The Bank’s Michael Fish moment

It was good to see the Bank of England confessing its mistakes in being far too pessimistic about the UK’s economic prospects in 2016. As they seek to correct the record, they need to look again at their so called gravity model for predicting the impact of European trade on the UK economy and the alleged damage leaving the single market could do. The model does not seem to attribute enough significance to common language, which is especially important in service trade.

Their conclusion that the UK will be hit over the longer term by leaving the single market is based on a dubious model and inappropriate data. The model assumes that a country trades more easily with a country it is close to. The Treasury analysed the impact on trade for all the members of the EU post war. Of course the EU had a more positive impact on those who joined early, when world tariffs were higher, than it did on the UK which joined later after world tariffs had come under GATT. More particularly, trade was boosted substantially for relatively poor closed economies in East Europe when they joined and started trading properly with the west for the first time. The UK’s experience of gains from single market membership have been much less than these two different dominant cases used in the data.

The numbers show that the UK growth rate did not accelerate either on joining the EU or on completing the single market. It is difficult from this past evidence to argue that the longer term growth rate will therefore slow when we leave.

We now know that the Treasury vector autoregressive model for the first two years after the Brexit vote was also hopelessly wrong. The establishment now accepts this and is busy changing its forecasts for the period June 2016-2018. It is high time they also acknowledged the weaknesses of the model and the data used for the longer term predictions. Had they applied their gravity model to our trade with the rest of the world it would presumably have said we need free trade deals with all those countries, which in turn requires us to leave the EU.

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75 Comments

  1. Prigger
    Posted January 7, 2017 at 5:35 am | Permalink

    Yes but what costs if any were incurred by the BoE getting it wrong? Had they been working properly and doing a good job, getting their predictions right, would we have been worse off or better off? By how much?

    • Hope
      Posted January 7, 2017 at 7:57 pm | Permalink

      Carney abused his position to deceive the public to voting in the way he/Osborne wished. This was dishonest and both should be sanctioned/sacked. What is alarming is that May has shown support for Carney!

      • Hope
        Posted January 8, 2017 at 1:22 pm | Permalink

        JR, you should not slate Michael Fish by considering the two to be the same. I hazel Fish made an error in good faith, the same is not true with Osborne and Carney.

      • Lifelogic
        Posted January 8, 2017 at 3:49 pm | Permalink

        Indeed.

        The way he ran things even before this “abuse” left a lot to be desired too. Also he is very expensive, there are many who could have done a far better job for much less than 1/3 of his remuneration.

        May has indeed made another large mistake in retaining him.

    • getahead
      Posted January 7, 2017 at 8:38 pm | Permalink

      It might have convinced some of the Remaniacs that membership of the Single Market is not essential to British prosperity. Just the opposite probably.

  2. Big head
    Posted January 7, 2017 at 6:08 am | Permalink

    How on earth could the BoE or the Treasury have a model for the impact of us leaving the EU? They said quote: ” it is a leap in the dark”. Do they have some special talent for groping about with the light out?

    Did they toss a coin in their model about the US Election? An Obama model with us at the back of the queue or a Trump model with us at the front? Was it pollsters or the most favoured method of the IMF according to Lagarde and her analytic team quote: “the bookies” which indicated which way the tossed coin would fall?

    In a Treasury Committee meeting with the BoE on BBC Parliament 2016, I recall it being said by a BOE official in the presence of Mr Carney that their, and I paraphrase: “model did not as a matter of course pay any heed whatsoever to commodity availability and price fluctuations including oil.”

    It would be a boon to general understanding if the BoE would publish, in detail, their model. Also provide alongside, commodity fluctuations details indicating at each place in their model why commodity prices vis-a-vis dollar exchange rates were and are without consequence and import.

    The BOE is displaying inappropriate flippancy in its “Michael Fish ” comment.

    So, it seems I and many others have known better than the BoE and the UK Treasury. Frankly, it was hardly a challenge.

  3. Eh?
    Posted January 7, 2017 at 6:25 am | Permalink

    “British taxpayers’ money will no longer be used to fund an Ethiopian girl band, the government has said.”
    The “no longer be used” bit is scary. Who had the daft idea in the first place?

    http://www.bbc.co.uk/news/uk-38538631

    • Lifelogic
      Posted January 7, 2017 at 9:47 am | Permalink

      Who knows, but you can be fairly sure no one will be fired for it. Just as no one is likely to be fired for paying people huge grants (more than the actual cost of the fuel) just to waste fuel pointlessly heat unused barns in Northern Ireland (or having the heat on full and all the windows and doors open).

      The insanity and incompetence of government in the UK (and elsewhere) has very few bounds. They care not what they spend now what if any value they get as it is not their money not they who get the benefit. Just doing what I am told mate or just going along with the current green religion or group think fashions.

      • fedupsoutherner
        Posted January 7, 2017 at 1:50 pm | Permalink

        @LL

        This being the case means that the world is burning wood at a rate that must be going out of fashion for no good reason. The only reason I can see for all this green crap is making money and big money real fast on the backs of our industry and our poor.

