Listen to Andrew Sentance if you want a good laugh

The former MPC member has made an art of wrongly calling every economic issue for the past five years.

By David Blanchflower Published 26 September 2011 19:49

Andrew Sentance is at it again with a ridiculous column in the FT, arguing that this is not the right time to do more QE.

It is the right time to do more QE -- as the MPC minutes, out last Wednesday, made clear. As usual, "Death" Sentance has no idea what he is talking about and, if we listened to what he said, it would push the economy further into the doldrums. Fortunately, both the coalition government and the Labour Party have a different view, as they should. Sentance has wrongly called practically every economic issue over the past five years; what he says has been almost perfectly negatively correlated with what has happened. Recall: he was the guy who failed to spot the recession in the first place. On 21 September 2008, a week after the collapse of Lehman Brothers, he argued in a speech to the Leicester Chamber of Commerce:

The current prospect for the UK economy is very different to the major recessions we have previously seen in the mid-1970s, early-1980s and early-1990s. In these episodes, economic activity fell sharply for one to two years. In my view, the current outlook is for a much milder period of weak economic activity, on this occasion.

It didn't work out that way.

There are lots of other similar examples: just take a look here at his various speeches -- as he became increasingly isolated on the MPC -- if you want a good laugh.

So what did he have to say for himself, this time? Global forecasts are "not excessively downbeat", was his big claim. Well, they are. In the UK today, for example, Barclays Capital lowered its forecast of UK growth for 2011 to an average of 0.2 per cent per quarter, so now it is 0.9 per cent this year and 1.5 per cent in 2012. It called for more QE -- as has the British Chambers of Commerce and the Institute of Directors. The IMF, in its September 2011 World Economic Outlook, published last week, lowered its growth forecast compared with its June 2011 WEO projections, as follows:

	2011	2012
World Output	- 0.3	- 0.5
Advanced economies	- 0.6	- 0.7
USA	- 1.0	- 0.9
Euro area	- 0.4	- 0.6
Germany	- 0.5	- 0.7
France	- 0.4	- 0.5
Italy	- 0.4	- 1.0
UK	- 0.4	- 0.7
Canada	- 0.8	- 0.7
China	- 0.1	- 0.5
India	- 0.4	- 0.3
Emerging and developing economies	- 0.2	- 0.3
Central and eastern Europe	- 1.0	- 0.5

I guess Death didn't notice the projections. He went on with the same old nonsense about inflation being the big ogre, which is clearly out of place and out of time. Growth is the problem but I guess he hasn't noticed that unemployment is rising:

In the UK, we missed the opportunity in the second half of last year to start to rein in monetary stimulus. And the US embarked on its QE2 programme. These policies have not boosted growth. Rather, they have led to relatively high inflation. More stimulus is likely to result in more of the same, while doing little if anything to support growth.

Inflation is slowing around the world, oil and commodity prices have collapsed over recent days and there is no wage pressure at all. More stimulus will result in more growth.

All of this on a day when the newest member of the MPC, Ben Broadbent, who replaced Sentance on the committee, made his first speech on the economy and in interviews afterwards made it clear that he was close to voting for a further round of QE. Broadbent also made it clear that he would do so if the data worsened, which it appears to be doing. Thank goodness George Osborne did not reappoint Sentance and replaced him with someone sensible -- good one George!

Vince, Mervyn, George, Danny and now Ben all seem to be on the same page. Now is the time to do more QE. Sentance, as ever, will be -- and should be -- ignored. There is a considerable chance that the MPC will move at its October meeting but almost certainly will in November, when it produces its next inflation report and new forecasts.

More from David Blanchflower

55 comments

Sun, 2011-10-02 16:42 — matthew fox (not verified)

Can't you get anything right Bozo555, it wasn't months ago, it was a few weeks ago. Do you remember asking me what happened to house prices in 2009, you imbecile.

Again your running away from your own brain dead comment, " Low interest rates are propping up house prices "

I don't find it funny you can't back up your comments with evidence, you walk around with so much egg on your face, it looks like you have been involved in an industrial accident at the happy egg company.

