[petejh]

'Briton is indeed in a horrible mess'. The author's last sentence in the article below could be aimed at you Toby.


(source: https://data.oecd.org/price/inflation-cpi.htm)


https://www.telegraph.co.uk/business/2022/08/04/mirabile-dictu-uk-inflation-oecd-average-growth-beating-europe/?WT.mc_id=e_DM16854&WT.tsrc=email&etype=Edi_Cit_New_v2&utmsource=email&utm_medium=Edi_Cit_New_v220220804&utm_campaign=DM16854
''If you think the UK has an egregiously high inflation rate by international standards, or is in worse economic shape than European peers, you have been misinformed.

The OECD’s June reading for developed states released this morning places UK inflation in the middle of the pack at 8.2pc (under their measure), and somewhat below the average of 10.3pc.

This may come as a surprise to many since news coverage has tended to portray the UK as a dysfunctional outlier, with every new twist of the cost-of-living crisis instantly weaponised by Team Brussels to indict Brexit.

The UK is below Spain (10.2), Belgium (9.6), the US (9.1), Sweden, Austria, and Portugal (8.7), or The Netherlands (8.6). We are all facing a commodity and supply-chain shock, and we all have New Keynesian central banks that fatally ignore the money supply.

The spike in Sweden surprises me since the country has the advantage of abundant hydro-power. It has not committed the German climate crime of shutting down good nuclear reactors and switching to fossils.

The UK’s inflation is the same as Denmark, and a little higher than Italy (8.0), and Germany (7.6), which has suppressed the headline with near-free tickets on trains and public transport – not a bad idea as a temporary measure.

France is much lower (5.8pc) but that is because the Colbertian French state has bucked the market and imposed price controls on gas and electricity. The annual rise in household power bills is capped at 4pc, marvellous if you can get it, which I do since my family have a start-up farm in the Perigord.

Thank you, President Macron: most generous, and I notice that it got you re-elected. However, I do not need or merit this indiscriminate subsidy. It violates standard advice given to emerging market states by the International Monetary Fund. Manipulating the price signal encourages waste when the imperative is conservation.

Somebody must pay for this bung, and ultimately it will be the French taxpayer through a state bail-out of EDF and the utilities. It is going to be expensive.

Half of the French nuclear fleet is out of action. The day-ahead spot market for electricity in France on Wednesday morning was €488 MWh, ten times the decade-long average. Futures contracts are pricing in yet higher levels over the winter.

The equivalent price in the UK is €256 MWh, which is why the UK is sending 2.06 gigawatts to France via the IFA 1&2 interconnectors right now, earning an enormous arbitrage spread and improving our monthly trade deficit, which needs a lot of improvement.

So yes, French inflation is lower but to suggest – as Team Brussels is apt to do – that France has got this energy crisis right while the UK has got it horribly wrong is a stretch.

The latest PMI survey data of manufacturing and services belies a second false narrative, that the UK economy is in worse economic shape than the eurozone this year and is clattering into a particularly severe recession.

S&P Global’s composite index for the eurozone fell below the boom-bust line in July and is signalling outright recession, even though fiscal policy has been much looser in France, Italy, and Spain.

The UK is still above water at 52.1 on manufacturing and 52.6 on services. The performance is soggy but not as bad as many predicted, or that I feared. It caps several months of relative outperformance.

In my view, the UK will slide into recession later this year as the global economy rolls over. The downturn could be severe if the Treasury continues to push a contractionary, pro-cyclical policy of budget consolidation into the teeth of a slump.

However, the eurozone is also in trouble. The underlying contraction of the real money supply is flashing a red alert, and the end of QE bond purchases by the European Central Bank has ripped away the Club Med debt shield. The long-standing pathologies of a half-baked monetary union are again coming to the fore.

Is there a lender of last resort for eurozone sovereign states in trouble under the legal constraints of the Maastricht Treaty, or is there not? We do not know.

The ECB has tried to fudge this confusion with a new “anti-fragmentation” tool but is so paralysed by political differences within the governing council, and so afraid of the German constitutional court, that nobody is sure whether it can be used, short of a systemic crisis. Therefore a systemic crisis is what markets will inflict.   

Britain is indeed in a horrible mess but for reasons that mostly have little to do with Brexit. The eurozone is in an equally-horrible mess, and arguably suffering an even worse confluence of headaches for reasons that have a great deal to do with the construction of EMU.

