Ritchie and economics: never the twain shall meet



Let’s summarise that. Growth is falling. RPI inflation will exceed growth, so real wages are likely to fall again.
Err, GDP growth is always given net of inflation. So that’s real GDP growth, not nominal.

36 thoughts on “Ritchie and economics: never the twain shall meet”

  1. Tim, he has referenced you in the comments:
    “There are two rates of inflation noted
    It is not net of both
    Which was my point, if imperfectly made
    And all Timmy Boy’s followers came along to echo their master”

    One would have thought, from the constant stream of bile emanating from Ritchie, that his gallbladder had been removed many years ago.

  2. Yes, and what’s delightful about his reply is the following.

    Add CPI back onto GDP to get nominal GDP growth, subtract RPI to get the other possible measure of real GDP growth. And it’s still a positive number in each year. Which is why, in the report he’s linked to (Table M2) everyone is predicting an increase in domestic demand.

    He just doesn’t understand the subject he’s trying to discuss.

  3. Even his attempted excuse doesn’t work.

    He’s claiming that inflation is greater than GDP growth, so he needs the gap between the GDP deflator and RPI to be greater than net GDP growth.

    GDP deflators for the relevant years are:
    2014: 2.3%
    2015: 1.6%
    2016: 1.8%
    2017: 1.9%
    2018: 2.0%

    So the RPI inflation that isn’t included in the GDP deflator (never mind whether that’s a sensible comparison; that’s what he now says he means) are:
    2014: 0.2% vs GDP growth of 3.0%
    2015: 0.8% vs GDP growth of 2.6%
    2016: 1.4% vs GDP growth of 2.4%
    2017: 1.5% vs GDP growth of 2.3%
    2018: 1.2% vs GDP growth of 2.3%

    So even his attempt to get out of it (which I don’t believe) doesn’t work.

  4. Sorry, in the time it took to type that out, Tim got in before me with a much more succinct comment.

    This may partly be why I don’t blog.

  5. Tim

    If one was a pendant, one could make the point that increasing domestic demand might be compatible with falling real wages assuming that the increase in labour (participation or hours worked) was sufficiently high.

    These forecasts are pretty worthless of course. I’m expecting a wonderful boom as the price of commodities continues to slide – always assuming that the governments in the Eurozone dont manage to really make too much of a hash of their problems.

  6. Ken, yes, but Murphy used that table and claimed that it proved real wages were falling. It doesn’t prove it (although that doesn’t mean that other data might).

  7. bloke (not) in spain

    If any one’s interested, Murphy’s now saying there may be growth. But the wrong sort of growth.
    Must be like that snow thing.
    Beyond me.

  8. b(n)is

    Wrong kind of snow

    Like a low-paid job is worse than no job (even if all you are capable of doing is a crap job).

  9. For me,the interesting thing about that table is how wide the gap is between RPI and CPI. I am too lazy to investigate myself but3% RPI inflation in the current environment looks highly unlikely, especially if it looks as if there is an assumption of approx 1% inflation in housing costs (the difference between RPI and CPI). Are they factoring in a rise in mortgage rates?

  10. You lot really are just, well fuck knows.

    1) As RM has pointed out, “RPI inflation will exceed growth” means that growth is going to be insufficiently low, probably, to provoke real wage increases. It’s pretty obvious

    2) Growth is deemed to be negative if the GDP increase is less than exactly 1% or so, maybe say 1.5-ish. It’s not actually that difficult if you take the time to understand

  11. @ portemat
    NO, No, no
    The difference between the geometric mean and the arithmetic mean is a cause for CPI to *understate* not RPI to overstate inflation. The other reason for CPI to understate inflation is that it virtually ignores housing costs.
    If you live outside the UK you may not realise that housing costs have soared – in the ten years that Gordon Brown was Chanvcellor house prices rose by about 120% i.e. more in ten years than in the previous 1000 years: so he wanted an inflation index that ignored the impact of rising house prices on the cost of living.