Tue, 2011-10-04 10:20 — Colin Sloss (not verified)

Mike, I find those 'Bozo555' comments very offensive,

Thu, 2011-09-29 00:25 — Awake!

fox
only u could try and convince evryone uk housing is cheap... or crashing. U have not travelled clearly, nor are u wordly wise. U can't count and make no attempt to. U are representative of a section that can only lose an election- annual decline of 2.6%? what's the bid/offer spread on a lumpy assets...

Fri, 2011-09-30 22:31 — matthew fox (not verified)

Missing the point seems to be your speciality Indu Pendent. If you have read doomandbluster rant, he criticised Brown and Blair inflation record.

Even someone as simple as you would understand 6.49 % is far more then 2.75%, or your just that clueless.

Fri, 2011-09-30 22:44 — matthew fox (not verified)

I cannot understand Bozo555's appalling understanding of a calendar.

The bank bailouts happened at the back end of 2007 and Oct 2008.

House prices rose by draw dropping 1.1% in 2009, nearly reversing the 16.2% decline in 2008. Don't forget, house prices declined in 2010, and through into the year.

As yet, Bozo555 fails to understand the terms " Propping Up " and " A shot in the arm "

Fri, 2011-09-30 23:18 — mike555

@Matt

Which house price index are you using now?

Even you cannot deny there was a huge house price boom under New Labour, or that the bailout led to an increase in house prices, or can you?

While you're at it, remind us what happened to house prices between 1997 and 2007? You can use any house price index for this one, the answer is clear.

Thu, 2011-09-29 02:50 — Indu Pendent (not verified)

@matt

Foxy, thats hopeless given the argument you are trying to support. Is it the best you can do? A 2.6% fall in house prices in 12 months hardly registers - its nearer to a monthly Labour rise.

Foxy, best do good research or else you'll end up tripping and getting head stuck in your hole.

Wed, 2011-09-28 08:19 — Boomandbuster (not verified)

fox in the box, so inflation was zero between 1997-2010? are you that stupid, i was trying educate you I could really take the p*ss.

all governments since the national debt was created have seen debt eroded through inflation to some extent. seriously are you that thick? not once have i said this is a good thing it is just what is happening you numbskull. besides you thicko the BOE is responsible for monetary policy anyway so as i said in my post it has nothing to do with politicians left or right. MONETARY POLICY IS CONTROLLED BY BOE!!! i never said this was coalition policy or anything remotely like that.

btw if 25% was indexed linked debt would still fall in my example from 100% to 97%, but such primary school mathematics is beyond you otherwise you wouldn't make yourself look so foolish. but it's a compliment, thank you for throwing facts back at me that I've already told you.

great to see though that you are basically an inflation hawk and agreeing with andrew sentance. QE will undoubtedly raise the price level (and to some degree inflate away debt, Danny is for this as well)), so are you for this or against this? btw it's the BOE that decides this not the government. just want to make that crystal for you, I'm worried in case you make yourself look dumb again.

Tue, 2011-09-27 00:11 — Mr. Divine (not verified)

'World Output' I can't understand this table.. what does it mean exactly. I thought China's GDP was growing at about 8% pa. What do you mean 'output'?

Thu, 2011-09-29 10:52 — Boomandbuster (not verified)

Fox,

Nice selctive selective use of data I'll give you something alot more rigorous, this is the average RPI since 1992 by year. the average between 1992 and 1996 (nasty tory's) is 2.7%, the average between 1997 and 2010 (lovely labour) is 2.8%. If you want to time machine and go back to 80's fine I can simply go back to the 70's when inlfation is far higher again under old labour. This totally undermines your point that only the nasty tories benefitted from inflation eroding their debt and labour didn't.

1992 3.7
1993 1.6
1994 2.5
1995 3.4
1996 2.4
1997 3.1
1998 3.4
1999 1.6
2000 2.9
2001 1.8
2002 1.6
2003 2.9
2004 3.0
2005 2.8
2006 3.2
2007 4.3
2008 4.0
2009 -0.6
2010 4.6

Fri, 2011-09-30 02:31 — Indu Pendent (not verified)

@matt

Foxy, you really are 1% brainless moron who lets years of life pass by without noticing anything.