Germany in particular has manoeuvred itself into an economic and political crisis of Zeitwende proportions by outsourcing everything: its energy supply to Putin’s Russia, its aggregate demand to Xi Jinping’s China, its military defence to America, and its monetary policy to the ECB – in the lapidary words of Deutsche Bank board member Paul Achleitner.

It is not Schadenfreude to point this out. The blunt truth is a necessary corrective to those in the UK’s internal Briton-to-Briton political debate who compulsively exaggerate the EU’s relative economic performance without having the foggiest idea what is actually happening across the Channel.

[TobyD]

But at heart, the rise in the real cost of energy means we are all poorer. That is inescapable. The question is how that pain should be divided. Clearly it should not be borne by families at the edge of poverty. But then it *is* going to be borne by middle class families and inevitably some of those will be public sector workers such as teachers, doctors, etc, and the way the pain will be transmitted is higher interest rates and higher prices.

... Which makes it patently absurd that the almost definite shoe in for next PM Truss is pledging £82bn of spending on infrastructure, defence etc and tax cuts at the same time. To make matters worse she's trying to talk tough on China/ Taiwan. I'm sure the CCP are quaking in their boots.

[seankenny]

Well, that’s dealt with one point out of ten in the anti-Brexit article…

As for the Telegraph piece, it’s basically a piece of arse covering from an organisation that loudly trumpeted an incredibly stupid policy. Does the author really think that lots of well-informed British people don’t know that inflation is a problem everywhere and that the Germans are having huge problems with their energy supply? This is all over the news. I hate Brexit but I’ve also posted links on here showing that it’s not a huge factor in the current bout of inflation. Of course Brexit has still had an inflationary effect on the U.K. but that was a few years ago, another reason why they Britons are on average poorer than the French or Germans.

The article does the usual trick of taking a couple of data points and turning it into a bigger story than those data points warrant (at least the Guardian article actually talks to a lot of people about what is going on in their sector of the economy). I’m also completely unconvinced by his chunterings about New Keynesian central banks and the money supply. If you want to believe a journalist with a history degree has a better handle on how monetary policy works than institutions stuffed full of people who have PhDs in the subject, then be my guest. And yes, that is a blatant appeal to authority as I simply can’t be bothered to write any more. But I should perhaps point out 30 years of price stability under this regime.

Much of what the Guardian article covers is the reality of the UK’s weak economy and probable poor growth for years to come. That our inflation rate is comparable to elsewhere in the G20 or that we are not yet in recession (by one measure that the author managed to find; economies are large and very complicated) does not negate the argument that the U.K. has put itself in a bad place that it will struggle to get out of.

[petejh]

I hate Brexit but I’ve also posted links on here showing that it’s not a huge factor in the current bout of inflation.

This is my point about the current bout of inflation - that it has virtually nothing to do with brexit.
I'm not sure what the point of the rest of your post is. I know you hate brexit along with most others on here, and I respect that opinion. I long ago - around 2016 or 2017 - accepted the economic consensus that brexit would lower GDP by a small amount over the short and medium term. But am of the view that this would have close to fuck-all noticeable economic impact on everyday life for the average person, seeing as we all agree that small changes either +ve or-ve in GDP are virtually meaningless to the average person. There are many valid reasons to 'hate brexit' but 'GDP' doesn't seem one.


* I also long-age vowed not to discuss brexit on here as it's an invitation for ideologues on both sides to talk shit at each other. Much like much of this politics thread is. My reason for posting was for the inflation angle, not brexit.

[abarro81]

"I got 99 reasons but GDP ain't one"...

[petejh]

I’m also completely unconvinced by his chunterings about New Keynesian central banks and the money supply. If you want to believe a journalist with a history degree has a better handle on how monetary policy works than institutions stuffed full of people who have PhDs in the subject, then be my guest. And yes, that is a blatant appeal to authority as I simply can’t be bothered to write any more. But I should perhaps point out 30 years of price stability under this regime.

