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 year

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.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Time to start fixing the broken safety net that no longer catches struggling families

We are failing to ensure we look after the children of families both in and out of work.

Families on low incomes are once again bearing the brunt of a tough economic environment. Over the past decade, rising costs of items such as food, energy and childcare, combined with stagnating wages and cuts in benefits, have repeatedly put a squeeze on family budgets.

Between 2014 and 2016, some of these pressures eased, as inflation sank to zero and pay started to grow again. But now that inflation has returned, for the first time in postwar history the increasing cost of a child is being combined with a freeze in all financial support for children. The failure to uprate either benefits, tax credits or the wage levels at which tax credits are withdrawn means that inflation is bound to erode modest family incomes both in and out of work.

The gradual fall in living standards that this produces will be worsened by other benefit cuts that come in over the next few years, for different families at different times. For a start, the phasing out of the “family element” of Child Tax Credit (and its equivalent in Universal Credit) will eventually result in all low-income families getting more than £500 a year less from the state than at present.

Since this only applies to families whose oldest child was born in April 2017 or later, it hits families with the youngest children first, with the effect spreading gradually through the population. The restriction of tax credit entitlements to a maximum of two children is also being phased in, affecting only third children born from this year on, but will clobber families much more severely, with a loss of nearly £2,800 a year per child.

Some existing larger families who escape this cut have nevertheless had their income severely reduced this year (by anything up to £6,000) by the reduction in the benefit cap.

My latest report on the cost of a child, for Child Poverty Action Group, takes stock of these trends and the effects they will have on parents’ ability to provide for their families effectively. For some families in work, improved support for childcare and a higher minimum wage partially offsets the losses incurred as a result of the above cuts. But for those relying on benefits as a “safety net” when they are not working, the level of this net is being progressively lowered over time. On present policies, the support that it provides will sink below half of what families need as a minimum sometime early in the 2020s – having in contrast provided about two thirds of their requirements at the start of the present decade.

There comes a point when a “safety net” stops being worthy of its name because it is no longer enough to provide even the bare essentials of modern life. The evidence shows that when income sinks this low, most families can only escape severe material hardship either by going into debt or by getting help from extended family members.

We are about to enter a new parliamentary season, led by a government that survived by the skin of its teeth after a disgruntled electorate failed to give it the clear majority that it sought. Raising family living standards has been at the heart of the political promise to improve people’s lives. The benefits freeze alone seems to contradict this promise by creating a downward escalator for the half of families relying on some kind of means-tested benefit or tax credit, in combination with child benefit.

For those  who are “just about managing”, and particularly for others who are not managing at all, the clearest signal that Philip Hammond could give in his Autumn Budget that he is starting  to reverse the direction of that escalator would be to restore a system of benefit upratings. This would at least allow incomes to keep up with living costs, stopping things from getting systematically worse, and giving a stable foundation on which measures to improve living standards could build.

Professor Donald Hirsch is director of the Centre for Research in Social Policy at Loughborough University