        Theresa May was brought up in a religious household. Surely she can see the immorality in all of this?

        • Lifelogic
          Posted January 8, 2017 at 3:52 pm | Permalink

          Climate alarmism is another new religion in part. That combined with corruption no ood excuse to give tax payer money to friends, relatives in the know and consultants.

        • Lifelogic
          Posted January 8, 2017 at 3:55 pm | Permalink

          Where was May’s morality when she assuring (deceiving) voters that they had control of their borders while in the EU under Schengen. She cannot have believed this for a moment, unless she is even dafter than I think she is.

    • Posted January 7, 2017 at 10:21 am | Permalink

      British Tax payers have never funded anything since we left the gold standard.

      Your taxes and everyone elses are destroyed every night of the week in the overnight interbank market as commercial banks buy and sell reserves and the Bank Of England meets its overnight interest rate.

      Why would the monopoly issuer of £’s, need your £’s for anything ?

      All it needs is your £’s for is to control inflation in the process above.

      • Denis Cooper
        Posted January 7, 2017 at 1:14 pm | Permalink

        Yes, I remember my Dad complaining years ago that he handed over good money to pay his taxes and then all the government did with it was burn the banknotes and use the heat to melt down the coins. That was back in the days when most everyday financial transactions still involved physical money and so it was more obvious what was going on. Nowadays with electronic money only a few people have a good understanding that their taxes have never paid for anything, the money just get routinely destroyed overnight.

        # sarcasm

    • fedupsoutherner
      Posted January 7, 2017 at 10:26 am | Permalink

      @Eh?

      Judging by what I have just been hearing on the news, less money should be going out of the country to fund others lifestyles and corruption in some countries while social care in the UK is failing big time. The Red Cross said the state of care in the UK for those being denied access to A&E in areas in England is becoming a humanitarian crisis. Apparently the care for the elderly at home is not in place after they have been treated in hospital and beds are becoming short in all areas and wards. When are we going to have some radical overhaul of the system and a rethink on how people are managed in their own homes? It is not just a question of throwing money willy nilly at the NHS. It has to be overhauled and re-managed.

      • Hope
        Posted January 8, 2017 at 10:24 am | Permalink

        May can waste £14 billion on overseas aid where Pakistani people can withdraw cash from ATM machines and girl bands promoted! Exoctic fish mating programs are more important then the elderly. Now she wants to build towns for her mass immigration policy, currently 865,000 NI numbers issued last year. Then the dope, May, wants to push her new version of big society! She has lost the plot and no clue how to run a country.

    • Mark B
      Posted January 7, 2017 at 11:02 am | Permalink

      Whoever it was will not be revealed or sanctioned, such is the way that government works.

      Try doing that in the private sector.

    • Chris
      Posted January 7, 2017 at 12:50 pm | Permalink

      I suspect the government only decided to stop funding the girl band after the very strong campaign by the Daily Mail on this particular issue. The government could hardly ignore the ludicrous and disgraceful waste of money once it had been put into the public domain in such a striking way. The DM has also been highlighting other areas of waste, and well done to them. Does the government not have individuals who can responsibly/sensibly vet and assess the overseas aid programme? It would appear not.

      • Bob
        Posted January 8, 2017 at 11:32 am | Permalink

        @Chris

        “Does the government not have individuals who can responsibly/sensibly vet and assess the overseas aid programme?”

        Priti Patel is in charge, but according to a report from Quentin Letts in the Mail it sounds like she’s gone native.

        Her department are desperately trying to find things to spend money on overseas, while at home we have plenty of things the money could be used for.

        Those that the gods would destroy, they first make mad.

      • Lifelogic
        Posted January 8, 2017 at 3:57 pm | Permalink

        But they will find new ways to waste it. Heating barns or something.

  4. ProstetnicVogonJeltz
    Posted January 7, 2017 at 6:36 am | Permalink

    “…the Treasury vector autoregressive model for the first two years after the Brexit vote was also hopelessly wrong.The establishment now accepts this and is busy changing its forecasts for the period June 2016-2018. ”

    My word, do these people actually use terms/titles such as “Treasury vector autoregressive model” on their nonsense? Sounds like something a Vogon would toss you out into space for uttering.” “Vector autogressive” indeed, he deserves to die!””

    • Hope
      Posted January 7, 2017 at 9:57 am | Permalink

      JR good analysis but it is irrelevant whatever model was used as Carney was going to promote fear and find a model to suit. When is he going to be sacked for being too political. It also confirms that the BoE is not independent of the govt. Who is going to slam Osborne for his poor judgement, talking down the country and lies to the public? He doubled our debt, raised hundreds of taxes, broke all his own rules and failed on every prediction he made. Imposed mayors for EU regionalization against the public wishes, in accord with EU fantaic Heseltine wishes. He also wanted to go to war in Syria after depleting the military, having no military strategic idea and already seen to be clueless over Libya! The next time he stands up squeezing in parliament someone needs to put him firmly in his place.

      Structural deficit still not balanced in 2015- the central theme of he alleged economic plan- and now going to be abandoned by Hammond, who wants to borrow more and waste while increasing our taxes.