His comments are hardly 'chunterings' about money supply and to label it this way makes you look churlish and an intellectual snob. It's a fairly mainstream view that unprecedented supply of money into the financial system since the 2008 crisis has inflated asset prices. Hence the central banks' current tightening in the form of rate rises and bond-buying roll-offs and even sell-offs, in an effort to tamper the economy. You don't need to be an economics PhD to be aware of this consensus view, simply look at what the central banks are actually doing and saying!


edit: the OECD (like most institutions) seem to think tighter money supply is implicated in inflation. Presumably the reverse (loose money supply) must be true to some extent in some situations:

OECD's General Assessment of the Macroeconomic Situation
The war in Ukraine has generated a major humanitarian crisis affecting millions of people. The associated economic shocks, and their impact on global commodity, trade and financial markets, will also have a material impact on economic outcomes and livelihoods. Prior to the outbreak of the war the outlook appeared broadly favourable over 2022-23, with growth and inflation returning to normality as the COVID‑19 pandemic and supply-side constraints waned. The invasion of Ukraine, along with shutdowns in major cities and ports in China due to the zero-COVID policy, has generated a new set of adverse shocks. Global GDP growth is now projected to slow sharply this year to 3%, around 1½ percentage points weaker than projected in the December 2021 OECD Economic Outlook, and to remain at a similar subdued pace in 2023 (Table 1.1). In part, this reflects deep downturns in Russia and Ukraine, but growth is set to be considerably weaker than expected in most economies, especially in Europe, where an embargo on oil and coal imports from Russia is incorporated in the projections for 2023. Commodity prices have risen substantially, reflecting the importance of supply from Russia and Ukraine in many markets, adding to inflationary pressures and hitting real incomes and spending, particularly for the most vulnerable households. In many emerging-market economies the risks of food shortages are high given the reliance on agricultural exports from Russia and Ukraine. Supply‑side pressures have also intensified as a result of the conflict, as well as the shutdowns in China. Consumer price inflation is projected to remain elevated, averaging around 5½ per cent in the major advanced economies in 2022, and 8½ per cent in the OECD as a whole, before receding in 2023 as supply-chain and commodity price pressures wane and the impact of tighter monetary conditions begins to be felt. Core inflation, though slowing, is nonetheless projected to remain at or above medium-term objectives in many major economies at the end of 2023.

[seankenny]

I’m certainly not making a point about QE. The quote is:
“we all have New Keynesian central banks that fatally ignore the money supply.”

As you posted, and I agree, central banks aren’t ignoring the money supply. But really this is the author clinging to the monetarist views I suspect he formed when he was a young man in the 70s, hence the barb at New Keynesianism which is the theoretical underpinning of modern central banking.

It’s not intellectual snobbishness to acknowledge that some people know more about a subject than others. And that this is a complex technical subject which Telegraph writers may not have the firmest grasp over. Fwiw I don’t think I have a particularly firm grasp over much of this stuff!

[seankenny]

Pete, what the OECD gives there are a whole bunch of reasons in the real economy for high inflation (ie not monetary or nominal causes).

“Consumer price inflation is projected to remain elevated, averaging around 5½ per cent in the major advanced economies in 2022, and 8½ per cent in the OECD as a whole, before receding in 2023 as supply-chain and commodity price pressures wane and the impact of tighter monetary conditions begins to be felt.”

All they are saying is that increased interest rates are probably going to reduce inflation at some point in 2023. Of course a tighter monetary supply will affect inflation, but the point the Telegraph article is making is about whether monetary conditions are the entire driver of inflation. This is basically an argument between two different schools of macroeconomics that was particularly prevalent in the 70s and 80s. The Telegraph writer is just grumpy that modern academics and central bankers tend towards a different view than the one he holds.

[petejh]

..but the point the Telegraph article is making is about whether monetary conditions are the entire driver of inflation. This is basically an argument between two different schools of macroeconomics that was particularly prevalent in the 70s and 80s. The Telegraph writer is just grumpy that modern academics and central bankers tend towards a different view than the one he holds.

I think that's a bit unfair. I doubt that anyone reading that article will come away thinking that the author is making the argument that monetary conditions are the entire driver of inflation? To me it reads as if he's making the argument that there are various drivers - he states the consensus view about supply chain shocks due to lockdowns, continuing lockdowns in major Chinese ports and cities, commodity price rises including oil/gas/coal/fertiliser/food, Ukraine war, Russian sanctions.
His point about 'monetary conditions' is fleeting in context of the overall thrust of the article. And the theoretical background that you picked up on probably goes over the head of 99% of readers (including me, beyond knowing very roughly what Keynesianism is).

