Guardian economics still wrong

In the run-up to the referendum, it was common for Leave campaigners to compare quitting the EU to Britain’s embarrassing but ultimately beneficial departure from the European exchange rate mechanism (ERM) in 1992. The pound tumbled after “Black Wednesday”, and by 1995 the economy had begun to rocket.

George Magnus, a former chief economist at Swiss investment bank UBS, says there is no question the recent fall in the pound will help some companies, “but it’s most unlikely to offset other economic problems the UK is going to encounter”.

He says that, unlike in the 1990s, the pound is not starting from a “chronically overvalued” position.

Hmm, OK, and the proof of this is what?

As if this wasn’t bad enough, the UK’s balance of payments deficit of 7% is three times as big as it was before the ERM exit.

Well, we don’t have a balance of payments deficit because the balance of payments always, by definition, balances. We have a trade deficit.

And a large trade deficit is one of those signals that a currency is over valued, isn’t it?

10 thoughts on “Guardian economics still wrong”

  1. “And a large trade deficit is one of those signals that a currency is over valued, isn’t it?”

    True but it will also be because of other factors causing being non competitive usually government legislation and regulations and whilst being in the EU we got that in spades. Out of the EU we can remedy that but probably wont. Politicians and bureaucrats are for regulation not deregulation even our domestic ones.

  2. “And a large trade deficit is one of those signals that a currency is over valued, isn’t it?”

    No, the currency is not over valued[1]. Lack of competitiveness may be due to the factors Antisthenes pointed out and/or that people expect to be paid too many of said currency units compared to their productivity.

  3. I’m by no means an expert so I looked this up on Wikipedia, which says:

    While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank’s reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become increasingly indebted. The term balance of payments often refers to this sum: a country’s balance of payments is said to be in surplus (equivalently, the balance of payments is positive) by a specific amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount.

    Now I’m confused. Who’s right?

  4. “it was common for Leave campaigners to compare quitting the EU to Britain’s embarrassing but ultimately beneficial departure from the European exchange rate mechanism (ERM) in 1992”: is that true?

    If I had cited the ERM affair to anyone it would have been to point out that the Establishment, and many, many, economists, routinely talk cobblers, which is a different point.

  5. I never once heard a comparison with the ERM in the days before the referndum.

    The remainers are just lying shits.

  6. What do you get when you combine an overvalued currency, government manipulations of the currency value, wage and price controls, with new intrusive(specifically environmental) regulations all at the same time?

    I have an answer but I am interested in other, unbiased, possibilities.

  7. But we’ve had a trade deficit since the 1980s. Why is the currency only suddenly now over-valued? It’s really not that simple.

  8. Liberal Yank: I have an answer but I am interested in other, unbiased, possibilities.

    I fear you’ll have as long as wait as for ‘better’ from the Grauniad.

  9. I am disappointed no one here bothered to provide an answer. I was expecting to see something like Venezuela under Chavez.

    The answer I have is Nixon’s presidency and the resulting stagflation.

  10. According to David Smith in the Sunday Times, the trade deficit is roughly constant at around 2.5%, but the investment income has gone from positive to negative, partly because of weak oil and commodity prices, and partly because dividends are being paid by a relatively strong UK, rather than by the relatively weaker Europe. Makes sense to me, but waddya think?

Leave a Reply

Your email address will not be published. Required fields are marked *