      • Timaction
        Posted January 7, 2017 at 2:41 pm | Permalink

        Indeed. When are we getting an apology from Carbie and Osborne? They both deserve public humiliation!

  5. Posted January 7, 2017 at 6:46 am | Permalink

    Coincidentally we also ran a news item on the Bank of England this morning.

    Your viewers may be interested to hear what the BoE’s Chief Economist actually said and they can view the video on our site. Astonishingly he actually used the term “it’s a fair cop” when asked about the “economic hurricane” which the Bank predicted if we voted Leave and which hasn’t materialised.

    It’s deeply regrettable in our view that the Bank’s Chief Economist feels able to make light of their very poor record last year.

    The link is here:
    http://facts4eu.org/news_jan_2017.shtml#BoE_admits_brexit_forecasts_were_wrong

    • David Price
      Posted January 7, 2017 at 10:43 am | Permalink

      You’ve captured the essence. Michael Fish made a mistake whereas messrs Carney & Co attempted to influence the electorate to vote the “right” way. Not the same situation at all and frankly apologies are not enough and not accepted.

      These people should resign or be fired.

      • Lifelogic
        Posted January 7, 2017 at 1:42 pm | Permalink

        Mr Fish predicted no storm and yet there was a bad one. These “experts” however predicted a disaster and there was none. Rather like the Millennium bug, BSE, climate alarmism, bird flu, swine flu and countless other (profitable to some) scares and exaggerated scams.

        These were not independent “expert economists” but group think, largely dishonest hired guns for the government and EU.

    • Mitchel
      Posted January 7, 2017 at 1:28 pm | Permalink

      Regrettable yet unsurprising that such people make light of their mistakes – after all they are self-policing and invincible.It’s just a game as Osborne has admitted.

    • Denis Cooper
      Posted January 7, 2017 at 1:33 pm | Permalink

      Bronwen Maddox, previously an investment analysis, then a journalist – the Times, the FT – and then editor of the left-wing Prospect magazine, but now endowed with much greater authority as Director of the “Institute for Government”.

      The Times is saying today that economists may have been wrong with their short term predictions but nevertheless over the longer term:

      “This is where economics has real analytical power. If in the end Brexit depresses long-term trade and investment flows, then living standards will suffer. That suggests that it is in Britain’s interests to maintain close links with the European single market. For all their current merited discomfort, economists have a vital public role in warning against policies that damage wealth.”

      Rather like the climatologists allegedly being better at their long terms predictions than the meteorologists are with their short term weather forecasts.

      • Lifelogic
        Posted January 8, 2017 at 4:01 pm | Permalink

        The economists said what their paymasters wanted to hear. Just as the climate alarmists do.

  6. Lifelogic
    Posted January 7, 2017 at 6:49 am | Permalink

    Indeed proximity is far less relevant for trade now that shipping things by sea or air can be so cheap, and data can be sent instantly and virtually for free. Proximity is only really relevant for heavy and cheap products particularly ones where the products vary and delivery is required quickly on demand, so that long distance shipping by sea is too slow by air too expensive and a continuous supply such as for coal is not possible . There are not that many such products.

    Why on earth do the BBC radio 4 get people like Vicky Price (C Huhne’s ex wife) to comment on this issue rather than a sound economist like Patrick Minford? She had nothing sensible to say.

    • Iain Moore
      Posted January 7, 2017 at 10:00 am | Permalink

      Because the BBC is pursuing a diversity agenda , where it isn’t what these people have to say which is important, but what identity politics group these people can be said to come from. Patrick Minford has the additional disadvantage of being one of the Brexiteers, though one of the majority, nevertheless still seen by the likes of the BBC as one of the deplorables.

      • Mitchel
        Posted January 7, 2017 at 1:33 pm | Permalink

        Oh but it is important what they say-the MSM just make sure that they find a representative of as many genders,colours,sexualities and creeds to say the same thing-to support the universal narrative.And because all these genders,colours,sexualities and creeds are saying the same thing,it must be true,right?

      • Lifelogic
        Posted January 7, 2017 at 1:50 pm | Permalink

        Indeed he is, I suppose, an old white male. But one who has been largely proved right all his life.

        It is almost impossible to see an engineer or scientist on the BBC currently who is not female. This despite the fact that about four times as many men actually study Further Maths, Physics, Engineering and Computer Science at A level and later at University. You must need some very blatant anti-male discrimination to achieve this as night follow day.

    • turboterrier
      Posted January 7, 2017 at 10:33 am | Permalink

      @ Lifelogic

      Why on earth do the BBC radio 4 get people like Vicky Price (C Huhne’s ex wife) to comment on this issue rather than a sound economist like Patrick Minford?

      They don’t want their listeners to hear the real truth.

      • Lifelogic
        Posted January 7, 2017 at 1:56 pm | Permalink

        She even said something like:- forecasts “cannot not” take account of policy/behaviour changes that result.

        So what is the point of these forecasts then?

        Rather like forecasting that if we raise income tax to 100% the government will raise £X billion, but not bothering to assume people might well stop working if they received nothing after tax for doing so.