One of his main arguments (which I posted here) is he clearly believes current inflation has little to do with brexit.

Britain is indeed in a horrible mess but for reasons that mostly have little to do with Brexit

He also believes Europe's currency union is going to contribute to difficulty in combatting the effects of inflation; while the issues behind the UK's problems are different - as you've mentioned before productivity being one issue among many that hamstrings UK plc.

[TobyD]

Pete, I wasn't posting the guardian article to try to ascribe inflation to Brexit; I agree that other things are responsible for that.
However it has so far been only a bad thing for economic growth and living standards in the UK. I'm not necessarily arguing against it, but it would help if the government would recognise that and do something about it rather than pretending it doesn't exist. Perhaps it will have longer term benefits, but I don't see any right now.

[Bonjoy]

Germany in particular has manoeuvred itself into an economic and political crisis of Zeitwende proportions by outsourcing everything: its energy supply to Putin’s Russia, its aggregate demand to Xi Jinping’s China, its military defence to America, and its monetary policy to the ECB – in the lapidary words of Deutsche Bank board member Paul Achleitner.

Lapidary words? Interesting. Is this a typo or does it imply the rhetoric is so sharp you can polish gems with it?

[petejh]

Cool word isn't it. Had to look up what it meant. Origin of the Lapis brush.

ADJECTIVE
relating to the engraving, cutting, or polishing of stones and gems.
NOUN
a person who cuts, polishes, or engraves gems.


So I assume he means cutting remarks.

[andy popp]

In this context it means precise and elegant.

[seankenny]

And the theoretical background that you picked up on probably goes over the head of 99% of readers (including me, beyond knowing very roughly what Keynesianism is).

For sure the exact details of the issue go over most people's heads but I suspect a reasonable number of readers of the Telegraph will have vague memories of the early 1980s arguments over monetarism, and it's a popular enough topic in undergrad economics so even PPE-ers will have heard of it. But the point is not to really engage with a theoretical background and complex question, rather it is to make the following argument: "Those pointy heads in central banks are all into an updated version of this thing that we know doesn't work from the last time around, what we need is not this nonsense but a good dose of the Thatcher/Reagan policies which we know worked. We know the boffins will never accept this so it's time to stop this central bank independence malarkey and bring it back under political control."

That may be a subtext but I'm fairly sure that's the train of thought that's gaining strength in conservative circles right now.

One of his main arguments (which I posted here) is he clearly believes current inflation has little to do with brexit.

Britain is indeed in a horrible mess but for reasons that mostly have little to do with Brexit

He also believes Europe's currency union is going to contribute to difficulty in combatting the effects of inflation; while the issues behind the UK's problems are different - as you've mentioned before productivity being one issue among many that hamstrings UK plc.

I don't think Brexit has a great deal to do with the current inflation. That's not to say Brexit hasn't had an inflationary effect, it has, but that was earlier. A paper from Warwick estimates it as adding about 2.9% onto inflation in 2018, roughly costing households £870 in the couple of years after the referendum (source).

As for the issues that the UK faces, productivity is indeed one. And one way that Brexit is thought to hamper the UK in the long run is through decreasing productivity...

I long ago - around 2016 or 2017 - accepted the economic consensus that brexit would lower GDP by a small amount over the short and medium term. But am of the view that this would have close to fuck-all noticeable economic impact on everyday life for the average person, seeing as we all agree that small changes either +ve or-ve in GDP are virtually meaningless to the average person. There are many valid reasons to 'hate brexit' but 'GDP' doesn't seem one.

Yes, I mean the consensus was more certain over the medium to long term as to GDP loss (the short run was too messy to say accurately, needless to say we did not cover ourselves with glory) but to describe the amount lost as "small" is to misunderstand growth in modern developed countries. If a genie jumped out of a bottle in No 10 and offered the PM an economy almost instantly 4% bigger, every PM would jump at the chance, because that kind of free lunch is just about impossible for us to get. It would be hard even for the US which is economically much stronger than us. The reverse is as bad for us as the free lunch would be good.

