The Bank of England Should Stop Broadcasting the Views of a Comfortable Financial Elite

Yves here. It really is too bad, what happened to Andy Haldane. I’d regularly post his speeches and articles when he was the Executive Director of Financial Stability at the Bank of England right after the crisis. He was widely seen as one of the most creative and insightful economists of his generation. But Haldane looks to have been promoted (or demoted) to his level of incompetence, where his job consists of forecasting (or overseeing forecasters) and talking to Mr. Market and Fleet Street. As Richard Murphy explains, Haldane needs to get out of his elite bubble and get a better grip on what is happening in the economy.

Perhaps Murphy is in a minority in noticing how out to lunch Haldane’s forecasts are, with the most recent coming off as the Covid-crisis answer to Irving Fisher’s 1929 declaration that stocks had reached a “permanently high plateau.” I gather Haldane has managed not to notice Brexit, which is shellacking everything from shellfish to City trading activity to high fashion to live animal exports. And the good news just keeps piling up, like Trailer shortage fears as EU drivers question the viability of serving the UK (but not to worry, higher prices will come to the rescue) and:

Or remember when Janet Yellen, early in her tenure at Fed chair, needed to speak about poverty and her staff found three real living breathing poor people to chat with her? As Lambert pointed out then, they couldn’t have been totally destitute, since they did own phones.

Anyway, it’s sad to see a genuine talent come to this. And it’s not a good sign as far the caliber of data gathering at the Bank of England is concerned either.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK

The Guardian reports on comments from Andy Haldane, Chief economist at the Bank of England, this morning, noting:

British families are ready to fuel a rapid return to prosperity with a multibillion pound spending spree, according to a senior Bank of Englandpolicymaker.

With the vaccine rollout protecting more than 13 million of the most vulnerable people, the BoE’s Andy Haldane said the economy was about to turn “a decisive corner with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring”.

Echoing comments made by BoE governor Andrew Bailey last weekend, Haldane – the Bank’s chief economist – said most people were desperate to socialise again and spend money on going out for meals.

Three thoughts.

First, Haldane has clearly noted none of the lessons of ‘eat out to help out’. This country remains a very long way from being safe from another wave of Covid. It seems Haldane shares the Sunak approach of ‘bring it on’.

Second, this is the view of the financial elite. Haldane, and almost certainly everyone he knows, has had a very good crisis, economically speaking. Their incomes have been secure. They were already comfortable. Their spending has been cut. They may be raring to spend from a position of considerable economic security. But Haldane is being foolish to extrapolate his good fortune.

That is because, third, much of Britain is not raring to go. They have suffered massive loss of income. They have debts. Those debts are at present unaffordable. If they have their own businesses they do not at present know if they will survive. And for those who have lived through such stress of course the desire to socialise will be strong, but so too will the caution be overwhelming. They are very unlikely to be spending as if money is going out of fashion any time soon.

Haldane has called almost everything on this crisis wrong, right from the outset, when it was only ever going to be a temporary V shaped blip in his view. Well it wasn’t. It’s already delivered a loss of 9.9% in GDP, with long term losses likely to be more significant, only compounded by Brexit.

I would suggest that there are actually some who, despite their financial good fortunes, have had very bad Covid crises. In economics, Haldane is near top of that list.


    1. Anonymous2

      I reckon that there has been a directive from Number 10 that all public officials must be upbeat in their remarks about the future. As Johnson must be expected to be around until 2024 at the least, no one with any hopes of future career progression will want to risk his wrath. Also I think that Brexit or any consequences arising therefrom, unless they be positive, are not now permitted topics of discussion in the public square.

      As many firms are currently dependent on government handouts for their future survival they are going to be careful what they say. Some trade associations whose members have been hung out to dry and firms whose businesses have been damaged or ruined have piped up but they will not get any significant coverage in most of the media, whose agenda runs against their interests.

      It is not as though England really has a free media to any important degree nowadays.

      1. Harry

        I suspect you have a point. It wouldn’t be as crude as your characterization, but it would amount to the same thing. Cabinet Secretary would have a word with the PS’s of various depts. Treasury Secretary would have a drink with the Governor to chat about a few issues, and in passing he might note how important keeping up public morale is in a time of national emergency. Of course, the integrity of the forecasting process must be respected, but wouldnt it be terrible if adverse economic expectations caused collateral damage in markets at such a sensitive moment? PM would be livid! But silly really. Who would ever even think about being such a poor team player?

