Laughed out of the Bank of England? You must be joking
I have no wish to engage in a war of words but it is appropriate to take a look at what he says.
In my column, I simply exposed the fact that Smith's analysis, in my view, is generally biased in favour of the coalition. He has helped to establish the false narrative that Labour caused the crisis when the cause was global. He also gives the impression that everything is going along swimmingly which, of course, it isn't.
Recall that the Tories backed Labour's spending plans through 2008 and wanted more deregulation, not less. The Tories have criticised Gordon Brown and Alastair Darling's reaction to the crisis but have never told us what they would have done instead. Meanwhile, I criticised the Bank of England's MPC for missing the recession and for its hopeless forecasts of both growth and inflation.
Smith goes on to suggest that I had claimed that unemployment was going to rise to four or five million which is not true. This is what I actually said in my New Statesman column of 24 September 2009 when my forecast was a conditional statement depending on policy:
Unemployment is going to continue to rise this year and may keep on rising. If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million. If large numbers of public sector workers, perhaps as many as a million, are made redundant and there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable.
I share the view of Ben Bernanke that he expressed in his 60 Minutes interview on CBS back in December 2010. Namely, that without the monetary and fiscal stimulus unemployment would have hit 25 per cent. I think this applies to the UK as much as it does to the United States.
As evidence for my assertion that Smith seems to talk up the economy and talks down any bad news, let's start with his post on 25 January 2012 responding to the dreadful fall in GDP, entitled "GDP slips, but no big deal. On 29 January he argued that "in all likelihood the 0.2 per cent fall in GDP, announced by the ONS last week will be revised away in time." How does he know that, given over the last five years the average revision has been down?
On 3 February it was "service sector at ten month high", despite the fact that the series remains at a very low level. And when there was a small rise in PMI Manufacturing his headline on 1 February 2012 was "A good start for manufacturing".
There are more examples besides. But let's put this in its proper context -- this is the longest lasting and deepest recession in a hundred years with no end in sight as Jonathan Portes NIESR pointed out last week.
On an 8 January post -- "Nice surprises so far - can they possibly last?" -- Smith claimed that "pretty well every bit of economic data we have had so far has surprised on the upside." Really? How about declining growth, falling living standards, rising unemployment, record levels of youth unemployment, lengthening waiting lists in hospitals and historically low levels of business and consumer confidence?
On 30 December it was "house prices relatively resilient" despite the fact that house prices continue to fall.
I find Smith's comments about the way I allocated quarterly growth to Darling and George Osborne illustrative of a more general problem. Given that there are time lags between implementation and outcomes it doesn't seem unreasonable to give Darling the first three quarters of 2010 and Osborne gets the data from there. This way they get five quarters each.
I was quite explicit about it and presented the data for all to see. Smith's response is to ask "why doesn't the coalition get half of Q2 2010 and the whole of Q3 2010"? The obvious answer is that it takes a while for policies to impact outcomes.
Why would anyone think that growth in the second half of May 2010 and June 2010 is due to the policies that Osborne was going to announce in his 23 June 2010 Budget, seven days before the end of the quarter?
Smith also argues that it will be astonishing if private sector jobs don't "more than outweigh losses in the public sector". I guess, therefore, he has to be astonished given that over the last year public sector job losses were bigger than private sector job gains.
As there is no plan for growth this is set to continue. It is the word "more" that I especially object to -- it seems unlikely that the private sector will respond in large order (as the OBR is predicting to the fiscal contraction) or that the MPC can expand fast enough to compensate.
Finally to his suggestion that on the basis of my analysis in the column "I would be laughed out of the building" should I show up at the Bank of England, does he mean just as I was in the spring of 2008?
He also suggests that I "may be the only economist in the country -- or, rather viewing the country from New England -- who thinks Britain's slowdown is entirely due to fiscal tightening."
I have never said such a thing and certainly don't believe such simplistic nonsense -- fiscal tightening is just part of the explanation. As I have written many times I do think that a lot of the problems that the economy now faces are the result of the leaders of the coalition talking down the economy falsely claiming it was bankrupt or like Greece.
Sorry David, the spin doesn't wash.
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