Over at Forbes, more on why the ECB won't do QE despite Spanish inflation having turned negative:
Spain is in a mess. Over a quarter of its adult workforce is unemployed, and according to CIB Natixis it has lost 25% of its production, even more than Greece. Spain’s inflation rate has been falling steadily and has now turned negative: the most recent retail sales figures show a fall of 0.2%. Various people anticipate ECB easing monetary policy because of the growing threat of deflation in Spain.
But this is to misunderstand the role of monetary policy in a currency union. The ECB sets monetary policy for the union as a single unit, not for its individual components. Deflation in Spain is a driver of ECB decisions only to the extent that it depresses Euro zone CPI. And I’m sorry if this sounds brutal, but Spanish unemployment is of no consequence, since the ECB does not have a mandate to target unemployment even at the Euro zone level, let alone in an individual country. The ECB can no more set policy to tackle deflation or unemployment in Spain than it can set policy to meet the desire of German savers for better returns. Its mandate is to maintain inflation close to 2% across the Euro zone economy AS A WHOLE.....
“What do they teach them at these schools?” wondered the Professor in C.S. Lewis's The Lion, the Witch and the Wardrobe.
The Professor, of course, was concerned about logic. But I wonder too - not about logic, but about maths. Especially among journalists writing about life expectancy and other long-term trends.
Here is the FT proclaiming "Average life expectancy falls". This is the headline for a chirpy piece about how reduced life expectancy could make things easier for pension funds facing big deficits.
There's only one problem with this. Life expectancy isn't falling. And the report the FT cites does not say that it is.
This is how the press release from the Institute and Faculty of Actuaries summarises the findings of their report:
Recent population data has highlighted that, since 2011, the rate at which mortality is improving has been slower than in previous yearsHowever, mortality is expected to continue to improve and there is significant uncertainty…
"No deal for Britain is better than a bad deal", says Theresa May. Her Brexit sidekick David Davis appeals to MPs not to "tie her hands". And that master of flannel, trade secretary Liam Fox, says that leaving without a deal would be "not just bad for the UK, it's bad for Europe as a whole".
These three statements sum up the hopes of the Brexiteers. The idea seems to be that if the UK adopts a really strong stance in its forthcoming negotiations with the EU, the Europeans will be so horrified at the prospect of the UK leaving without any agreement that they will cave in and give the UK what it wants. Welcome to the Brexit game of chicken.
On the face of it, the UK government's negotiating principles appear sound: set out your red lines, make it clear that you won't tamely agree to everything the other side wants and that you will walk away rather than give ground on things that really matter. But if you are going to play brinkmanship, you rea…
In the past few days, I have read three pieces from Economists for Brexit - now renamed "Economists for Free Trade" - extolling the virtues of "hard" (or "clean") Brexit and calling for the UK to drop all external tariffs to zero unilaterally after Brexit. Two are written by professors of finance (Kent Matthews and Kevin Dowd). The third is from the veteran economist Patrick Minford.
All three of these pieces wax lyrical about the benefits to GDP and welfare from unilaterally reducing external tariffs to zero. But bizarrely, not one gives adequate consideration to the currency effects of trade adjustment and the likely monetary policy response. Minford's brief discussion contains a schoolboy error (of which more shortly). The other two never mention it at all.
In today's free-floating currency regime, trade shifts and currency movements are intimately linked. Indeed, for some countries, trade shifts are driven more by capital flows and associated…