The inflation rate 1997 to 2010 was driven down by the massive intake of cheap Chinese imports funded by Labours massive £350Bn borrowing. Plus the massive growth in personal debt Labour failed to manage.

As always you try to re-write history but never quite manage it.

The Tories inherited a total basket case of a Labour economy which had been wrecked (how about that - the last 2 times Labour had power they wrecked the economy and left the Tories with the hard work of fixing it)

There was huge Labour inflation that needed to be brought under control that pushed up the Tory average

1982 8.60%
1981 11.90%
1980 18.00%
1979 13.40%
1978 8.30%
1977 15.80%
1976 16.50%
1975 24.20%
1974 16.00%

24% Labour inflation - thats 24 times 1%.

Sun, 2011-10-02 23:04 — mike555

@Matt

"I don't find it funny you can't back up your comments with evidence, you walk around with so much egg on your face, it looks like you have been involved in an industrial accident at the happy egg company."

Everyone can see I've answered your point several times, other posters have answered it too - backing me up, but you're still bringing it up.

There is no point me repeating myself again because you don't appear to be able to take anything in.

Everyone can also see you haven't answered the questions again.

" Do you remember asking me what happened to house prices in 2009, you imbecile."

More juvenile insults, I've already answered you. Remember all those questions I've asked you? Where are your answers? I've answered all of yours.

Fri, 2011-09-30 09:01 — Chris (not verified)

@mike

"Pretty much all the financial ones I looked at back then, plus financial pages of newspapers, there are even websites which talk about solely about house prices."

Oh right, so not any you can actually name?

"You're right , I missed the boat mainly because I was still at uni pre-boom"

WTF? I assumed from your constant whinging you were some OAP living off their savings. With no way of increasing your income. How old are you??? To channel Norman Tebbit, the world doesn't owe you a nice house, in a good location at a knock down price.

"a decline of 2.6% after the massive and disastrous boom we saw under New Labour is hardly making housing cheap is it?"

It depends entirely where you buy a house. Where are you looking?

"Like I've said before they're still very expensive"

Very expensive? You could buy a house in Merseyside or such like for < £20k.

"despite the relatively small falls after the credit crunch"

LOL, 20% average drops in house prices isn't small.

Basically, Mike quit with the moaning. All you want is a further crash in house prices, without a massive house building program, this will only happen with a further recession. Are you so secure in your job that you wouldn't be at risk if we double dipped?

Thu, 2011-09-29 13:09 — RSD (not verified)

QE will not help businesses invest more or consumers spend more, as high long term interest rates are not the barrier preventing consumption or investment.

Money supply will rise, but if risk averse banks aren't prepared to lend this will result in falling volocity of money as the cash that the BoE injects is simply re-parked at the BoE by banks.

The only effect QE will have is by lowering the £ as lower long term bond rates will cause some investors to sell £ for the currencies of higher yield bonds. A lower £ will increase inflation through higher import prices with a limited boost to GDP through net exports. QE is effectively a "begger thy neighbour" policy.

Tue, 2011-09-27 11:57 — slowaardvark (not verified)

Blanchflower makes himself sound petty and vindictive here - no need to be so offensive and rude when attacking someone else's economic ideas.

As it happens I share Sentance's view that trying to cure the UK by devaluing the pound simply crushes ordinary people with inflation and destroys their disposable incomes, severely damaging the economy. Whilst the benefits in creating a manufacturing economy are highly tenuous and would take decades to arise (if at all in the face of fierce competition from low-wage powerhouses in Asia).

Tue, 2011-09-27 12:11 — Smiler (not verified)

a case of pot calling kettle black?

Tue, 2011-09-27 12:25 — Queen Elizabeth (not verified)

I love the sound of Queen Elizabeth! More more more!

Sun, 2011-10-30 20:31 — TheRobster (not verified)

QE or not QE, I think that a large part of the UK troubles are with MPC members continuously stepping out and giving messages to the UK populace of the UK imminently falling into hell (or words to that effect).

