Comments: A gush of money, but what's it mean?

Is it a done deal with all this 'jostling for position' going on within the MPC?

Posted by Mr Naresh Radson at July 1, 2007 12:16 PM

Whether or not it's a "done deal" - and that's the view of the markets not me - I don't recognise any of that. It's an insult to Rachel Lomax to suggest her voting behaviour is driven by ambitions of succeeding Mervyn King.

Posted by David Smith at July 1, 2007 03:40 PM

I wonder if Stiglitz and the "Economic Mobility Project" are looking at all men or if they're looking at those who are actually earning incomes. In looking at the changes from 1995 through 2005, the number of low income earners has decreased substantially, even though the number of higher income US income earners (men and women) has increased (as well as the total number of income earners.)

While I have not yet examined the data going back to 1974 (at present, I'm looking to fill in the analysis from 1995 through 2007 as time allows), we should note that 1974 pre-dates the large scale entry of the U.S.' baby-boom generation and women into the workforce (sharply increasing the labor supply, particularly at younger ages) as well as massive shifts in the U.S. economy away from low skilled manufacturing to highly skilled service industries, which have tended to favor women over men.

We should also note that the decline in low skilled manufacturing has primarily been driven by technological advancement in automation technology (globalization is a more recent, and lesser, phenomena - the alternative to outsourcing is often outright job elimination through automation in this area).

If these non-trivial factors are not being even being mentioned, I would be concerned that there's quite a lot of cherry picking in the income-inequality data.

Posted by Ironman at July 1, 2007 06:27 PM

Dear David,
Very interesting article indeed. To test the effect of money on inflation, monetarists typically consider (i) the direct impact of money growth on inflation, and (ii) the impact of increases in money above its "equilibrium" relationship with prices, income and interest rates. It seems that both money growth and money disequilibria currently have a very small impact on UK inflation.
A sceptical economist would argue, however, that the effect of money disequilibria is not appropriately measured since these typically ignore additional opportunity costs (in terms of house price growth and exchange rate growth). Both asset prices have recently played a prominent role in the UK economy. Even if these are considered, the conclusion is still the same.
Many thanks.

Posted by Costas Milas at July 2, 2007 04:52 PM

Dear David,

As I had mentioned to you on several occasion, I have tremendous respect for the bank of england governor Mervyn King, this man really has been up against what can only be described as popular opinion stroking by most of his board. I am delighted he has now an outspoken deputy which has show finally and clearlywhere his sentiments are.
It doesn't take to many braincells to figure out that if inflation stems from too much over spending, that the supply of money may be a contributary factor.
Please David....spare me the sermon on all the different variations of M this and M that. Ultimately its money right?

Best wishes

Arik Schickendantz

P.s My prediction 6.00% by november 2007

Posted by Arik Schickendantz at July 3, 2007 11:17 AM

"Ultimately it's money, right?" - no, most of it is credit, as I tried to explain, not sermonise. The search for a reliable single emasure of the money supply has dogged policymakers for decades.

Posted by David Smith at July 3, 2007 12:13 PM


FWIW even Friedman seemed to think targeting quantily of money wasn't a great success.

In the FT:

"The use of quantity of money as a target has not been a success," concedes the grand old man of conservative economics. "I'm not sure I would as of today push it as hard as I once did."...

Simon London, "MILTON FRIEDMAN - The long view," The Financial Times June 7, 2003 Saturday, p. 12.

Posted by kingofnowhere at July 4, 2007 08:23 AM


I am beginning to think the Bank will be making a mistake if they continue to raise rates. After years of Interest Rate stability, this continual rise in Base rate (if as predicted, they raise tomorrow) means the MPC are no longer waiting to see the impact of previous rate rises.

I think given the current circumstances (US slowdown, House prices seem to be coming off the boil, slowdown in Spending) the Bank would be well advised to not raise rates tomorrow.

Even if they do raise rates, I believe we are indeed nearing the top of the cycle, as if they go much higher the economy will be in danger or grinding to a halt - which in the long term might fit your view that the "neutral" rate for the UK is around the 5% mark

Posted by Paul at July 4, 2007 10:17 AM