    • Bob
      Posted January 8, 2017 at 12:09 pm | Permalink

      @lifelogic

      The Tories had the perfect opportunity to dismantle this subversive publicly funded organisation, and they deliberately flunked it. Not only that, they increased the Telly Tax and made it illegal to watch iPlayer without a Licence.

      I can watch all the other TV catch up services without a Licence though.

      TBH, when I do have access to BBC TV it just confirms to me that the Licence Fee is much worse than just a waste of money, it is effectively funding the debasement of Western Democracy.

  7. Pragmatist
    Posted January 7, 2017 at 7:07 am | Permalink

    Famously, economic experts had a model for how companies worked, how their performance should be analysed, their progress or otherwise could be predicted.Then came social media like Facebook; then came companies like Amazon. Most agree they were misunderstood: there was no model which applied. They tried to apply models of course but the message came back from their models that they could not succeed. Well they did. Even yesterday one famous pundit stated that Amazon cannot be analysed using traditional schemata . “It just works!”
    Heaven knows how the BoE is going to adjust its models to cope with and allow for the Trump phenomenon. Honest institutions simply say they do not know what will happen but believe he will turn their world upside down. We will see.
    Perhaps the BoE should play cards or hangman instead of wasting time with models in the next month or two.

    • oldtimer
      Posted January 7, 2017 at 10:40 am | Permalink

      Interestingly Amazon, having pioneered a revolution in retailing via the internet, is now pushing yet another revolution through its Amazon Web Services business. This promotes the outsourcing, by businesses and other organisations, of much of their their IT investment to Amazon’s cloud. You can get some idea of the sheer scale of this by checking out the AWS Re:invent conferences – all available via YouTube.

      It is worth noting, in passing, that Mr Haldane of the BoE authored a BoE report after the 2008 financial crash which was very critical of the models used by investment banks to assess risk. In essence he pointed out that they based their risk assessments on too short an historical perspective. Perhaps if the BoE had used the historical perspective of its own life since its foundation it would have observed more clearly how political and technological changes fundamentally alter the economic landscape and that past models are an unreliable guide.

  8. Ancient BoE
    Posted January 7, 2017 at 7:29 am | Permalink

    A new app has been developed.
    http://www.telegraph.co.uk/business/2017/01/06/app-warns-investors-donald-trump-tweets-companies/

    No joke. The BoE should make sure they are armed with it and take it into Parliamentary Committee meetings on their devices if allowed to be switched on so they are less likely to make fools of themselves. Their way of thinking ( models ) is reminiscent of the adherents of film-cameras when digital cameras came along. With some justification, the old cameras were said to enable creativity. Edit-programs like Photoshop were said to be cheating too. Well some elements of the film darkroom could have been said to have been cheating .
    It hurts when the world moves on and your hobbies and thoughts become redundant overnight. Hard to move on for all of us.
    The BoE should put its old box-brownie model in a drawer.

    • turboterrier
      Posted January 7, 2017 at 10:10 am | Permalink

      @ Ancient BoE

      The only thing constant in life is change. Pretty basic. Why is it seems that some of our top organisations have a problem with dealing with it?

  9. Ex-expat Colin
    Posted January 7, 2017 at 8:03 am | Permalink

    RIRO…which indicates a major loss of common and technical sense. I suspect asking the Foreign Office experts would have resulted in similar. Thats the ones who are experts on the EU of course.
    BBC R4 Today..one man and his two factories for Eng parts moaning. Actually, here in the W. Mids we just lost one and that was more to do with energy costs than the single market. It was a century old Forge business…supplying car parts. No worry, plenty of shelf stacking/picking and coffee brewing jobs in waiting! No signs of anything being learnt..just nods to the fall of 2008 etc.

  10. Lifelogic
    Posted January 7, 2017 at 8:22 am | Permalink

    Meanwhile “the envy of the World” and Cameron’s “priority in his three letters sound bite” the N… H…. S…… has casualty departments that are actually closing their doors 143 time over the last month declaring “black alerts”, up 60% on last year.

    Must be great for your prospects in an emergency if your urgent assessment & treatment is delayed by a few hours of bouncing around in an ambulance trying to find a casualty that is actually open. Or if you are the next person waiting for that ambulance to return. The NHS make many large diagnostic errors even when working normally, due to lack of proper investigations, scans and other short cuts being taken due to lack of capacity. Or scans being misinterpreted by inexperienced staff. You can easily die in casualty while waiting your three plus hours even to be seen.

    This despite the absurd tax levels people are forced to pay for these largely dire, and death causing “public services”. Yet there are almost no prosecutions for causing these many deaths through gross negligence. Yet company director’s are sent to jail if one of their vehicle’s brakes fail and cause death.

    The gap between the myth of the left/BBC think “envy of the world” NHS and reality is huge. The current structure can never ever work efficiently, yet no one dares to change it.