Over the last couple of weeks various UK economics commentators have been shooting the shit about an article on the possibility of UK economic growth. Its author, Sam Bowman, is pretty right wing, worked for the Adam Smith Institute, wrote:

"I think the one policy choice that the Doomsters do think made a big difference was Brexit, which is certainly within our power to reverse in principle, but practically isn't really because of the politics of it. On this point I entirely agree – it was a bad decision that is already visibly making us poorer, with very limited benefits."

I strongly disagree that "small changes in GDP are virtually meaningless to the average person". There's a big difference between an economy growing at 2.5% and one that's hardly growing, as actual life experience of anyone who's been an adult since the 1990s shows. Whilst GDP is an imperfect measure of what we produce, it nevertheless reflects real activity undertaken. Less output means fewer goods and services and lower wages and living standards. Most of our public services are predicated on a trend rate of growth that is considerably higher than the one we actually have post-2008 and a long-term, low growth economy has real consequences in terms of health care, social care, education, etc. I'm aware of some research that suggests that periods of economic growth correspond to periods of political liberalism, whereas stagnation tends to lead to more authoritarian politics.

I know you've said in the past that you believe that other events that occur post-Brexit will make it impossible to ever assess the impact of leaving the EU. Whilst we can never be entirely sure, I don't think that's correct. There are ways to assess the damage of this policy and to blithely wave away the economic impact as "close to fuck-all" isn't - in my view - a particularly empirical way to approach the issue. Indeed, one could point to the Guardian article as a qualitative way of examining that impact.

[petejh]

And the theoretical background that you picked up on probably goes over the head of 99% of readers (including me, beyond knowing very roughly what Keynesianism is).

For sure the exact details of the issue go over most people's heads but I suspect a reasonable number of readers of the Telegraph will have vague memories of the early 1980s arguments over monetarism, and it's a popular enough topic in undergrad economics so even PPE-ers will have heard of it. But the point is not to really engage with a theoretical background and complex question, rather it is to make the following argument: "Those pointy heads in central banks are all into an updated version of this thing that we know doesn't work from the last time around, what we need is not this nonsense but a good dose of the Thatcher/Reagan policies which we know worked. We know the boffins will never accept this so it's time to stop this central bank independence malarkey and bring it back under political control."

That may be a subtext but I'm fairly sure that's the train of thought that's gaining strength in conservative circles right now.

One of his main arguments (which I posted here) is he clearly believes current inflation has little to do with brexit.

Britain is indeed in a horrible mess but for reasons that mostly have little to do with Brexit

He also believes Europe's currency union is going to contribute to difficulty in combatting the effects of inflation; while the issues behind the UK's problems are different - as you've mentioned before productivity being one issue among many that hamstrings UK plc.

I don't think Brexit has a great deal to do with the current inflation. That's not to say Brexit hasn't had an inflationary effect, it has, but that was earlier. A paper from Warwick estimates it as adding about 2.9% onto inflation in 2018, roughly costing households £870 in the couple of years after the referendum (source).

As for the issues that the UK faces, productivity is indeed one. And one way that Brexit is thought to hamper the UK in the long run is through decreasing productivity...

I long ago - around 2016 or 2017 - accepted the economic consensus that brexit would lower GDP by a small amount over the short and medium term. But am of the view that this would have close to fuck-all noticeable economic impact on everyday life for the average person, seeing as we all agree that small changes either +ve or-ve in GDP are virtually meaningless to the average person. There are many valid reasons to 'hate brexit' but 'GDP' doesn't seem one.

Yes, I mean the consensus was more certain over the medium to long term as to GDP loss (the short run was too messy to say accurately, needless to say we did not cover ourselves with glory) but to describe the amount lost as "small" is to misunderstand growth in modern developed countries. If a genie jumped out of a bottle in No 10 and offered the PM an economy almost instantly 4% bigger, every PM would jump at the chance, because that kind of free lunch is just about impossible for us to get. It would be hard even for the US which is economically much stronger than us. The reverse is as bad for us as the free lunch would be good.

Over the last couple of weeks various UK economics commentators have been shooting the shit about an article on the possibility of UK economic growth. Its author, Sam Bowman, is pretty right wing, worked for the Adam Smith Institute, wrote:

"I think the one policy choice that the Doomsters do think made a big difference was Brexit, which is certainly within our power to reverse in principle, but practically isn't really because of the politics of it. On this point I entirely agree – it was a bad decision that is already visibly making us poorer, with very limited benefits."

