Ritchie and macroeconomics

Most amusing:

The fact that two members of the Monetary Policy Committee thought it appropriate to vote for interest rate rises now in the UK is, to me, little short of astonishing. Their justification was noted by the Bank of England as follows:

“These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labour market created a prospect that wage growth would pick up. They noted that it was possible that wages were lagging behind developments in the labour market to some extent.

“If that were true, wages might not start to rise until spare capacity in the labour market were fully used up. Since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank rate in advance of them.”

So these members were willing to gamble the certainty of households going into insolvency, jobs being lost, recession returning and more to avoid a risk of inflation at a time when this is, in fact, declining.

Ritchie is, of course, one of those Keynesian peeps. The ones who think that government should be fine tuning the economy through some mixture of fiscal and monetary policy. Something that does require a certain amount of foresight. Monetary policy is thought to work 18 months to two years out. Fiscal, well, if it works at all it sure as hell ain’t instantaneous.

Yet here we have people being described as either insane or sado-masochist for even bringing up the idea of taking note of future possibilities while setting current policy.

Makes that Keynesian demand management shit rather hard, doesn’t it?

11 thoughts on “Ritchie and macroeconomics”

  1. he is astounded by many things that the rest of us would just find interesting but not completely unexpected.

  2. Keynesian’s believe in borrowing during the downturn, and running a budget surplus during the upturn. Richie believes there in borrowing in the downturn and the upturn. Whatever he is, he’s no Keynesian.

  3. On the wider issue, I’ve been wondering if a slight increase might send a signal that things are improving and boost that illusive component of a growing and strong economy: confidence.

    Also, if someone is going to be knocked in to bankruptcy by a 0.25% interest rate rise it is better it is done now than let them suffer for longer because as sure as eggs is eggs they are going in to bankruptcy at some point.

    Finally, as a saver who is reducing his workload, when possible, with a view to full time retirement I really would like to see some return on my savings.

  4. You write of him as “one of those Keynesian peeps”: I prefer the term “perps” with the implication of economic crimes. Unfortunately there is no punishment for those people who have trashed the economy under this malignant ideology or our Member for Kirkaldy would be doing a long stint.


    Purge the MPC of these vile beasts. We need Ritchie on there RIGHT NOW, astonished or not.

  6. Sometimes he’s a Keynesian. Sometimes he points out he was one of the lone voices (although I never saw any evidence) pointing out that monetary growth is endogenous, on the other hand sometimes he has “great sympathy” for the MMT gang.

    It really depends what article he has read in the FT that morning and how much he has convinced himself and wants to convince everyone else that he is a “political economist” and expert.

    Can’t help thinking he would make a better contribution to the world if he just stuck pencils up his nose and shouted wibble.

  7. “oops, please forgive that illiterate use of apostrophes…”

    Its OK Dan, we welcome greengrocer’s here – we all love the charming furnakular of greengrocer’s

  8. Richard is in good company here, Simon Wren-Lewis and David Blanchflower also seem to think raising rates is a bad idea, Paul Krugman having coined the term “sadomonetarism” also seems of a similar mind although he’s not commented directly on UK matters. The whole Sweden debacle has also shown the problems with premature interest rate rises.

    In the context of non existent wage growth and below target inflation that doesn’t seem to be heading upwards, it’s really hard to see why an interest rate rise is justified.

  9. @ Andreas Paterson
    “Non-existent wage growth” is a fallacy, but a good piece of propaganda for Miliband.
    Most of the extra 820,000 people in jobs are in low-paid jobs that drag down the average wage but pay a lot more than the dole.If you compare average earnings of the 30.597 million people working in the last quarter with what they were earning a year earlier (29.777 million working and 0.82million on JSA) you will find average earnings were 2.2% higher. If you take earnings for June alone to eliminate the distortion in April due to delayed payment of bonuses, the rise is 2.8%.
    Not only is there nominal wage growth, it is slightly higher than CPI inflation.

  10. @I
    You sure the MMT gang don’t also believe in endogenous monetary growth? Positive Money does.(As also does Bank of England: see “Money Creation in the Modern Economy”. It would be reckless to believe otherwise now)

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