  11. alan jutson
    Posted January 7, 2017 at 8:30 am | Permalink

    World trade is now much easier to complete than even a decade ago with the advancement and spread of the internet, the ease and low cost of setting up web sites, social media and development of rapid delivery specialists.
    Even very small companies and their potential customers can now communicate with each other when thousands of miles away in seconds, and given the common developed World international business language is English, as indeed are aircraft and ship communications, that also helps our cause.

    Does the Model used by the experts take account of the still expanding communication revolution ?

  12. Ian Wragg
    Posted January 7, 2017 at 8:44 am | Permalink

    So we can conclude that since the so called single market we have paid a net contribution of over £120 billion which equates to a 7%tax on all our exports.
    There’s no wonder big business likes the EU as the taxpayers pay for access and subsidise their employees.
    Only politicians would see this as a good deal.

  13. Duncan
    Posted January 7, 2017 at 9:01 am | Permalink

    What is this nonsense? John, why don’t you simply admit what we all know to be true? The Bank of England were intimately involved in a political strategy (no doubt formulated and run from Number 10) to deceive and frighten people to vote to stay within the EU.

    This debate about the accuracy or not of B of E forecasts is meaningless and designed to deflect attention away from the subjectivity and pro-EU bias of Carney and his central bank civil servants

    The British people who voted to leave the EU care not one jot for Carney and his apologies because as we all know his forecasts and those of his underlings were not delivered with honesty but delivered with an intent to undermine confidence in the UK and to terrify people

    The last 12 months have exposed a clique in this nation and across the western world whose only aim is the accumulation and transition of power from one like minded elite to another. Trump and decent British people rose up to stamp down on that anti-democratic movement

    As an aside I believe May and her anti-UK pro-EU rabble will betray the democratic will of the British people and find a method or process (in collusion with unaccountable EU politicians and pro-EU UK civil servants) which will deny the UK from becoming a truly sovereign and independent nation once again.

    I want my country to become a country on an equal footing with the USA, Russia, Australia, New Zealand, Canada, China, Argentina, Israel, Cuba, Paraguay, Ivory Coast etc etc etc. All free and independent nations whose domestic law reigns supreme and unencumbered by external influences

    We need to see the Queen intervene, incite a constitutional crisis and force the PM to adhere and implement the result of the EU referendum

    • Denis Cooper
      Posted January 7, 2017 at 9:59 am | Permalink

      Well, now Theresa May is under pressure from a rich Tory donor who says that he will cut his funding of the party if she takes us out of the single market. This is the front page story of the Times today:

      http://www.bbc.co.uk/news/blogs/the_papers

      and I can just read that he supported Remain and now claims that “… the country would ‘sleepwalk to disaster’ if it sacrificed single-market membership as the price of controlling EU migration”, and ‘The economic arguments of staying in the EU are overwhelming …’.

      So just to properly explain the situation, we have about 30 million voters who want EU immigration cut back – including many who nevertheless voted to stay in the EU – but we have this rich chap, and no doubt a few others like him, saying that they disagree and that they must have their way.

      I don’t know whether the Times editorial staff believe that this story is favourable to their pro-EU cause. It certainly does the Tory party no favours to suggest that wealthy donors can in effect buy the government policy they want, and I hope that Theresa May understands this and puts him in his place.

    • turboterrier
      Posted January 7, 2017 at 10:15 am | Permalink

      @
      Duncan
      The last 12 months have exposed a clique in this nation and across the western world whose only aim is the accumulation and transition of power from one like minded elite to another.

      Agenda 21 alive and kicking

    • fedupsoutherner
      Posted January 7, 2017 at 10:29 am | Permalink

      Duncan

      Hear,hear. An so say all of us.

  14. hefner
    Posted January 7, 2017 at 9:12 am | Permalink

    Fair comments but shaky conclusion: whether using gravity model or VAR models, finding that “we need free trade deals with all those countries, which in turn requires us to leave the EU” is not guaranteed and might have required as much tweaking of the random terms in those models. The only reasonable conclusion (and very British): wait and see.

    • hefner
      Posted January 7, 2017 at 9:16 am | Permalink

      For anyone interested “Aid on the Edge of Chaos” by B. Ramalingam is a very readable primer.

      • acorn
        Posted January 7, 2017 at 10:39 am | Permalink

        All the current”economists” involved in the pseudo-science of macroeconomics, were taught in the “New Keynesian” (NK) religion. these NKs populate Treasuries; Central Banks; IMF and all similar group-think-tanks globally. It is totally dependant on models like VAR and DSGE which the last decade has proved to be nonsense at forecasting even the day of the week.

        Neo-liberalism is the host political environment where NK thrives, particularly in the hard right Conservative model. Paul Romer at Stern School of Business, New York University, said recently.

        “For more than three decades, macroeconomics has gone backwards. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque.

        Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as “tight monetary policy can cause a recession.” Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes.

        A parallel with string theory from physics, hints at a general failure mode of science that is triggered when respect for highly regarded leaders, evolves into a deference to authority that displaces objective fact, from its position as the ultimate determinant of scientific truth.”

    • turboterrier
      Posted January 7, 2017 at 10:26 am | Permalink

      @ hefner.

      That is the trouble with using models at times it stops lateral thinking.

