Reuters UK economic correspondent noted this yesterday on Twitter::
He also noted:
In response my fellow Mile End Road economist, Danny Blanchflower noted:
Danny explains why in this video, which annoyingly will not embed here.
The point Danny makes, which he elaborates in the video, is a very simple one. It is backed up by a great deal of his research data. It is that, as he notes in the tweet, consumer sentiment is by far the best predictor of economic downturn. Nothing else comes remotely close to its ability to predict such events.
Right now in both the USA and the UK evidence is very clear that consumer confidence is evaporating very quickly. This is usually a very strong indication of recession starting within six months of the event happening. Give it until August in that case.
This is precisely why both Danny and I suggest that there will have to be major changes in the Bank of England's policy towards interest rates and QE by early autumn, at the latest.
However, by then, the failure to understand this will have already caused considerable damage.
The simple reality is that consumers, who are not protected from the reality of life in the way that members of the Bank of England Monetary Policy Committee are, have a much greater capacity to forecast economic downturn than that committee does. It is just a shame that we do not listen to them a little more.
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Clearly, hard times lie ahead for many. If you can’t see that then you are not paying attention.
If your only tool is a hammer, every problem looks like a nail…. so I understand that orthodox Central Bankers are keen to raise rates in the face of inflation (even if they are misguided).
What really IS stupid is to nail your colours to the mast on ending QE and stopping the reinvestment of coupons/redemptions. Even in their own terms this is crazy since it is relinquishing all of a sudden any control over long term rates at a time of great uncertainty. There were other ways to do this and retain the flexibility to respond to events.
Agreed
It’s an intrinsic solution to an extrinsic problem.
Well yes, we have inflation at levels not seen since the 1970s/ early 80s so of course people will have less disposable income and less money to consume. Inflation is obviously good for those with debts but is a horrific “tax” on people’s incomes and savings..
It’s only good for those with debts, if wages rise at a rate in line or above the prevailing rate of inflation. The vast majority are seeing real terms pay cuts, and so their debtors woe, will not be ameliorated one iota.
Is this an observation restricted to the UK (which might relate to our particular government and central bank) or one shared with similar developed countries?
Either way one would like to think our Chancellor and bank MPC would also be picking up on the pessimistic indicators. Wasn’t Professor Blanchflower involved with the BoE at one point, he may know from experience what indicators are routinely monitored?
He knows these indicators are not monitored
Based on his experience at the BoE he is a big critic of it
So, the Tories have learnt nothing since the heady days of 1979-1982 when Thatcher tried hard line monetarism and spent the rest of her premiership repairing the damage with regeneration polices etc (and denying that they’d ever listened to the ‘Shit-cargo -school’ (sic).
BTW on your tweet about Rees Mogg and international regulations not allowing our central bank lending to our Government – you took the words right out of my mouth.
I’d been reflecting on this for some time, allied to my view that we’d forgotten how fascism is able to get a hold on societies. Post war Germany and Japan were put back to work using their war economies to produce consumers good instead and to become consumer societies with decent wages for a reason – to produced more social cohesion, less division and stop fascism from rising again.
The Neo-liberal influence on economic thought (less intervention and more laissez faire) has unwittingly forgotten this lesson and enabled fascism to come back with bang.
All I can say to our dim-witted Neo-liberals in Government and academia is ‘Well done; you must be very proud!’
PSR, the US Marshall Plan was a not inconsiderable help to Germany and Japan to rebuild. Truman thought it would help avoid the mistakes following WW1.
Larry
I know its controversial but Keynes pointed out long ago that the reparations for WW1 imposed by the ‘victors’ on Germany helped to destabilize it economically which gave the Nazis a hand up to power. It created huge social upheaval and ripe conditions for fascist tactics.
The Nazis also never forgot that the blockades of the sea lanes and ports during WWI also contributed to them capitulating undefeated militarily but defeated on the home front as food shortages etc., ate into Germany’s ability to endure a war.
Hitler and many of his generation never forgot that point and that is why Hitler went for a land grab East so that Germany could sustain herself whilst at war with the world the second time around.
Japanese expansion was driven by the need for raw materials with which to sustain its supremacy as Japan was heavily reliant on imports.
There is another clue as well about what the Allies had in mind for post war Germany and Japan – the strengthening of democracy and accountability – more defused empowerment to stop the over-centralisation of public life, greater emphasis on union involvement and partition and pluralism as well as ample jobs and sound industrial policy.
All Larry meant to stave off fascism and imperialism – good ideas that we killed off in the U.S and Britain under Thatcher and Reagan before anywhere else (although I think that what happened in places like Chile, Brazil and Argentina are also worth looking at).
One of the 5 key metrics in any business plan is levels of customer satisfaction, as research has shown a similar leading indicator effect. Just finished renewing my passport, already have the packed suitcase….