Why do the MPC, Mervyn King in particular keep coming out of the woodwork with such negativity every time the pound starts to climb a little? I'm sure that the markets don't believe a word he says anymore, and he's making savers hold on to their cash and/or investing it in gold when surely it would be better if they spent it to boost the UK economy.

Wed, 2011-09-28 15:04 — Chris (not verified)

@mike

"The time for action was in the early 2000's when financial internet forums were full of ordinary people warning about house prices , consumer debt and reckless lending."

Which forums? In the early 2000's ordinary people were running round trying to get a mortgage to get on the property ladder. They were watching clueless people on Sarah Beeny's show make a fortune from doing up houses and wanting some of that action. You missed the boat, you could have invested your cash in property and now have a tidy pile coming in every month from your tenants. Instead you loaned your cash to be bankers who in turn loaned it back to your and others landlord to invest in their property.

Wed, 2011-09-28 15:05 — AlastairX (not verified)

Very good stuff, Danny.

The idea that our economy cannot produce any more - that a higher level of demand will lead only to higher prices - is the most dangerous delusion of this generation.

There are 2.5m people unemployed and 9m "economically inactive" in the UK. To condemn the lives of those people just because your model of the "output gap" says you should belies common sense.

Hooray for Broadbent, good riddance to Sentance.

Tue, 2011-10-04 17:28 — mike555

@Colin

It doesn't bother me one bit, it just shows what sort of poster he is.

Fri, 2011-09-30 12:11 — Boomandbuster (not verified)

I've worked out the identity of fox, he is really ed balls, certainly if you aren't your stupidity matches his. you don't understand inflation erodes debt, your grasp of economics is man in the pub at best and you mouth off on here with your feeble arguments time and again. you are such a fool that even the lefties don't bail you out and still you come back for more. indu nail your latest piffle perfectly.

Fri, 2011-09-30 12:20 — Dave C (not verified)

Indu writes,

"The inflation rate 1997 to 2010 was driven down by the massive intake of cheap Chinese imports funded by Labours massive £350Bn borrowing. Plus the massive growth in personal debt Labour failed to manage."

An increase in demand typically fuels inflation. Here you are arguing that a debt-fuelled increase in demand somehow decreased inflation. (The expansion of Chinese manufacturing was largely independent of UK demand so is hardly a factor.)

Fri, 2011-09-30 12:48 — mike555

@Chris

My stituation is irrelevant to the argument on house prices. I do rely on savings in part to help pay rent, it is possible for people other than pensioners to have savings.

"Oh right, so not any you can actually name?"

All you need to do is log onto some well known national newspaper websites and look at the comments from readers on financial stories going right back to the early 2000's to see what I mean.

"LOL, 20% average drops in house prices isn't small."

No it's not , which is why I said "relatively small", put in context with rises of around 200% a 20% drop is indeed relatively small, don't forget the bailout gave prices a shot in the arm from the lows we saw after the credit crunch too.

Tue, 2011-09-27 14:49 — E Hart (not verified)

Well said. Where is this inflationary pressure coming from aside from commodity prices (now falling)and FTSE100 salaries and bonuses? It's nonsense and wherever you look wage inflation is inconsequential.

Sat, 2011-10-01 21:13 — mike555

Oh look, no answer from Matt, what a surprise.

Tue, 2011-09-27 16:00 — Boomandbuster (not verified)

danny you are right on inflation not being the main threat currently, but sentance is the inflation ying to your stimulus yang. could you give a little more explanation on the growth table as I don't think its absolutely clear.

Thu, 2011-10-06 17:55 — matthew fox (not verified)

If only Bozo555 really understood the term " Propping Up " he might have an argument.

Again he can't defend his own words, it not a case of repeating, more denying the facts.

House prices dropped dramatically in 2008, dropped in 2010 and 2011. He whines about low interest rates yet the facts tell a different narrative, he can't back up his own words.

Tue, 2011-09-27 16:20 — David Blanchflower1

sorry if the table isn't clear.