      The classic case is the models used for climate change and renewable energy. They are only adhered to when they are guaranteed to make vast profits out of the subsidies provided by very naive politicians.

    • Denis Cooper
      Posted January 7, 2017 at 11:13 am | Permalink

      I do say “Wait and see”, but I also say “Look back at what happened in the past to get some idea of what might happen in the future”, and when JR writes:

      “The numbers show that the UK growth rate did not accelerate either on joining the EU or on completing the single market. It is difficult from this past evidence to argue that the longer term growth rate will therefore slow when we leave.”

      he is absolutely correct. As borne out by this chart of the UK’s annual economic growth rate going back to the 1950’s, before we joined the EEC:

      http://www.tradingeconomics.com/united-kingdom/gdp-growth-annual

      It would take the eye of europhile faith to spot when we joined the EEC, or when the single market was created, and I reckon that in the future it will also be very difficult to spot when we left the EU – unless of course the other countries decide to be stupid and set out to deliberately disrupt the existing two-way UK-EU trade when we leave, which could create a more noticeable temporary blip.

      All this should be and probably is well-known to the government; for sure they know that the EU Commission itself accepts the estimate that the internal market has added only about 2% to the collective GDP of the member states, because that has been acknowledged in official reports; they may well know that according to one German study that 2% has not been evenly distributed across the EU, and for the UK it is closer to just 1%; they should know that when an EU Commissioner boasts about the 3 million jobs thought to have been created through the internal market that is actually only about 1.3% of the total number of jobs across the EU; and they should be able to calculate how many months it would take UK GDP to regain a loss of 1% with a trend growth rate of 2.5% a year.

      It has been longstanding UK government policy to deliberately exaggerate the claimed economic benefits of the EU and its single market, and always avoid presenting them in any kind of realistic perspective; surely it is now time for our government to start telling the people the truth?

  15. Nigel
    Posted January 7, 2017 at 9:42 am | Permalink

    Austin Mitchell’s open letter to the Guardian is well worth reading:

    http://brxcen.com/2i8mL38

  16. Iain Moore
    Posted January 7, 2017 at 9:50 am | Permalink

    Would these be the same failed economic policies which informed the Bank of England to buy £400 billion of Government debt in its QE program?

  17. Serene
    Posted January 7, 2017 at 9:53 am | Permalink

    The reunification of Germany had an impact too. Though not on the East German steel and coal industries.
    But why do intelligent people believe in these models?
    One remembers Mr Carney somberly stating the BoE was going to assess the impact in detail of a Brexit. Obviously that was impossible. If it were, then he should now inform the Remoaners of the outcomes of the deals and arrangements which will be negotiated with the EU and also the countries and companies’ trade deal outcomes. They will be interested to know how he knows the outcomes. He never explained but was defiant he knew. He said it was his responsibility and mandate to inform the British people. So where is he now? When can we expect his serene update?

  18. Posted January 7, 2017 at 10:25 am | Permalink

    Excellent John,

    Seriously, what did you expect from a bank that…

    a) Still thinks we use the gold standard

    b) Still thinks we use fixed exchange rates

    c) Increasing reserves increases lending

    d) Increasing reserves is inflationary

    No wonder their models are a mess.

    The only progress in the last 10 years the bank has made is by introducing our sectoral balances into their analysis.

  19. Denis Cooper
    Posted January 7, 2017 at 10:27 am | Permalink

    We had many months of “public debate” before the referendum but somehow we still ended up with a majority of the voters accepting that the EU and its internal or single market are of great economic importance to the UK, when in reality the government and the various Remain campaigners have always vastly exaggerated its overall economic effects – and in many cases knowingly, which makes it a lie not just an error.

    Just as many of those who voted to stay in the EU did so even though they want EU immigration to be brought under control, so too many of those who voted to leave the EU did so even though they accepted that this could cause significant economic damage; if the truth had been told then the result would not have been as close as it was, it would have been a much larger majority in favour of leaving.

    The Cameron government had no excuse for the lies it told about this, and nor does the May government have any excuse for allowing those lies to be perpetuated.

    Yes, some sectors of the economy derive a net benefit from the EU single market, others do not benefit when their position is looked at in the round – it is misleading to emphasise the volume of cars exported to the EU without mentioning the much greater volume being imported which are taking up a large chunk of our domestic demand – but for the UK the overall economic effects of the EU and its single market have been very marginal, one way or the other. As the government has known perfectly well, because that truth has been acknowledged in official reports, and should now start admitting in public.

  20. Caterpillar
    Posted January 7, 2017 at 10:32 am | Permalink

    As noted back in June 2016, Professor Blake’s (Cass) review of the Treasury models highlighted the inadequacies now almost being admitted. Kudos to Professor Blake.

    • Denis Cooper
      Posted January 7, 2017 at 1:51 pm | Permalink

      You mean:

      http://www.cass.city.ac.uk/__data/assets/pdf_file/0007/320758/BlakeReviewsTreasuryModels.pdf

      “Measurement without Theory: On the extraordinary abuse of economic models in the EU Referendum debate”

      “Grossly exaggerated impact of the economic consequences of Brexit and no analysis of the risks from remaining in the EU from the Treasury’s two ‘dodgy dossiers’”

      Yes, well done, Professor Blake; just a pity that his sensible contribution was drowned out by the government and government-inspired propaganda.

