Wednesday, August 24, 2016

Bill Mitchell — Mayday! Mayday! The skies were meant to fall in … what happened?

The British Office for National Statistics, which although recently revamped continues to have the most user-unfriendly home page and dissemination service of all the national statistical agencies, published the latest – Retail Sales in Great Britain: July 2016 – data last week (August 18, 2016). It looked good to me. In the past week or so there has been a stream of data coming out of Britain or about Britain, which also looks good to me. What the hell is going on? The skies over Britain were meant to have fallen in by now.…
Bill Mitchell – billy blog
Mayday! Mayday! The skies were meant to fall in … what happened?
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

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That requires some explanation. There are two problems, one minor, and one major.

The minor one is that most economists have come to rely too much on confidence and survey data and not on real numbers. It was always quite hard to figure out why Brexit would lead to an immediate recession, except for the argument that confidence would take such a pounding that businesses wouldn’t invest and shoppers wouldn’t spend.

That turned out to be wrong — and it would have been far better to wait until the actual numbers came in before making any forecasts one way or the other.

The major problem is that most economists within the banks, fund managers and policy institutes were so personally committed to staying within the EU that they couldn’t imagine anything other than a catastrophic outcome if the U.K. left. But that surely is not acceptable. Economics is not a hard science like physics. But it should be capable of more objectivity than that.

No one expects economists to make perfect predictions. It is not that kind of science. But to get such a major event so completely wrong calls into question its relevance and effectiveness. At the very least, next time there is a major vote with global implications, we’ll know who not to listen to — the economists.
Matthew Lynn

8 comments:

Matt Franko said...

Rates werent cut until August 4... albeit from 0.5% to 0.25% but lets still see what happens in August... also what did YoY fiscal do in July and Ytd?

Matt Franko said...

"But the current data doesn’t suggest a recession is on its way."

How can he make this statement?

there was no recession in sales in July that is for sure... (ex post)...

What if "stability is creating instability!" and it became a "Minsky moment!" on August 1 and then it goes down this month?

Six said...

Relax, Matt. You're trying too hard to differentiate yourself from your "enemies".

Gary Hart said...

With results like that the Brits should be careful of "terrorist" attacks. It doesn't seem plausible that the European bankers will allow such results to continue.

Matt Franko said...

All he can say is that it didn't turn out like the doomsday people were predicting (which is not without value) but based on what he has technically he cannot make any predictive statement himself...

Matt Franko said...

Six they get nowhere they are not using a correct approach....

"stability creates instability" is a fing joke anybody trained in STEM would laugh at that it had no credibility.... Maybe a somebody trained on bongo drums would think it is profound but that is about it,....

John said...

The absurdly brilliant Richard Feynman was a great practitioner of bongo drums!

If Feynman had been an economist, he'd have been Minsky, who probably played bongo drums in his spare time too. A very underrated instrument.

Six said...

Matt, I get that you are mostly interested in "top line government spending" and its importance. I'm interested in what leads to "top line government spending"; what enhances or retards it. I don't believe it's a trivial pursuit. Does it just happen by accident? Randomness? Should we close our eyes and hope for it?