I thought that what I meant was unambiguously clear. My reference to ‘real’ interest rates referred to those actually on offer to real people in contrast to Bank of England base rates. It never occurred to me that anyone would interpret what I said in the context of the economic theory of ‘real’ interest rates, which compares those paid with the inflation rate.
I am, of course, familiar with that concept, much beloved by right-wing microeconomic fetishists who think the concept isat the forefront of the mind of all savers, none of whom should ever hold cash in their opinion because real rates, according to this theory, have been negative almost continuously since 2009 according to World Bank data.
Despite these people’s belief, in the real world , bank deposits remain as popular a mechanism for saving as ever and might have increased in value in real terms, just to prove that the claims of those rather desperate proponents of microeconomic theory are totally disconnected from the way real people actually behave.
Does that strike you as an economist talking about economics?
They want debate on economics to be framed using the failed language and theories of the pseudo-science into which they have invested time and effort, even though it is very clearly incapable of explaining what is really going on in the world.
They are offended by my refusal to comply with their demand that I must frame things as they do, within the context of the rules that the lay down.
Or that?
How is he arguing real interest rates a theory, exactly? In spending power terms they are very much an actual thing, that can be demonstrated quite easily.
So he’s redefining commonly used terminology now? If I had the energy I’d point him at lots of rhetoric here in Oz, mostly from the Labor Party and unions, so hardly right wing, about falling real wages. By which of course they mean inflation outstripping wage increases. Which everyone seems to understand. How he can think it would have been interpreted any other way is a mystery.
It’s boilerplate pub bore defensive bluster.
He’s been found out for failing to understand a common term. Now he’s backpedalling furiously and failing to cover up his ignorance.
Does that strike you as an economist talking about economics?
It strikes me as someone who has been rumbled and who is gracelessly attempting to redefine accepted terminology as the corrupt language of his political enemies.
If I could be arsed, I might persuade an aging nazi to suggest in the comments over there that for his next book, he should lay out the true basics of economics, unsullied by those neoliberal trolls Smith and Ricardo who have between them set back the understanding of Political Economy by centuries!
That post is indefensible on any level – what an aggressive, ignorant, odious cvnt he is.
I assume his students read his blog. I’d love to know what they think about it. I’d be contacting the head of department to complain
“My reference to ‘real’ interest rates referred to those actually on offer to real people in contrast to Bank of England base rates. ”
Okay.
But then, just four lines later:
“… bank deposits remain as popular a mechanism for saving as ever and might have increased in value in real terms …”
Which ‘real’ is he talking about now? Murphy ‘real’ or economics ‘real’?
I actually like Spud’s reasoning in the last quote….
Going by his logic… Gravity is not clearly defined, and the rules we’ve thought up to describe it and its effects are clearly incorrect in places.
This means that given enough conviction, the rules of Gravity do not apply to me, and I could fly should I choose to do so.
Now let me trow myself at the floor with the clear intent to miss….
Good thing he didn’t become an engineer where power to weight ratios and size are worth knowing.
We’re not using the more powerful 6 litre in these tight spaces as allowing for fuel it’s too big and heavy for the turns.
“But it’s got more power”.
Time for the meds to be adjusted.
He has more than a whiff of Humpty-Dumpty about him – When I use a word, it means just what I choose it to mean, and so on…
It’s like listening to someone who uses “complex number” to mean ‘hard to calculate’ explaining to an actual mathematician why his terminology is wrong.
Has he ever met any real people? My wife manages our day to day finances and also our emergency savings account which is instant access to tide us over while we wait for money that is tied up. In the event of an unexpected expense.
She never stopped complaining that we were losing money when inflation was high and she has no interest in economics or finance, but she can calculate the difference between the inflation rate the BBC tells her and the interest rate she sees on the bank statement.
There’s a perfectly good term for the interest rates experienced by Joe Average rather than someone who deals with central banks directly, that anyone in the business would actually use. The fact he doesn’t know the actual name and just made one up himself just shows how far departed from actual practice this “professor of practice” is. Does Bloomberg call these rates the “real” interest rates? Does it heck. They’re the *consumer* interest rates. https://www.bloomberg.com/markets/rates-bonds/consumer-interest-rates
Also this is echoing Bind and Paul above but these paragraphs are just too funny:
“I am, of course, familiar with that concept, much beloved by right-wing microeconomic fetishists who think the concept isat the forefront of the mind of all savers, none of whom should ever hold cash in their opinion because real rates, according to this theory, have been negative almost continuously since 2009 according to World Bank data.
Despite these people’s belief, in the real world , bank deposits remain as popular a mechanism for saving as ever and might have increased in value in real terms, just to prove that the claims of those rather desperate proponents of microeconomic theory are totally disconnected from the way real people actually behave.”
That ‘in real terms’ at the end is hilarious, turns out even if he hates the idea, the concept of something ‘real’ after inflation is taken into account is too useful for him to dodge. Mystifying why he can’t or won’t see that whether an individual’s bank account savings are growing or shrinking in real terms is a function of the real interest rate.
But the first paragraph is a classic example of setting up a strawman that none of your opponents actually believe in. People still need liquidity. A lot of people don’t have the risk appetite for ploughing into stocks and shares – it’s not suitable if you need the money within 5 years (eg if you are thinking of buying a house) and even if you did invest a big chunk of your pot, you still need some cash available for unexpected expenses. The negative real interest rates are an annoyance, and might incentivise people to put a bit more towards long term investments, but what’s the alternative? At least you’re getting some interest to somewhat counteract the erosion of inflation. Cash in a safe or under the bed fares even worse.
Even if consumer interest rates went negative in purely nominal terms I expect most savers would stomach it. Sticking tens of thousands of pounds under your mattress as physical notes is making yourself a hostage to fortune – fire or burglary could destroy your life savings. Effectively paying your bank a fee to look after your hard-earned dough could easily be worthwhile for most savers. Evil neoliberals don’t claim that “no consumer would ever pay a security vault company to look after their gold” do they? Lots of households with extensive investments in gold – quite common in South Asian families – do exactly that. People pay to manage risk. There are whole university courses devoted to the analysis of this phenomenon but the basic mechanics of it are perfectly apparent to anyone who has ever met a normal human being.
Evil neoliberals might claim that a person’s saving and investment decisions depend upon their attitude to the future, their risk preferences, the current inflation and consumer interest rates and expectations of their future values, and potential rates of return on other investments. But that’s not the same as saying nobody will hold any cash whatsoever when inflation is high, is it?