Rolling coverage of the latest economic and financial news, as the UK economy returns to growth
- Latest: BoE chief economist Andy Haldane leaving to run The RSA
- Haldane to quit in June
Earlier:
- US inflation rate jumped in March
- Economists predict strong UK recovery this year
- UK exports to EU partially rebounded..but still lower than a year ago
- BREAKING: UK GDP rose 0.4% in February
Here’s a neat profile of Andy Haldane, from last year:
Related: Andy Haldane: the funnyman central banker who's not great at maths
Andy Haldane showed his knack of quotability back in 2012, when he gave a speech titled “The Dog and the Frisbee” to the annual central banker’s gathering in Jackson Hole.
Haldane’s point was that increasingly complex regulation developed over recent decades to control the financial markets was ‘sub-optimal for crisis control’, as well as being costly and cumbersome.
Catching a crisis, like catching a frisbee, is difficult. Doing so requires the regulator to weigh a complex array of financial and psychological factors, among them innovation and risk appetite. Were an economist to write down crisis-catching as an optimal control problem, they would probably have to ask a physicist for help.
Yet despite this complexity, efforts to catch the crisis frisbee have continued to escalate. Casual empiricism reveals an ever-growing number of regulators, some with a Doctorate in physics. Ever-larger litters have not, however, obviously improved watchdogs’ frisbee-catching abilities. No regulator had the foresight to predict the financial crisis, although some have since exhibited supernatural powers of hindsight.
The first is to stay on the back foot and play late. This has the advantage of giving the batsmen more time to get a read on the trajectory of the ball as it swings and darts around. It avoids the risk of lurching forward and then needing hurriedly to reverse course if the first movement is misjudged. This is the way, Joe Root, the Yorkshire and England batsmen, plays his cricket. If he were on the MPC, he’d be called a dove.
But this strategy is not riskless. Playing late relies on having an uncannily good eye and strong nerve. It runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward. This is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk.
Related: Chief economist of Bank of England admits errors in Brexit forecasting
“Encouraging news about the present needs not to be drowned out by fears for the future. Now is not the time for the economics of Chicken Licken.
Friedrich von Hayek once referred to inflation control as akin to trying to catch a tiger by its tail. That metaphor seems apt today. For many years, the inflationary tiger slept.
The combined effects of unprecedentedly large shocks, and unprecedentedly high degrees of policy support, have stirred it from its slumber. In this environment, the tiger-taming act facing central banks is a difficult and dangerous one.