I strongly disagree that "small changes in GDP are virtually meaningless to the average person". There's a big difference between an economy growing at 2.5% and one that's hardly growing, as actual life experience of anyone who's been an adult since the 1990s shows. Whilst GDP is an imperfect measure of what we produce, it nevertheless reflects real activity undertaken. Less output means fewer goods and services and lower wages and living standards. Most of our public services are predicated on a trend rate of growth that is considerably higher than the one we actually have post-2008 and a long-term, low growth economy has real consequences in terms of health care, social care, education, etc. I'm aware of some research that suggests that periods of economic growth correspond to periods of political liberalism, whereas stagnation tends to lead to more authoritarian politics.

I know you've said in the past that you believe that other events that occur post-Brexit will make it impossible to ever assess the impact of leaving the EU. Whilst we can never be entirely sure, I don't think that's correct. There are ways to assess the damage of this policy and to blithely wave away the economic impact as "close to fuck-all" isn't - in my view - a particularly empirical way to approach the issue. Indeed, one could point to the Guardian article as a qualitative way of examining that impact.

Only just seen this.

That Warwick study you quote doesn't show what you say it shows. The 2.9% above average inflation you quoted is a localised outlier and is not representative of the UK. If you read the text - or just scroll down to 'fig 8' - it actually only shows CPI increased significantly above average in Northern Ireland, and to a much lesser extent in Wales. CPI for London, South East, South West and Yorkshire was actually below average... Other parts of the country show a negligibly +ve figure.
It looks to me that they've taken an outlier (NI) which skews the average, and come up with the headline '2.9% above average inflation'. Surely I'm wrong, and this isn't as misleading as it appears to be? 

Also I don't need to point out to you that economic growth is often accompanied by inflation. When you look at Northern Ireland's economic growth (GDP) for the period you'll see that, since 2018, its economy outperformed the rest of the UK by far and in 2022 remains with by far the strongest GDP growth of any region of the UK. (It has been suggested by many commentators to be due to the much maligned NI protocol, flawed as this no doubt is).

So in this context the 2.9% above average inflation for 2018 in a strongly-growing Northern Irish economy would hardly be a surprise. It's pretty much exactly what you'd expect to see in NI isn't it? (It's also hardly today's 10% inflation in a shrinking global economy).

Also, in those localised areas of the UK that did see inflation (basically NI and to lesser extent Wales) the inflation is almost entirely attributed to depreciation of the pound following the brexit vote. I also don't need to point out to you that depreciation of the pound comes with pros and cons for businesses, depending on context.


For the rest of your discussion about GDP a great deal seems to depend on who 'us' refers to and I remain of the view that - much like in personal finance everyone has a 'personal inflation rate' depending on their lifestyle - one person's GDP experience is not another person's. The discussions around the relevance of GDP risk being biased by who's discussing it and the 'us' in the context of your points might mean 'not us' to a great many people in the UK. Unless a belief underlying your point is that GDP is representative of joe average and isn't massively skewed by the outlier of financial services and London, and trickle-down capitalism is in great health. Perhaps it is (especially in Northern Ireland...).

On forecasting in general, while I agree with you on the rough direction of the GDP trend post brexit, I don't put much faith in the accuracy of forecasts. There's a wealth of studies into the accuracy of economic forecasting that anyone can find without me needing to link them here. Added to that are various discussions that anyone can find without me needing to link them here - although I'd recommend anyone interested researches 'Tetlock, forecasting' -  on the purpose and accuracy of forecasts and the role of forecasters. Precise accuracy being a secondary consideration to knowing rough direction and being tools to set policy etc.

Go on then I'll link.
We want a lot of things from our forecasters, and accuracy is often not the first thing. I think that we look to forecasters for ideological reassurance, we look to forecasters for entertainment, and we look to forecasters for minimizing regret functions of various sorts. We would really regret not having anticipated X, Y, or Z, so we want to pump up the probabilities of those things.

[TobyD]

 Ah, Phillip Tetlock, the inspiration behind that well known success story that was Dominic Cummings.

[petejh]

Or the inverse: 'Ah Dominic Cummings, the failure who was inspired by the well-known success story that is Philip Tetlock'.

Readers have long been urged not to judge a book by its cover. They would also do well, as one author has implored, not to judge them by their biggest fans.

