No, non, nein, όχι: Not good enough

I’ve heard some push back that we shouldn’t blame the Tories for this…

…or this…

…because we are facing a global recession because of this lot…


As Britmouse points out – in ever more virulent, desperate appeals to sanity – we have had exactly the recovery you would expect if aggregate demand had been very weak. Under Brown nominal demand grew only 1.3% a year versus a 5% trend growth rate. Under  Cameron and chuckles Osborne nominal demand has grown at a still anaemic 2.8% a year.

The Bank of England is in charge of demand in this country and it has used the Eurozone pursue a disinflationary policy which has seen inflation collapse even more quickly than the Bank expected. The Bank of England could do more, and they underline this fact at their regular meetings, but they are choosing not to do more.

So in a way yes, the weak recovery is a result of the Eurozone, but only because the Bank of England and central government have used the crisis to depress demand growth. Rather than push against the crisis with more expansionary policy the Bank has used these deflationary tailwinds to keep unemployment elevated and prices subdued.

The policy which is producing weak growth is also producing low bond yields. The low interest rates Cameron is paying is a vote of no confidence in his government from the bond market, they don’t believe growth will return for a very, very long time.

Something is rotten in the city, the Bank of England is not democratically accountable, people do not understand its remit well or the damage it is doing in the name of price stability. This is why the London Stock Exchange gets occupied, not Threadneedle street.


2 thoughts on “No, non, nein, όχι: Not good enough

  1. Two questions. 1) How does the government benefit from being the architect of economic decline? 2) Why does the Bank of England pursue disinflationary policy at the expense of growth?

  2. 1) The Government doesn’t, but they are ideologically and pragmatically committed to the wrong policies. There are lots of reasons to adopt bad policy, probably incompetence more than malice. Although a little malice too, they are tories.

    2) The Bank is charged with medium term price stability not something more sensible like NGDP level targeting. They have to disinflate when inflation is running high. Also, hard money types overestimate the need to act.

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