Douglas Carswell's Blog

The Bank of Wrong

The Bank of England is this morning expected to revise its economic growth forecast for 2012 down to almost zero. Yet more evidence that stimulus economics does not work.

For several years now we have witnessed the largest monetary stimulus in our history – interest rates of 0.5 percent, massive Quantitative Easing and a bond-buy-back scheme between bankers. With the Treasury spending over £100 Billion more each year than it takes in taxes, we have also seen a massive fiscal stimulus, in all but name.

The result of all this stimulus? No growth.

What gets me down about today’s announcement is not just the absence of growth. What is truly depressing is that way that the Bank will use the data showing that its policy is not working to justify more of the same approach.

Expect today’s announcement to be accompanied by calls for even lower rates and yet more print-money-and-pray economics. How many more months of stagnation do we need before we start to recognise that our central bankers have got it wrong?

Since the financial crisis hit, we have given central bankers carte blanche to decide policy. And they have made a mess of it. Central bankers are no more capable of engineering sustainable economic growth than Soviet planners. 

The Bank of England continues to respond to our economic predicament as though the problem was fundamentally caused by a lack of demand. It isn’t. We are in this situation because of the expansionary credit policies pursued by central bankers in the years that preceded the credit crunch. 

What ought we be doing instead? First we need to deal with the problem of malinvestment caused by the Bank of England’s own interest rate policy. Painful but unavoidable. Secondly, we need to recognise that the pricing mechanism ought to allocate the supply of credit in the economy. If we want more credit, we must ultimately encourage more savings. Thirdly, we need to deal with the constraints not on the demand side, but on the supply side.

Back to all posts