Philip Tetlock, the Canadian-American political scientist who wrote Superforecasting, has asked people not to form superficial opinions about his work after Dominic Cummings, the prime minister’s senior adviser, told his colleagues to read it before an away day next month.

source

Superficial opinions and playing man not ball are par for the course here.

[TobyD]

I was only being flippant Pete, apologies for any offence caused.  I have read superforecasting, incidentally. It seemed like reasonable pop science to me and nothing to do with whatever Cummings was bleating about,  but that it wasn't anything special.  However I'm not pretending to be an expert,  only what I took from it.

[seankenny]

Only just seen this.

That Warwick study you quote doesn't show what you say it shows. The 2.9% above average inflation you quoted is a localised outlier and is not representative of the UK. If you read the text - or just scroll down to 'fig 8' - it actually only shows CPI increased significantly above average in Northern Ireland, and to a much lesser extent in Wales. CPI for London, South East, South West and Yorkshire was actually below average... Other parts of the country show a negligibly +ve figure.
It looks to me that they've taken an outlier (NI) which skews the average, and come up with the headline '2.9% above average inflation'. Surely I'm wrong, and this isn't as misleading as it appears to be? 

I don't think the paper is very clear at this point.

At the start of section 7, "Cost of Living", they establish first the aggregate size of the inflation effect of the referendum. That's the headline 2.9% figure. In section 7.2 they begin to break this down a bit, using an ONS survey of 4,912 households to see how different types of households are affected by the inflationary effect of the drop in sterling. Note that this survey does not include Northern Ireland, although they are chosen to be representative of the distribution of households in GB.

They look purely at the inflationary effect of referendum induced depreciation by seeing how important foreign goods are in the budget shares of those households, and from that get the following distribution of inflationary effects (this is fig 6).



As you can see, most households experience inflation ranging from 2% to 4%, with the median household close to the aggregate 2.9% figure.

They then try to break this down by household type. Fig 7 shows what happens when they do this by disposable household income: "For each decile, we show the estimated inflation increase due to the Brexit depreciation relative to the 2.9 percentage point effect for the average U.K. household." (My italics.) Clearly the effect is not large and doesn't really correlate with income.

Then they break this down by region. Again, they are graphing "the estimated inflation increase due to the Brexit depreciation minus the increase for the average U.K. household (in percentage points). The increase for the average U.K. household is 2.9 percentage points."  So again, what we are seeing is how different regions cluster around the aggregate inflationary figure of 2.9%, in a similar way to how the overall distribution of households looks in relation to the aggregate which we see on Fig 6 above.

I should also point out that although NI is quite an outlier, it's also only got a population of 2m people which is tiny compared to London and smaller than Greater Manchester, so it would have to be a massive outlier to compensate for its relatively small population.

Also I don't need to point out to you that economic growth is often accompanied by inflation. When you look at Northern Ireland's economic growth (GDP) for the period you'll see that, since 2018, its economy outperformed the rest of the UK by far and in 2022 remains with by far the strongest GDP growth of any region of the UK. (It has been suggested by many commentators to be due to the much maligned NI protocol, flawed as this no doubt is).

So in this context the 2.9% above average inflation for 2018 in a strongly-growing Northern Irish economy would hardly be a surprise. It's pretty much exactly what you'd expect to see in NI isn't it? (It's also hardly today's 10% inflation in a shrinking global economy).

That's a good point. But it's worth bearing in mind that this study is only looking at inflation driven by depreciation and not from other sources such as a growing economy:

"By design, this estimate only incorporates price changes resulting from the impact of the sterling depreciation on import costs and does not capture any price effects of Brexit that are uncorrelated with import share variation across product groups."

Later on they add that they don't include other causes for inflation such as Brexit-induced loss of productivity, adding: "Similarly, any effects of Brexit on prices that are uncorrelated with variation in import shares, for example, due to monetary policy easing by the Bank of England following the referendum or domestic demand and supply shocks caused by anticipation of Brexit, are not captured by our estimates."

I'm not familiar with this type of model at all so I may be wrong about this, but I'm pretty certain their inflation data runs 2011 to 2018 (see section 6, estimating equation 13), whereas the NIP came into force at the start of 2021.

