8. Dr Faustus

    Haldane, living in a world of respect for rational economic models, forgets that the majority of Brits voted for Brexit as a reaction against the continual imposition into their lives by the EU of incomprehensible rules and alien social concepts.

    Potential economic devastation was a risk Brexiteers were prepared to take, not some sort of irrational objective in itself.

  9. Guy

    What possible use would economists be to charities? Quite bizarre but excellent virtue signalling.

    In my experience it’s usually for business cases.

  10. I think MD above is spot on. I too thought of the CAGW scam as I was reading the article and just like these economists, Global Warming alarmists blamed their models for their false predictions and demanded ever bigger and more powerful computers which Governments duly furnished. I believe the one in East Anglia cost the UK about 80m Pounds.

  11. JohnA

    Haldane said: “It’s a fair cop to say the profession is to some degree in crisis. It’s not the first time it has happened. It happened back in the 1930s and [during] the Great Depression. But out of that something good spread. It brought us [John Maynard] Keynes and the birth of modern macro-economics.

    Translation: Let us all sacrifice one more chicken upon the altar of Keynesian macro-economics.

    The 1930s crisis was among the politicians who implemented the wrong policies. It was not among the economists – unless of course, they were advocating those wrong policies.

    It didn’t take them long to forget the lessons of the 1920-21 recession, did it?

  12. .

    chrisl
    #2253728, posted on January 6, 2017 at 5:42 pm
    Ok what can economists actually predict?
    Human behavior?
    Fashion trends?
    Technological advancements?
    Changes in government policy?
    Anything?

    On the other thread, you reckoned the property forecasts and ABS data was wrong because you had a sample of two properties in Sydney that were above trend for 2016.

    I’m going to try to avoid pissing in your pocket and assume you know what an average is – but you realise that the forecasts for a capital city and the index is an average for that capital?

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