"They don't know what they're talking about"

The problem with the ratings agencies

A blog post by Jonathan Portes, the director of the National Institute of Economic and Social Research, in which he lambasts the European Commission for dealing with Fitch Ratings, has been spreading far and wide, and for good reason. It's worth reading the full post, but here's the tastiest passage:

These agencies have repeatedly been proved wrong; they have flawed and frequently conflicted business models; and their ratings have no predictive power.  All this is well established. Moreover, when it comes to assessing sovereign debt "credit risk" they - and I mean this quite literally - do not know what they are talking about. By that, I mean they quite simply don't understand what they themselves are saying.

Paul Krugman agrees:

We saw very dramatically what the rating agencies are worth when S&P downgraded America — nothing. Bond yields actually fell.

The point is that while maybe, maybe, S&P or Moody’s or Fitch know something about corporate debt, they know less than any competent macroeconomist about sovereign debt.

A good way of sorting the economists from the political commentators appears to be whether they have consistent views on the ratings agencies. Compare the attitude to the two times Britain has been put on negative outlook – once under Osborne, once under Darling – and you will find a lot of contrasting views. Either many commentators had a radical conversion to or against the expertise of the agencies, or there are a lot of charlatans on both sides of the political divide who have no strong views on credit ratings agencies beyond "they are a useful stick to hit my opponents with".

AAA ratings: Not all they're cracked up to be. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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PMQs review: Jeremy Corbyn turns "the nasty party" back on Theresa May

The Labour leader exploited Conservative splits over disability benefits.

It didn't take long for Theresa May to herald the Conservatives' Copeland by-election victory at PMQs (and one couldn't blame her). But Jeremy Corbyn swiftly brought her down to earth. The Labour leader denounced the government for "sneaking out" its decision to overrule a court judgement calling for Personal Independence Payments (PIPs) to be extended to those with severe mental health problems.

Rather than merely expressing his own outrage, Corbyn drew on that of others. He smartly quoted Tory backbencher Heidi Allen, one of the tax credit rebels, who has called on May to "think agan" and "honour" the court's rulings. The Prime Minister protested that the government was merely returning PIPs to their "original intention" and was already spending more than ever on those with mental health conditions. But Corbyn had more ammunition, denouncing Conservative policy chair George Freeman for his suggestion that those "taking pills" for anxiety aren't "really disabled". After May branded Labour "the nasty party" in her conference speech, Corbyn suggested that the Tories were once again worthy of her epithet.

May emphasised that Freeman had apologised and, as so often, warned that the "extra support" promised by Labour would be impossible without the "strong economy" guaranteed by the Conservatives. "The one thing we know about Labour is that they would bankrupt Britain," she declared. Unlike on previous occasions, Corbyn had a ready riposte, reminding the Tories that they had increased the national debt by more than every previous Labour government.

But May saved her jibe of choice for the end, recalling shadow cabinet minister Cat Smith's assertion that the Copeland result was an "incredible achivement" for her party. "I think that word actually sums up the Right Honourable Gentleman's leadership. In-cred-ible," May concluded, with a rather surreal Thatcher-esque flourish.

Yet many economists and EU experts say the same of her Brexit plan. Having repeatedly hailed the UK's "strong economy" (which has so far proved resilient), May had better hope that single market withdrawal does not wreck it. But on Brexit, as on disability benefits, it is Conservative rebels, not Corbyn, who will determine her fate.

George Eaton is political editor of the New Statesman.