It's key to point out that the inflation in this study was not necessarily the actual inflation rate, as the other things mentioned in the quote above will also have an effect. I took a quick look and found a further paper by mostly the same authors that accouts for the "other stuff", ie it's a general equilibrium model. When those are taken into effect the inflationary effect is slightly smaller:

"Accounting for both the depreciation and other ‘general equilibrium’ effects of the referendum, we estimate that the Brexit vote increased aggregate inflation by 1.7 percentage points in the year following the referendum. There is uncertainty about the exact size of this effect, but our analysis unambiguously shows that the referendum led to a substantial rise in inflation."

(https://ukandeu.ac.uk/partner-reports/the-brexit-vote-inflation-and-uk-living-standards/)

As you say, not much in the context of the current surge in inflation. But an awful lot considering we had been at or around the 2% target for decades, and Brexit represented a choice in the way that the pandemic did not.

For the rest of your discussion about GDP a great deal seems to depend on who 'us' refers to and I remain of the view that - much like in personal finance everyone has a 'personal inflation rate' depending on their lifestyle - one person's GDP experience is not another person's. The discussions around the relevance of GDP risk being biased by who's discussing it and the 'us' in the context of your points might mean 'not us' to a great many people in the UK. Unless a belief underlying your point is that GDP is representative of joe average and isn't massively skewed by the outlier of financial services and London, and trickle-down capitalism is in great health. Perhaps it is (especially in Northern Ireland...).

Strong disagree. GDP is generally very well correlated with all sorts of outcomes in health, longevity, etc. Governent budget constraints are a real thing and have definite real world effects in terms of visible standards of living and of public services.

I think it's perfectly possible to believe that "trickle down economics" is a load of old tosh whilst noting that the UK's income inequality is quite strongly affected by tax and benefits (the UK's income Gini goes down by 13 percentage points according to the IFS, from memory this is pretty good in Europe) and of course the only parts of the UK that pay an overall positive amount of tax are London and the SE.

So yes, the overall GDP does matter, and decreasing it over the long term is absolutely going to have an effect on hospitals, schools, etc etc and on people's quality of life.

On forecasting in general, while I agree with you on the rough direction of the GDP trend post brexit, I don't put much faith in the accuracy of forecasts. There's a wealth of studies into the accuracy of economic forecasting that anyone can find without me needing to link them here. Added to that are various discussions that anyone can find without me needing to link them here - although I'd recommend anyone interested researches 'Tetlock, forecasting' -  on the purpose and accuracy of forecasts and the role of forecasters. Precise accuracy being a secondary consideration to knowing rough direction and being tools to set policy etc.

Strong agree. My point was more that it is possible (tho difficult) to tease out the effects of Brexit looking backwards, despite other events.

[TobyD]

On Truss' economic folly (sorry,  policy), apologies,  its paywalled but available for any Times subscribers. 
https://www.thetimes.co.uk/article/reagan-guru-reveals-the-flaw-in-trussenomics-cg2rqj5fn?shareToken=1dbe91c9d8ab7b8bae92ea784e75add5

In a nutshell,  she doesn't seem to understand,  or want to admit that if you are going to cut taxes, you need to cut spending,  or, in the medium to long term,  you're screwed.

[Offwidth]

Unless you want to stoke populist anger and expose the country to your rapacious political funders who will make money out of the reducing regulatory efforts. I look to the what is happening to the Republican party in the US and it terrifies me. Liz is pals with the same political thinkers and financial backers.

[Wellsy]

Liz is going to struggle

She's woefully unprepared for this winter. Genuinely I give her less than six months

[petejh]

I think she’ll be OK, she’s relatively young and probably owns a warm jumper and coat.


How long do you give Sunak btw?

[Wellsy]

What to live or as PM? I doubt he'll become PM but I think if he did he'd last longer

[TobyD]

Unless you want to stoke populist anger and expose the country to your rapacious political funders who will make money out of the reducing regulatory efforts. I look to the what is happening to the Republican party in the US and it terrifies me. Liz is pals with the same political thinkers and financial backers.

The article I linked to discussed her allegiance to Reganite economics.

Liz is going to struggle

She's woefully unprepared for this winter. Genuinely I give her less than six months

I doubt it, she may have a hard time but will probably change what she's saying as soon as she's trying to appeal to the electorate and not just the party members.
She will probably also double down on EU bashing, migration etc etc to try to distract people.