  21. British Spy
    Posted January 7, 2017 at 10:44 am | Permalink

    Didn’t Russia hack into the Bank of England?

  22. Mark B
    Posted January 7, 2017 at 11:00 am | Permalink

    Good morning.

    One thing that came up in a discussion elsewhere, was that of the Rotterdam Effect. For those that may not be aware, this is where goods that the UK both imports and exports through the port of Rotterdam, and irrespective of its final location (exports only of course) are counted as exports / imports to the EU. This creates a distorted argument that some 40% of our trade is with the EU. Upon exiting the EU (pray God), it will become clearer what the truer extent is of our exports to the EU and elsewhere. We will of course have to look at beefing-up our own ports and UK exports going through Rotterdam maybe subject to an additional tariff making UK exports more expensive. This assume that we do not get an arrangement with the EU for not doing so. Part of the negotiations one would assume.

  23. turboterrier
    Posted January 7, 2017 at 11:02 am | Permalink

    remember those halcyon days of yesteryear when the bank managers and their specialist would have an annual review and highlight the areas within your business where they perceived you had waste or were missing a financial opportunity.

    When you look at the state of this country over the last decade or so and see the waste that is bordering on being criminal especially in the areas of the NHS, energy subsidies, foreign aid, civil service, education and now high lighted today pot holes I have to ask myself where were all the bankers whilst this was allowed to happen with their business advice. Or does this mean that either the bankers are not asked or the politicians are not listening. The events of last year will perhaps confirm that we need entrepreneurs and experienced business men and women who have a track record of success sitting around the top table or at least attached to every government department to achieve a culture of
    ” does it or will it add value to the country”.

    That is what I thought bank leaders were employed to do.

    Silly me it must be my age!!

    • fedupsoutherner
      Posted January 7, 2017 at 1:48 pm | Permalink

      @TurboTerrier

      The events of last year will perhaps confirm that we need entrepreneurs and experienced business men and women who have a track record of success sitting around the top table or at least attached to every government department to achieve a culture of
      ” does it or will it add value to the country”.

      I think this is what Trump is doing. Getting business people in rather than no hopers who are just in government for themselves.

  24. Bert Young
    Posted January 7, 2017 at 11:50 am | Permalink

    Too much influence was created by the BoE during the referendum campaign ; there must have been collusion with the Treasury and Osborne. Now a different truth has emerged and the public have responded , changes have to be put in place for our present objective -to leave .

    The Civil Service have always been entrenched in their own way of thinking and efforts by its previous Heads ( first promulgated by Sir Wm Armstrong ) to fertilise it with outside exchanges seem to have failed . It always was a self-protective society that did not adjust to its political leadership . Yesterday its plea was for pay increases well beyond the norm and for extra numbers to deal with a very straightforward instruction ( Brexit ) .

    The Treasury was always seen as the high spot in the CS and its more successful individuals were always promoted to be Heads of other departments ; this process produced its own inner club of influence . No-one could dispute the intellect that abounded , but , it was very short of real life experience particularly at the bottom level .

    Sir William Armstrong and Douglas Allen ( Lord Croham ) – both ex grammar school boys , were severe critics of the CS system ; their ideas were overlooked and misunderstood ; the club system proved to be stronger .

    We must rid ourselves of the grip that exists ; CS numbers are too large and the direction it receives is too weak . Maggie was one of the few who never hesitated to use outside advice to balance her judgements ; her leadership was clear , popular and supported .

  25. Antisthenes
    Posted January 7, 2017 at 12:01 pm | Permalink

    Keynesian and other left wing economics dictates much of our experts at the BoE, Treasury and the like’s thinking. Thinking that has given us QE and their forecasting models. Creating flawed effects. The former has created asset bubbles, malinvestment and a ticking time bomb for the explosion of inflation and/or debt default. The latter feed us advice that is not only considerably inaccurate it would only be come accurate if acted upon or ensure something even worse. The cynic could be forgiven in believing that is part of the reason for giving this advice.

    The Austrian school of economics(to the right of the political spectrum) for example would never proffer those type of theories advocating instead less interventionist and more market delivering policies. They would see the socialising of debt and fiat money expansion as abhorrent and would say that central banks are more the problem than the solution. Their starting point for Brexit modelling would be that free trade creates an advantage that exceeds any emanating from any bilateral or multilateral agreements and trading blocks despite any global constraints like geography or international trade bodies like the WTO(ultimately the goal should be to scrap it as well). Free trade is just that free, anything else is a form of protectionism that ultimately disadvantages the consumer. Who are us. All of us everyone who inhabits this planet.

    • hefner
      Posted January 7, 2017 at 5:49 pm | Permalink

      Fair enough, but did we not have about 25+ years of “Austrian school economics” (~1979-2007)? And after the crash (2007-2008) a resurgence of Keynesian type solutions to try and clear the mess? I am afraid the story of the last forty years is not as linear as you seem to believe.