  12. john77…intuitively I am with portemat, in that the geometric mean starts low and then rapidly rises compared withthe arithmetic mean. Also, what exactly is included in housing costs? If mortgage rates plummet, because of LIBOR, then what else is covered in housing costs?

  13. Diogenes,
    You’re obviously a troll.

    GDP is nett of CPI not RPI. RM prefers RPI, which is higher. If you use RPI, then growth is lower than shown,

    So, taking 2017 as an example, GDP should be shown as 1% not 2.3%.

    Where GDP is still above 1.5% even after the adjustment, then clearly some other adjustments need to be made, because the correct final figure will clearly show that real wages will fall, regardless of your pedantry.

    In even shorter form as you may be a simpleton:

    Real wages will fall because TINA and neo-liberalism. Real wages fall when GDP growth is insufficient. Therefore GDP growth is going to be insufficient.

    If I have to explain it one more time ….

  14. Somebody has certainly learnt Murphy’s tricks: jump into somebody’s discussion shouting Fuck Knows, call somebody a simpleton AND tell then that THEY’RE the troll.

    So we don’t forget: Ritchie said that RPI inflation would exceed GDP growth. Plain words; plain meaning. He said this because he didn’t understand what the figures meant. He does now; it seems certain others don’t.

  15. John77 – no. For example, according to the IFS:
    “The case against the current RPI formula essentially boils down to the fact that it can give quite odd results. For example, if prices for some item go up one year and then fall back to their original level the next, the RPI will show that item as being more expensive at the end of the period.”
    If you want to see inflation measured including housing costs, but without the distortions due to the formula effect, see RPIJ.
    take a look at:

    The ONS have helpfully recalculated RPI inflation using the more robust method, but the same underlying basket & data

  16. You lot

    See if you’re bright enough to work out if someone who writes:

    1) growth is going to be insufficiently low, probably

    2) less than exactly 1% or so

    has as firm a grasp of his subject as his hero and mentor.

  17. Real wages will fall because TINA and neo-liberalism. Real wages fall when GDP growth is insufficient. Therefore GDP growth is going to be insufficient.

    You might also want to consider that someone who says that might not be entirely serious…

  18. Oh, for crying out loud.

    I though “exactly 1% or so, maybe say 1.5-ish”, was almost witty, if a little obvious.

  19. Further, my argument above is indeed moronic, and the terms used oafish and rude, however I think it’s a pretty neat summary of the Great Man’s own comments on this.

  20. “You might also want to consider that someone who says that might not be entirely serious…”

    Unfortunately Jack C, you were too close to him and actually far less bonkers than some of his genuine commentators. So I for one really thought it was for real. if you want to parody Murphy you will need to be far more whacky than that.

  21. I was completely taken in.

    The difficulty in differentiating between a genuine Murphy acolyte and a spoof one is not easy: both appear tongue in cheek though in the latter case the tongue and the cheek belong to different people…

  22. PF,
    Deep paranoia is setting in behind the Murphy Curtain. I’d like to go back in, but I have a family to consider.

  23. All,
    I was pretty dumb-founded that you thought I was being serious, however:

    1) I did pretty much copy the logic and the abuse word for word

    2) If one person can think that way, then at least some other people will as well. It was this that I was missing

    The man has issues.

  24. By the way, “growth is falling”.

    Err, well, yes. We’ve been out of the recent recession for a while now. Somebody who knew some basic economics would expect growth to pick up quite quickly as various postponed economic activities were restarted and then fall back towards the longish term figure for the broad economic conditions.

    (And, yes, I thought Jack C was genuine and nearly posted a fisking of his comment. But, luckily, thought better of it.)

  25. Ironman – you might not get this as Tim’s blog has moved on but I would advise you to hasten and check out Murphy’s post entitled ‘Citizenship as a moral ideal’ – the comments section is on a par with the recent ISIS video as a stream of pure evil in comment form – Dickie, Horrocks, Reed, Murphy – they’re all there….

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