Join Hafta-Ichi to Research the article “The Guardian view on economic predictions: no time to bank on a recovery | Opinion”
To state the blindingly obvious, the chief economist of the Bank of England, Andrew Haldane, is an intelligent man. No boilerplate praise, this: his speeches on subjects as varied as how to reform economics and the importance of the voluntary sector have been model interventions – both serious and ever-so-slightly subversive. Yet when Mr Haldane writes a newspaper op-ed that claims the post-Covid economy is “poised like a coiled spring”, as he did last week, he risks looking not only silly but, worse, choking the debate over the future of the UK.
To be sure, his argument rests on firm logic. Many workers have spent the past year still employed but with few outlets to spend their incomes, so have built up around £125bn in household savings. Get those jabs, fling open the pubs, allow the football terraces to fill – and let the good economic times roll! And indeed the recent economic news from the UK and elsewhere has been better than hoped.
Yet this is not your normal recession. Too much rests on factors completely out of the hands of chief executives, finance ministers and, yes, central bankers. Mr Haldane has already sat this class. Last summer, he forecast the UK would swiftly rebound from its lows, in a recovery shaped like a V. Not long after, the country went into its second lockdown. That V turned into, at best, a W. The unknowns about this virus, its mutations and their propensity to spread suggest a need for caution and openness to a wide range of outcomes, rather than tabloid tiggerishness.
Take the most recent unemployment reports, which suggest wages are rising strongly even as joblessness goes up. Sounds like good news – while also making zero sense. Another explanation might be that low-paid workers are dropping out of the labour market, skewing the data towards high earners. That would be terrible news, but we can’t be sure either way. Or look at the latest study from University College London, showing that this pandemic and its lockdowns have left Britons feeling glum. No surprise there, except the usual life-satisfaction score is 7.7 out of 10, while it is now around 5.5 – a worryingly large drop. Some may come bouncing out of lockdown ready to socialise, but others may feel lasting isolation.
The economic establishment has got it badly wrong in the quite recent past. In 2010, as George Osborne began cutting spending, the Office for Budget Responsibility (OBR) predicted the UK would soon return to the levels of productivity it enjoyed before the crash. This was an important projection from the body relied upon by the Treasury. The rebound didn’t happen but, undaunted, the OBR saw it coming just a little later. When it still didn’t turn up, the OBR pushed the recovery further back. Again: nothing. This happened 17 times before the OBR published a mea culpa. Far too late, it was tacitly accepted that austerity had killed productivity. As the former Bank of England rate setter David Blanchflower writes in Not Working: “The elites got it wrong but took no responsibility … Nobody fired the forecasters.”
Today, just as the new US government turns against austerity, key economic policymakers in the UK are preparing for a big retrenchment in spending. Overconfident projections such as Mr Haldane’s only encourage that outcome. And consider the recovery that even this self-confessed optimist promises: the well-off spending like billy-o, while the less fortunate face unemployment or struggle with the fallout from a lack of schooling and badly squeezed public services. No lessons learned from the Oxford vaccine of the value of developing an industrial base that can build on cutting-edge research. Is this the best we can do?
Source: The Guardian
Keyword: The Guardian view on economic predictions: no time to bank on a recovery | Opinion