It is taken directly from the IMF World Economic Outlook

It simply shows the difference between the growth rates in their september edition compared with their forecasts in June. It's available here
http://www.imf.org/external/pubs/ft/weo/2011/02/index.htm

So it is a slowing of the rate of change. The rate of growth for example in the UK according to the IMF forecast has slowed by 0.4 in 2011. Their forecast was 1.5% now lowered to 1.1%.

It is analogous to a decline in the inflation rate which is a slowing in the rate of change of a rate of change.
I hope this clarifies

Danny Blanchflower

Tue, 2011-09-27 16:27 — Marcus (not verified)

Mr Blanchflower - Isn't inflation simply a tax on the population, that happens to hit the poor the hardest?

Thu, 2011-10-06 18:09 — mike555

@Matt

"If only Bozo555 really understood the term " Propping Up " he might have an argument."

You've had it clearly explained to you numerous times by several people yet you're still bringing it up.

I notice you haven't answered the question about what would happen to house prices if we have a neutral level of interest rates of say 5%? Is this because the answer will back up what I say?

"Again he can't defend his own words, it not a case of repeating, more denying the facts. "

I've defended all my posts, it's there for everyone to see. You don't answer questions , which makes your comment laughable.

Thu, 2011-09-29 17:37 — matthew fox (not verified)

Poor DoomandFluster, hasn't got the guts to defend the tories, he shortcircuit the 17 years into 5 years, how glorious.

You forget the original point, I talked about Blair and Brown's record on inflation, if you compare it to Major and Thatcher, is it far better.

Don't worry, I will do the number crutching old man.

Wed, 2011-09-28 18:02 — mike555

@Chris

"Which forums?"

Pretty much all the financial ones I looked at back then, plus financial pages of newspapers, there are even websites which talk about solely about house prices.

You're right , I missed the boat mainly because I was still at uni pre-boom.

Tue, 2011-10-04 22:38 — mike555

What a surprise, no answers from Matt yet again.

Remember what you said about sarcasm Matt? Shall I remind you? It matters not a jot if it was weeks or months ago. Was your post on here sarcasm or not?

Tue, 2011-09-27 17:50 — David Blanchflower1

Inflation right now is set to fall sharply as oil and commodity prices fall and the effect of the VAT increase drops out of the CPI. Note that Osborne's VAT increase in January is responsible for about a third of the 4.5% CPI inflation. It drops out in January mechanically and is just a matter of mathematics.

Monetary policy can only be conducted looking through the windscreen ahead of you not through the rear view mirror. We have to get inflation up at some point so that interest rates can rise as they are stuck close to the zero nominal bound. When times get back to normal and the next shock comes along then rates can be cut again.

The problem now is slowing growth and rising unemployment which are the main problems and currently they need to be the central focus of macro policy.

Danny Blanchflower

Wed, 2011-10-05 01:21 — Indu Pendent (not verified)

@matt

Foxy, I see you have found your niche as New Stateman's resident village idiot.

You could prove otherwise - by saying whether you think the coalition should increase or decrease borrowing.

I think borrowing should be reduced by half its present value over 20 years.

Continuously eliminating government debt will subdue interest rates which and encourage long term private sector investment - government borrowing creates long term unemployment as Labour has proven.

A program of government debt repayment will also make it easier for the government to refinance and manage the profile of the national debt when advantageous to long and undated low coupon debt enhancing the UK's credit rating.

Wed, 2011-09-28 19:40 — Stuart (not verified)

As a Hayekian these sort of attacks on other members/former members of the MPC just confirm in me how much we need to scrap the whole bally lot of them. The central banking idea is the elephant in the room of this whole crisis. Central planning didn't work for the socialists in production of goods, it's hard to see how it would work for money. Would be much better to let the free market manage our money with the restraints that the true free market provides. Scrap central banks and central bankers, let people design their own currencies and allow the best to survive, we then wouldn't need the opinion of George Osbourne or Ed Balls to decide whether QE is a good idea or not, we could allow the competition between currencies to decide what the best decision would be. There would have been no 10 years of far to low interest rates stoking the mad property boom across the developed world and no subsequent crash. Central banks are a real liability.

