This issue affects both the US and the UK.

We’ve had our Q4 preliminary figures.  Again, a surprise on the downside.  Despite the silly fuss about a mostly-predictable inflation blip, it is probably growth figures – nominal GDP, as Simon Ward points out – that will drive future MPC decisions.  Even Tories get this – Stephanie Flanders tells us (though only ‘privately’):

If the recovery is as weak as many expect, privately, even senior Conservative advisers admit that there will be a limit to how quickly an incoming government can cut. We also know that the faster they want to act, the more they will need to rely on tax rises. Though probably inevitable, that’s not an edifying prospect for Tory high command.

This goes against the tone of their official statements on the deficit – cut it in order to keep rates low, a statement that Dillow expertly dissects. *Conservative economic plans normally seem to commit the same anti-stimulus fallacy that enrages Ip of the Economist:

On fiscal policy, voters seem equally upset about deficits and high unemployment as if the first has caused the second when the reverse is true. Republicans have certainly fanned this perception by insisting the stimulus did nothing

But if we slumped again in Q3, I am fairly sure their plans would be modified: the year 1937 will start ringing in conservative ears on both sides of the Atlantic.

What about the Bank’s plans for QE?  The weak growth figures increase the possibility of it being extended.  But it is doing the wrong things, mostly.  In his day job at the Investors Chronicle, Dillow points out that it has not boosted spending or money (I think he is wrong to say it has not boosted equities: just because the institutions are net sellers, they are net sellers at a higher price.   You have to chuck in both variable).

More significantly, the Bank has been shy of anything with credit risk.   Small businesses want it to have done more. The Bank has pulled back at this particular fence:

For its part, the Bank is worried that the credit risk in investing in private sector assets is larger than simply buying gilts, and so might lead to greater losses to be funded by taxpayers. But critics have argued that the failure to plough more cash into the private sector directly may have damped the effectiveness of quantitative easing. “If it had provided credit [to the private sector] it would have been more effective and it might have been cheaper,” said Martin Weale

Pathetic.  It is already risking £billions from duration and inflation risk.  It could have done more, and needs to.

Other news: Britain becoming more liberal? Good dissection of the BSA by Don Paskini. Included is this:

Support for redistribution from the better off to those who are less well off has dropped markedly. Fewer than two in five (38%) now think the government should redistribute income from the better off to those who are less well off, down from half (51%) in 1994

You might wonder why this last attitude change has taken place, given Britain’s ‘soaring’ inequality.  Well, I’m reading Phineas Finn by Trollope, and can’t help reflecting on how much more equal our opportunities have become since the 1860s.  This FT article on some recent inequality stats makes this telling point (against a contrary headling):

“The children of poor parents can do well and the children of rich parents can do badly.” The differences in outcome within any social group – whether defined by class, gender, disability, sexual orientation or ethnicity – are larger than the differences between each of these groups

Sure, your parents’ origins can provide ‘nudges’ in the right direction.  As a parent I find it hard to hate this fact: I spend many hours a month reading to my kids when I could be, say, drinking, to provide such nudges.  In Phineas Finn, the hero only has any chance of progressing by (a) knowing the right Lady with the right connected Salon and (b) getting invited to the right shooting parties and dinner events.   And that is after the many advantages that got him educated and with a family income high enough to afford Parliamentary life. We have come a really long way.  And as the article points out, the Brown period in office has done a lot to counter forces that exacerbate inequality.

There is more to be done, but this should not be the only criterion by which policy is evaluated.

In more other news, to balance two pieces of Dillow-praise on this blog, he is distressingly utilitarian in this post about banning the production of children, and I think Paul’s comments more than adequately blow Chris’s arguments away.  The argument that people don’t have a right to kids because ‘no-one has the right to impose burdens onto the rest of us’ is about the weakest thing I have ever read on that blog. Swiftly followed by ‘The fact that sterilization is not on the agenda tells us something about our managerialist  society’ What is the point of all the other ‘goods’ if this one basic freedom is denied?  I am fairly sure he is being ironic.

*For me, the telling question is: would LT interest rates of 4% in 2014 indicate Mission Accomplished? Of course not: the rates are a function of demand and supply.  While Osborne is right to want to avoid a crowding out of private investment, if he just craters the demand in the economy, he will achieve the same low rates.


4 thoughts on “What does weak growth mean for the end of stimulus?

  1. “I am fairly sure he is being ironic.”

    Yes, so am I.

    Indeed, I think Chris’ point was partly tongue in cheek: “hey rightist who believe X, Y and Z – how come you don’t also want to sterilise the underclass”?

    He was definitely being provocative, and I’m 99% sure not expressing anything like his own opinion – the extent to which he thought his arguments would actually have traction against rightists is a moot point, and one I’m undecided about but willing to give a heft BotD to, given Chris’ ordinarily high-quality output (i.e. I think there was more devil’s advocacy going on than anything else).

    1. Though I feel that Dillow uses analyses of ‘happiness’ rather too much for me. i.e. “Isn’t it odd that X makes people happy and not Y. As a result, shouldn’t policymakers be thinking of doing <> Z, which would boost aggregate happiness. This failure shows them up to be hypocrites”. No, it shows them to be not-utilitarians.

  2. Well quite.

    I put something like that on his latest “being fat makes you less happy than your parents being dead” piece.

    I suspect, however, that when Dillow writes those sorts of posts he’s usually just keeping a high-quality high-output blog ticking over, playing devil’s advocate with his ability to use data and quantitatve methods effectively. He’s pretty sharp so normally when I do a “but what about this…” comment I’m aware that he’s probably aware of the retort anyway – i tend to leave comments for my own entertainment as well as the hope of steering the often mad comments in his threads to saner directions.

  3. Thanks, chaps: I was playing devil’s advocate.
    Personally, I’m sceptical about utilitarianism, as I pointed out in my unread book. I discuss happiness research more to bring it to attention than to endorse it – it raises questions that deserve answering, if nothing more.
    Incidentally, I suspect QE might have raised share prices – not in the crude monetarist sense, but because it reduced tail risk.

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