        The Governor might have a drink with Andy in Kings Arms yard after work and give him the download, assuming they are still on good terms.

  1. Hayek's Heelbiter

    Bless you, Yves for bringing this to the attention to the attention of NC readers.
    Particularly with specifics, such as “Eat out to help out.” For those not familiar, it was a program that paid 50% for meals eaten inside restaurants, though not for takeways, ostensibly to save the jobs and livelihoods of the restaurant industry. Of course, what economic class eats in nice restaurants and which ones eat takeways? (Confession, I did take advantage of the program to gorge on the fancy Japanese sushi house down the street that I could never afford under normal circumstances.}
    I live in the Bizarro world of neo-feudal England, where every one looks to the Oxbridge Elites for guidance and wisdom. Remember “Herd immunity” and “Wear a mask if you feel like it”?
    A conversation I had at my club [I know, how English. Unfortunately, the club has closed permanently] with two Oxford graduates, the man, a trust and wills solicitor, and the woman, a divorce barrister, who herself was undergoing a bitter divorce with a “boring” City banker.
    “Oh, you mean just like Nora and Torvald,” I remarked.
    “You know, A Doll’s House.”
    “A doll’s house?”
    “By Henrik Ibsen.”
    “Who’s he?”
    “You both went to Oxford and you don’t know who Henrik Ibsen is?” I said, astonished.
    “No one goes to Oxford to learn anything,” the barrister replied. “You go to Oxford to meet the people who are going to give you a job when you graduate.”
    That one conversation encapsulates, a lot, including Haldane’s career trajectory, and why the Oxbridge elites in their bubble are managing to have a cossetted pandemic.

    1. Harry

      I know this is a bit naughty on account of the excessive pedantry, but wasn’t Haldane at Sheffield and Warwick?

  2. albrt

    they couldn’t have been totally destitute, since they did own phones.

    This isn’t correct. I volunteer with homeless people, many of whom don’t have a change of socks. Most of them have phones (although the phones are frequently lost or broken because that’s what happens when you are sleeping outside).

    This is apparently possible because free Obamaphones are a real thing. I don’t know what sort of means testing or paperwork is required to get one. Most of the folks I meet are probably too far outside the system for their input to be much help to Yellen.

      1. furies

        I *have* one–but it has been pointed out to me that it was actually a GW Bush program.

        Go figure.

        Apparently, ‘they’ hire contractors to set up tents in various locations around town and then advertise on facebook and a few artfully placed psas. Bring in proof of whatever government program yr on and *poof* a new ‘smart’ phone. I was happy with my flip phone but lost it. The learning curve on what to look for in a replacement was mind-boggling (for me)–and I found I was being forced into ‘smart’ dom by tech upgrades in my area. Thus I found myself at the kiosk getting my ‘free’ phone.

        Said phone’s camera sucks but-did I mention the ‘free’ part?

      2. JBird4049

        There’s a market for used phones, hearing aids, and eyeglasses especially as too many can’t get new ones. Two thousand for a full fitting of a single hearing is a bit much. They have been around forever. You just have to look. Charities, real ones like the Salvation Army, have or did programs for them.

      3. wmkohler

        The Obamaphones are definitely a real thing, if you’ve been to an LA County Department of Public and Social Services office anytime in the past decade you’ve been aggressively approached by people trying to sign you up for the free phone. My friends have gotten them and I’ve seen them personally.

        1. howseth

          Yes. I thought they were ‘Reagan phones’. They are indeed part of the Lifeline Program here in California – and we have one. One has to sign up with a private company though for a contract and phone – ours is not even local to California – (some of these companies are shady and inept.)
          Overall – the program has worked well for us – however, the free phone they send you is incredibly bad – would jump into ‘airplane mode’ for no reason in the middle of a conversation – and shut off. We managed to buy an alternate phone to use – instead of the free one. It works good enough. We don’t have to pay any monthly fee. I hope the program continues.

          1. Bob

            Yes, there are Obama phones. And it is a good thing especially for the less fortunate among us.

            However it is good to remember that the phones include a GPS chip which makes tracking easy. Unless of course one is clever enough to keep the phone in a Faraday Cage (a foil/plastic bag – a potatoe chip bag works well) when not in use.

          2. drumlin woodchuckles

            I had thought the word “Obamaphone” was made up to inspire envy among the near-poor about all those poors who were getting free “Obamaphones”. I thought the “Obamaphone” was a fake myth.

            Very recently I too learned that “Obamaphones” were real. Now I learn that the program far predates Obama. Maybe we should call them Obama Reaganphones.