Tue, 2011-09-27 19:06 — matthew fox (not verified)

The latest wheeze from the Right, is that inflation will help with the nation's debt.

Yes, they are that desperate.

Sun, 2011-10-02 11:06 — matthew fox (not verified)

Come on Bozo555 don't be a hater.

I mean your the genius who keeps repeating the lie, " Low interest rates are propping up house prices "

Because I am very kind soul and your a bit simple, which house price index would you like me to use ?

Which every way, your going to take a beating, and no one loves a poor loser.

Wed, 2011-09-28 19:55 — matthew fox (not verified)

No Doomandbluster, I leave the stupidity to you.

Take time to study the inflation rate under Labour, you will find it far better then Thatcher or Major.

1989 : 7.8%
1990 : 9.5%
1991 : 5.9%

1999 : 1.5%
2001 : 1.8%
2002 : 1.7%

Sun, 2011-10-02 11:07 — matthew fox (not verified)

Super sorry, it should read " Which ever way "

I was slightly distracted by the rugby.

Wed, 2011-09-28 20:13 — mike555

It's amazing how inflation can be well under 2% when you don't include massive 10%+ house price rises in the inflation figures isn't it?

Wed, 2011-09-28 20:40 — Awake!

Fox
To the staff at NS- Matt fox can't be real- why are u posting, u MUST be doing this, nO ONE can be so misunderstanding.. it's not credulous- he's a fabrication to spur conversation... how can someone not get that inflation erodes the value of a fixed debt? ure embarassing you website with this fabrication

Wed, 2011-09-28 20:41 — Awake!

maybe it's a way to explain ideas, but have a differebt section Q and A or something.

Wed, 2011-09-28 20:54 — Indu Pendent (not verified)

@danny

The last QEs did not work e.g. would QE save the BAE jobs? But it would make consumers feel better and import more play stations.

How could we get the Tories to take on you idea of supporting UK Industry with cheap debt? It would be good use of money.

BTW Diane Abbot, who I have time for, calls you an 'influencial economist' but then stupidly rants on about simplistic fiscal expansion and stimulus focussed on voters. You need to do more to bring people along with targeted stimulus. It means crossing Ed Balls.

Thu, 2011-09-29 20:22 — matthew fox (not verified)

The average inflation rate between 1997 and 2010 comes in at 2.75%

The average inflation rate between 1979 and 1996 comes in at 6.49%

I think simple doomandfluster needs to understand, the last conservative government lasted between 1979 and 1997, not 1992 to 1997.

I would if he is a moron for the sake of it.

Thu, 2011-09-29 20:22 — matthew fox (not verified)

Super sorry it should read " I wonder "

Wed, 2011-09-28 21:23 — matthew fox (not verified)

I will tell you what's amazing Bozo555, the latest figures from the Land Registry.

They published August 11 house prices, and showed a 0.3% monthly decline, and a annual decline of 2.6%.

Then again, our resident clown, describes the Land Registry figures as a "Lagging Indicator " so there must be more bad news on the horizon.

Sun, 2011-10-02 14:04 — swatantra nandanwar

Nice to know that bitchiness is going well and strong in te vaults and strongrooms of The BofE and the MPC. Sentance must have upset Blanchflower somewere sometime in the past.
But Blanchflower is right: of course QE3 should definitely be on the cards.

Tue, 2011-09-27 21:47 — Boomandbuster (not verified)

matthew i'll give you an example as it's clear you don't get it, it's not complicated. imagine a country you have £1trn national debt with gdp of 1trn. this particular sovereign is responsible and balances it's budget so has no deficit at all (debt doesn't increase as the sovereign only pays the interest on its debt so it remains static at 1trn). inflation runs at 4% over a year and though the sovereign doesn't post any real growth it stagnates with its gdp becoming 1.04trn in year 2 due to inflation. gdp is alway adjusted for inflation. debt is still 1trn but the ratio of debt to gdp has fallen from 100% to 96%. therefore with no growth whatever debt has fallen in real terms circa 4% in this simple example. i don't think its a matter of left or right either governments of all colours have used inflation to inflate their debts away as has anyone who's had a mortgage in the 70's and 80's.