CardinalBiggles How strange!
It was you who mooted whether redundancy was going to be a problem for us, and by replying to your post, now you know. Sorry if it told you stuff you didn’t like, but I gave you an honest response to your reflection. And like it or not, Economically, we’re in the doo doo for quite a while yet. Years. And it’s more complicated than Covid and Brexit alone, and Posen will explain why, and how Covid is not having the effect you mistakenly appear to think it does. Your displeasure doesn’t change reality. <shrug>
But I don’t intend wasting my leisure time expanding on that for you here, Professor. Nor am I going to have a political debate with you either. But you can’t discuss House Price trends in a forum without reference to factors influencing those future prices.
So let’s just move on. It will all become crystal clear to us soon enough. 👍
I didn’t start the house price thread, and I certainly didn’t bring up Brexit, or supposedly knowledgeable experts.
I also didn’t say I didn’t like, or did like for that matter, what Posen thinks. Nor did I express any view on Brexit, beyond that it was extremely controversial. I said we’re not supposed to discuss politics because, as I understand it, it causes aguments.
I think perhaps you need to look again at what I actually said, specifically the bit you quoted …
The biggest risk to, or chance of benefit from depending on your situation, a house price fall isn’t IMHO interest rates, but recession and job losses.
First, the biggest risk to house prices is not interest rates, but recession and job losses. There are others, but the biggest risk, easily, from house prices is from the economy, affected by a mulritude of factors, resulting in redundancies and/or company failures, meaning that the huge risk (as I’d already pointed at) is that many such people can’t afford to maintain mortgage payments and so, lose their homes.
Putting that perhaps more clearly, whether a house price crash will result in a risk, or an opportunity, to each one of us depends on our circumstances. There are many for whom a crash is a huge risk, but also some for whom it’s an opportunity. There’s also a large group for whom it’s neither, as they can and will just hunker down, keep paying the mortgage, and wait it out. It has, after all happened a couple of times in the last few decades. But if we do get a house crash, I don’t agree that interest rates are the cause. If anything, they’ll be an attempt to prevent a recession, that failed.
I also didn’t give an opinion on whether I thought they would or wouldn’t crash, not least because interest rates are at least in part a political decision, and whether the Bank is nominally independent (of politicians) or not, it is largely an illusionn, not least because while the law says it is, the same law says that it has to base it’s decisions on the remit from the Chancellor. The government could (but haven’t in years, though it has been threatened) changed that written remit, which commentators ostly focus on keeping inflation down, is actually much more than that, in the vague wording that follows. I also personally think it’s naive if we believe that that written mandate is the only ‘inluence’ No.10 and No.11 have on the bank.
Nothing in there about Brexit, or for that matter, politics. It’s economics, and pretty much, 101 at that. Most people, if they lose their jobs, do not have the resources to keep paying mortgages for long.
I also didn’t say whether I think there will, or won’t, be a recession. The point was IF there’s a recession, the biggest (and again, the biggest not “the only”, cause isn’t interest rates. It’s a factor, but hiking interest rates is not the cause of recession, but an attempt to prevent one by curtailing inflation …. and worse, stagflation. There might be negative consequences to that, but that will very much depend on what other steps the government, and the business world, take. Interest rate rises, if large enough, may cause some companies to shed staff or go bust if they are already near the edge, but that’s where other factors, such as any government support like was done for Covid, come in …. if they use them.
We agree on one thing - it’s a waste of time really getting to far into this. One reason is that nobody, including you, me, Posen, the government, the Bank of England, the US Treasury, the IMF, the World Bank ….nobody has economic models that can accurately model all this stuff. It is orders of magnitude too complicated, at least, currently. 50 or 100 years from now, if we get quantum computets running on a large enough scale and after a long period of collecting and collating data, maybe. In 500 years, probably. But now? Nope.
I have no interest reading Posen for a reason. After doing an economics degree, and a heavy emphasis in that in statistics and econometrics, I have some background in economic models and here’s the truth - they are, in current circumstances, highly speculative at best, and finger-in-the-wind guesses, with a veneer of pseudo–scientific gobblegook, at worst.
They ALL work by watching a large number of economic measures, metrics, over a long period and then trying to predict, from what happened in the past, what is going to happen in the future, tested against that historic data. The vast bulk of these, the gravity models, work up to a point, where circumstances are normal. None of them are anywhere near wholly accurate, simply because of the mind-bogglingly large number of factors involved. It makes modelling weather and climate patterns look pedestrian by comparison.
As soon as circumstances break out of the patterns we’ve seen before that were used to build the models, they are far, FAR more likey to be wrong. Adding to that vast complexity, which is bad enough for the effect on accuracy, there’s one more killer blow - a considerable amount of the impact on the economy is from human actions and reactions. They are half-predictable if circumstances are normal and people feel ‘comfortable’. But when ccircustances aren’t comortable and people’s worry/stress goes up, the actions become far less predictabe because they are often not rational, but emotional.
Now there’s a double-whammy on economic “predictions” - both unpredictable human reactions, and the fact that if circumatances are unusual, and even worse, not seen before, there is little or no historic data trend for even the very best models and modellers to use to predict future trends. At that point, they are doing what Joe Public would call “guessing”. They might prettify it a bit and call it estimating, but it’s the same thing.
This, referring back to Brexit for a moment, is why so many supposedly prestigious economic bodies, such as Christine Lagarde and the IMF, predicted doom and gloom falling immediately on the UK, and it didn’t. And note, those in the doom-monger camp weren’t just predicting trouble over some years (which may or may not still happen) but immediately. In a handful of months. And it didnt.
This is why after years of studying economics and econometrics, I changed career choice out of economics into accountancy, then into what was then a burgeoning (and lucrative) offshoot, computers and computerised accounting. My conclusion from those years of study was that we’re caught in a dichotomy. Either we build relatively simple economic models (if we can call them that) like supply/demand curves, elasticity of demand, etc, or we go full-blown econometrics. We have neither the level of computer power to model the fine level of granularity in those hundreds of thousands, or millions, of data types needed for accuracy, nor do we have the vast amounts of historic data necessary to get even AI computing to extract the trends even if they didn’t tend to fail when we end up, like now, in unprecedented territory.
The high end econometricss are of very limited usefulness, though in fairness they’re the best we have. Just don’t rely on them as gospel. But the simple analysis, understandable and true (up to a pointt) as they are, are so simplistic that while they can teach very basic relationships (like demand > supply => price up), they are also so simplistic as to bear virtually no resemblance to the vastly complicated real world.
Either way, they’re only of modest use, at best, in standard times and at risk of being deceptive and/or dangerous if we rely on them in unprecedented times. Brexit was one such example of a very complicated and unprecented situation, which is why so many models were wrong, and the current mess with all those complicating and unprecedented factors is another. They cannot be relied on to predict what might happen because the data from which to extract what can be very subtle interactions doesn’t exist, for those effects to have been modelled to train the models. And thank goodness it doesn’t exist.
TL / DR - all economic models are, at best, of limited use even in the best of times, and we certainly aren’t in the best of times. Factors at play right now, like Covid or Ukraine, aren’t in the models because they haven’t happened before, at least in modern enough times to record the vast amount, and depth, and granularity of data that would be needed.
If you see economists, of whatever calibre, telling you this or that is going to happen, they’re either a knave or a fool. If you see one saying “We don’t really know, but our best guess is …. ”, pay more attention. They’re probably much more honest, even if their “guess” is of limited use.