  3. Harry

    My recollection is of a very nice, thoughtful young man. A lifetime ago now. But definitely more likeable than Andrew Bailey. I was just chatting to a BoE friend who reminisced about Andrew Bailey muscling him out of a paper he wrote on early CDOs because it became surprisingly topical. The invitation to write a joint paper became Bailey’s paper. Bailey’s star shone a little brighter after that, at my friends expense. Haldane was never like that.

    However, a public servants role is to serve the government. Saying things which are adverse to moral is the surest way to be given an early opportunity to become a non-executive director. And I think Andy would think his chances of succeeding Andrew to be quite high.

    Besides, what is objective truth? We were all trained to be very careful that our statements were objectively unfalsifiable. You know the kind of thing. The opposition leader Navalny – well he is a leader and he is a government opponent.

    1. Hayek's Heelbiter

      I believe you mean “morale.” Saying things adverse to and in contradiction to morals and morality is par for the course if you’re in the public eye.

  4. EarlyGray

    Haldane needs to get out of his elite bubble and get a better grip on what is happening in the economy.

    It’s not as if he doesn’t know this himself. I heard him on the Irish economist David McWilliams’ podcast a few months ago and I seem to recall he was quite aware of the inequalities in the British economy and the importance of understanding how the economy affects the “common man”.

    1. James Simpson

      Did he really use the phrase “the common man”? I’ve not heard that in decades. Perhaps women and non-binary folk aren’t common.

    2. Synoia

      Preaching to the Choir,? Aka Telling the boss (Boris) what he wants to hear.

      Know as kissing the boss on all four cheeks.

  5. Sound of the Suburbs

    They wrapped some old economics in a new ideology and global elites swallowed it hook, line and sinker.

    At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
    The use of neoclassical economics and the belief in free markets, made them think that inflated asset prices represented real wealth accumulation.
    1929 – Wakey, wakey time

    What had gone wrong?
    No one knew what real wealth creation was or what was really going on in the economy.

    GDP was invented after they used neoclassical economics last time.
    In the 1920s, the economy roared, the stock market soared and nearly everyone had been making lots of money.
    In the 1930s, they were wondering what the hell had just happened as everything had appeared to be going so well in the 1920s and then it all just fell apart.
    They needed a better measure to see what was really going on in the economy and came up with GDP.
    In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn’t create real wealth, they came up with the GDP measure to track real wealth creation in the economy.
    The transfer of existing assets, like stocks and real estate, doesn’t create real wealth and therefore does not add to GDP.
    The real wealth creation in the economy is measured by GDP.
    Real wealth creation involves real work producing new goods and services.

    So all that transferring existing financial assets around doesn’t create wealth?
    No it doesn’t.
    The UK’s national income accountants couldn’t see how the financial sector added any value (created wealth). They gave them the benefit of the doubt, and bunged a lump sum onto GDP as they must do something, but they didn’t know what.

    The UK’s national income accountants didn’t know banks create money from bank loans.
    If they had they would have been able to see what they were up to.
    They had worked this out in the 1930s as well.

    The US trusted free markets in the 1920s, but by the 1930s, the free market thinkers at the University of Chicago were in the doghouse.
    The free market thinkers at the University of Chicago were just as keen as anyone else to find out what had gone wrong with their free market theories in the 1920s.
    The Chicago Plan was named after its strongest proponent, Henry Simons, from the University of Chicago.
    He wanted free markets in every other area, but Government created money.
    To get meaningful price signals from the markets they had to take away the bank’s ability to create money.

    Henry Simons was a founder member of the Chicago School of Economics and he had worked out what was wrong with his beliefs in free markets in the 1930s.
    Banks can inflate asset prices with the money they create from bank loans.
    Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
    “Simons envisioned banks that would have a choice of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of “bank-financed inflation of securities and real estate” through the leveraged creation of secondary forms of money.”
    Margin lending had inflated the US stock market to ridiculous levels.
    Real estate lending was actually the biggest problem lending category leading to 1929.
    Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from 2001 – 2007 and went back to look at the data before 1929.

    The IMF re-visited the Chicago plan after 2008.

    We need a complete re-think and fast.
    No one knows what they are doing and we are just repeating old mistakes.

  6. Susan the other

    Reminiscent of little George telling us all to “go shopping” to keep America strong whilst he sent the country off to this endless war. Any piddly little amount of economic activity is apparently better than none. At least when it comes to appearances.

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