      • Antisthenes
        Posted January 8, 2017 at 10:34 am | Permalink

        Austrian school economics has never been practised in a way that allowed it to prove it’s full potential. Politicians have seen to that as they cannot help themselves from meddling and interfering with the economic process. Often in contradictory ways as different parties enter government so different policies are implemented. Crashes occur regardless of which economic theories are applied. Their causes, severity and their effects immediate and future are exacerbated or mitigated by which theory and government policies were fashionable prior to the crash and after.

        Applying Keynesian economic to the crash of 2007 we will find is not correcting prior economic theories as much as digging politicians out of a financial hole for which they are largely responsible. Only to dig a bigger debt and malinvestment hole that some time in the future we will find we can only climb out of with considerable painful effort. If at all.

      • acorn
        Posted January 8, 2017 at 3:59 pm | Permalink

        The fallacy of the Austrian school was the “consumer” lost out. The cost of labour in the exporting countries was less than the importing country; so, the consumer – in the importing country – of Austrian style unrestricted free trade”, ended up with reduced wages; then no job and no income to buy anything!

        • Antisthenes
          Posted January 9, 2017 at 10:48 am | Permalink

          You appear to be as blinkered as hefner. The Austrian school is the very epitome of economic theory that protects the consumer. Certainly not the producer and jobs do become lost because of free trade. However that happens regardless of where competition comes from. It can be just as easily to a producer in the next town as from Johnny foreigner. Jobs are just as easily lost from technical innovation as from competition as well and often are.

          Both are misguidedly resisted as although jobs are lost in one sector so even more jobs are created in another. A painful process for a few but a considerable gain for the many. Us the consumer. Here you say you are defending the consumer when even a cursory observation should tell you you are protecting the producer. They do not need protecting except from government.

  26. A Professor of Zero
    Posted January 7, 2017 at 12:15 pm | Permalink

    I have been glancing at explanations of these models.They are wonderful devices in convincing an audience you are far more acquainted with what’s what, where’s where than they themselves are.
    I must write a piece in Wikipedia perhaps titled: The Centripetal Replete Diaphragmatic Paradigm ( CRDP ) under one pen name and put a critique of it under another name perhaps titled Empirical Investigations into Brownian Corollaries ( EIBC ) explaining in great detail why trade and its interactions are politically motivated in their entirety and it comes down to basics such a duality of interactive questions and answers based on “Will your husband allow me to offer to sell you this?” and ” No, but he works shifts, so come back tonight and we’ll sort something out ”
    Most of the BoE should be sacked of course.

  27. John Finn
    Posted January 7, 2017 at 12:40 pm | Permalink

    I actually read the CEBR paper which criticises the Treasury’s “Gravity model” the other night and was astonished at the level of naivete evident in some of the “equations”. It’s clear that there is the potential for some quite bizarre results to be produced.

  28. Iain Gill
    Posted January 7, 2017 at 1:20 pm | Permalink

    There is as much chance of getting the NHS leaders to admit they are running a failed experiment which can never deliver success. So repeated are the lies about the NHS nobody is prepared to say the empoerer has no clothes.

  29. Denis Cooper
    Posted January 7, 2017 at 2:01 pm | Permalink

    As a last comment, it may be that economists and politicians and commentators need to revise their ideas about the economic value of international trade, and of further trade liberalisation and facilitation, where it may have become a case of diminishing returns.

    I’ve seen expressions of concern that in recent years global GDP has been increasing faster than the volume of global trade, but maybe that is telling us something?

    Such as, that increased trade has ceased to be a powerful driver for increased prosperity?

    Obviously those involved in the execution of trade will always welcome a increase in the volume of their business, but maybe that now brings little benefit for the rest of us?

  30. Atlas
    Posted January 7, 2017 at 3:40 pm | Permalink

    ‘BoE discovers Chaos Theory’ – who would have thunk it …

    Perhaps when Trump assumes office NASA might also discover Chaos Theory as applied to the Climate.

  31. Lindsay McDougall
    Posted January 10, 2017 at 3:08 am | Permalink

    My career was in transport planning, for which gravity models were developed and used extensively in the 1970s and 1980s. They only half worked in specific circumstances:
    – a homogeneous urban area
    – good knowledge of income levels
    – good knowledge of places of work (NOT just the housing locations of people in work)
    – good knowledge of competing modes (including areas poorly served by public transport)
    – knowledge of trips between the urban area and external areas (gravity model principles do not work for these), which have to be patched in

    The Treasury has taken a type of model that doesn’t even work well in the situations for which it was designed (transport) and applied it to a situation (international trade) for which it can’t possibly work.

    And because the Vote Leave campaign didn’t properly debunk this, Remoaners still feel that there is mileage in Project Fear. You need to get genuine experts like Patrick Minford and Liam Halligan on the case.

    Regarding forecasting for the UK economy, Patrick Minford has got it right. As much freed trade as possible (and the over harmonised Single Market and Customs Union are not free trade) is desirable, and short term effects such as the inflation that ultra loose monetary policy generates, influence the short term.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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