Wednesday, 9 March 2016

Risk and outcome

Reaction to the appearance of the Governor of the Bank of England in front of MPs yesterday concentrated on his view that exiting the EU represented a risk to the economy in the short term.  In reality, his position overall was rather more neutral than that on the question, since he went on to say that in the longer term, no-one could be certain whether the overall impact of exit would be a good thing or a bad thing for the UK.  It all depends on what happens afterwards.  (That is something of a parallel, by coincidence, with the point that I made about Welsh independence a few days ago.)
I don’t really understand the reaction of those supporting exit, in trying to argue both that there is no risk involved and that anyone who says that there is must therefore be biased.  Anyone in the position of the governor must be continually looking at what might happen in the future and pondering whether and to what extent it increases uncertainty in the short term.  He would be guilty of dereliction of duty if he didn’t identify that a major decision with uncertain consequences poses a risk to current policies and strategies.
If I were supporting exit, I think that I’d be responding in rather a different way.  The question is surely not whether a UK exit would represent a shock to the economic system, but whether that is a good thing or a bad thing, how much of a shock, how long it would last, and whether the long term benefits would outweigh the short term risks.  It’s an approach which might also help to build a more informed debate on the issue.  Concentrating instead on whether the Governor is or is not entering the political realm looks like either a lack of confidence in their own arguments, or falling into the default short-termism which characterises UK politics.

1 comment:

Anonymous said...

Headlines, headlines.

The Governor was very careful and measured in everything he said, as one would expect. Indeed, he was so careful there was next to nothing for 'the press' to report. The 'risk to the economy' was contextualised by comments regarding China and how recent developments over there were of much greater concern. Odd given how poor our exports to that nation are.

All in all a non-story and incredibly badly reported.

Mind, given this Governor's record on forward guidance I doubt many will be taking much notice of what he says.