Comments on: Inflation, Growth & Household Savings

By: Paul Newman

Paul Newman — Sun, 22 May 2011 08:00:45 +0000

Your endless calls to borrow more and spend more so at to retain Public Sector inefficiency would confuse if you did not see the purpose which only rhetorical. I really cannot see what you think you are achieving other than muddying the waters. This argument, whilst it may amuse courtiers of New Labour has lost in the country, utterly lost and completely lost.
Its time to stop sticking your head in the sand Duncan, while you are engaged in a long sulk about your failure the shape of the new model has no left or progressive input at all. Vince Cable was saying something like this today and it is of course is precisely what the Conservative Party did finding itself rejected and despised

By: Dave Holden

Dave Holden — Wed, 18 May 2011 19:14:29 +0000

@jomiku

“Ah, “malinvestment,,” the keyword of the Austrian believer.”

That’s feeble.

If you must know – I think the Austrian school has a lot to add to the debate particularly in *avoiding* the predicament we find ourself, but I don’t subscribe to it as a *remedy* for it. I don’t in fact have a fixed position as far as economic perspectives go, I’m more a lay person trying to establish one.

But since you apparently like to project views on to people it might surprise you that for the very specific case we and much of the western world finds itself I find myself leaning more toward the MMT/functional finance approach – but only for the specific case of an ending to a debt super cycle.

By: jomiku

jomiku — Wed, 18 May 2011 15:55:46 +0000

Ah, “malinvestment,,” the keyword of the Austrian believer.

By: Dave Holden

Dave Holden — Wed, 18 May 2011 09:42:17 +0000

@Mark,

I agree. But my view is that neither savage cuts nor cutting less quickly will work when the problem is the ending of a debt super cycle and all the malinvestment it produced. I hope I’m wrong on that.

I keep asking myself the question – wouldn’t it have been better to just let the banks fail while underwriting deposits. The route we’ve taken means that joe public is paying for the mistakes of bankers through cuts and austerity while central banks print money for those very same bankers to speculate with – keeping their bonuses flowing. The powers that be keep trying to pass this off as a liquidity crisis when its really a massive solvency crisis.

We’ve gone down the route of moral hazard squared.

By: Mark Vickery

Mark Vickery — Tue, 17 May 2011 21:50:34 +0000

Dave – Osborne couldn’t make a sensible decision in the comfort of opposition and continues to make “political” statements rather than sound “economic” decisions.
We have had his budget claim of putting fuel back into economy and when he started comparing this recession to the Canadian one in the 90′s claiiming that we should use the same methods of savage cutting to remedy the situation alarm bells began ringing. This is not a normal recession where austerity measures will necessarily work their way through and some flexibilty is now needed else we are doomed to fail

By: Dave Holden

Dave Holden — Tue, 17 May 2011 18:44:08 +0000

@jomiku.

Cut less quickly isn’t a policy unless it’s associated with some measure of what “less quickly” means.

See for example my reference to the IPPRs deficit reduction averaging approach – which I first saw on this very blog

By: jomiku

jomiku — Tue, 17 May 2011 16:25:37 +0000

Why isn’t “cut less quickly” a policy? Is the idea in that comment that Labour must propose something radically different, like replacing the pound with bits of sausage? Cutting less quickly is the rational approach and is a policy. Cutting really, really fast is motivated by belief that somehow there is a reward for radical action, as embodied in the nonsense phrase quoted in the post “expansionary fiscal contraction.” This belief uses a combination of fear – e.g., we’ll be like Greece – and platitudes of the sort mouthed by Chauncy Gardner in the movie Being There.

By: Left Outside

Left Outside — Tue, 17 May 2011 13:12:08 +0000

They slipped up big time last year and made a big underprediction for inflation this year. I imagine that has put the bank off longer term predictions for fear of underpredicting two years in a row. That would harm forward looking inflation expectations just as people reassess their predictions of future inflation from two years of above target inflation.

As expected the former Goldman Sach’s economist took a relatively dovish position on interest rates and inflation and early indications are that he will be closer to arch-Dove Adam Posen than the hawkish Andrew Sentence he has replaced.

That is good news. More Adam Posens please.

By: duncanseconomicblog

duncanseconomicblog — Tue, 17 May 2011 12:56:53 +0000

Yes – this a worry.

I’d be in favour of either raisng the target for a time limited period or (better yet) redefining it to exclude externally generated inflation (i.e. commodity price related pressure). Both are difficult in terms of expectations management though.

By: Luis Enrique

Luis Enrique — Tue, 17 May 2011 12:52:56 +0000

nb – given the importance of expectations for inflation, I don’t understand why the bank and others are not trying to spin this – much more loudly – not as inflation but as a one-off increase in the price level (i.e. the VAT increase and imported commodity price increases) that are not going to reoccur year-on-year and wage and price setters needn’t start raising wages and prices each year, as they would if inflation had taken hold.

of course that could be wrong – commodity prices can keep rising.