Redwood's anti-conservativism

What kind of a conservative is John Redwood? I ask because his continued attack upon the Bank of England seems to rest upon some unconservative assumptions.
He says:

Some see it as commendable humility and honesty to tell us on many occasions they do not know what will happen next.
It should lead instead to questions about why they employ so many highly paid economists and forecasters if they do not have a well informed opinion. Why issue forecasts at all, if you they are as wrong as the Bank’s have been in recent years, and if even the boss has little confidence in them?

However, the Bank’s inability to foresee the future is not a failing in the Bank, but a fact about the economy.
Put it this way. How much money are you going to spend in May 2010? You don’t know. And you don’t know because you haven’t decided yet. If you’re a consumer, you don’t know what whims or needs you’ll have, or what new products will be in the shops. More importantly, if you’re a businessman, you won’t know what investment opportunities you’ll perceive, or what new ideas you‘ll have.
In other words, the economy is unforecastable because people have free will - they choose; G.L.S Shackle makes this point  in this interview.
But surely, conservatives should be well aware of this. I thought key parts of conservative thinking were that free will exists, and that this generates a complex society which is hard for policy-makers to control or forecast.
We could only perfectly forecast the economy if we could anticipate the billions of decisions that dispersed individuals make. If we could do this, central planning would become feasible. But this is not the world we live in. And I'd have expected free market conservatives who are supposed to be acquainted with Hayekian thinking to know this. Such people should be welcoming Mr King's acknowledgement of ineradicable uncertainty, not attacking him for it.
Second, Redwood says:

This economy needs more savings. That requires higher interest rates than the Bank’s guideline rate.

But why do we need more savings? It can‘t be because he thinks we need to increase capital spending - because higher official interest rates are no way to achieve this. Another possibility is that our low savings rate has left the economy more vulnerable to shocks; people without savings must cut their spending if their income falls whereas those with savings can use them to smooth spending in the fact of shocks.
However, retail sales have held up well so far, which suggests households have been able to smooth spending in the face of shocks to house prices and incomes.
And again, the presumption that people save too little seems a very anti-conservative one. The idea that people are poor judges of their own self-interest - how much to save - and that politicians know better than they do seems inconsistent with conservatism, especially in its Thatcherite form.
I say all this from confusion.  How can the presumptions behind Redwood’s attack on the Bank be reconciled with any sort of  free(ish) market conservatism? I think I'm missing something, but what?

Comments

[Giles]

I really don't understand where Redwood's reputation for fearsome cleverness comes from. Or, the vast majority of MP's are so thick that just being able to ennunciate the words "savings ratio" allows you to count as a genius.

On this matter, he is beginning to sound like Jeff Randall, and there is no surer way of being put on the side of the pre-Keynesian idiots than that.

[kinglear]

I am a great believer in savings as " A Good thing". Unfortunately I have none and rely on other people's....

[Bob B]

The big mistake is to take John Redwood's screwed up economics seriously.

[William]

Redwood isn't a conservative, he's a Tory. Torys believe that an elite should tell everyone else what to do; Redwood just differs with Labour over who the elite is.

[dearieme]

"...questions about why they employ so many highly paid economists and forecasters" is sureky an entirely fair point. It would be infinitely cheaper to consult the horoscopes in the morning papers.

[Sam Langfield]

Your post touches on another point, which has struck me with more and more starkness recently: the right is determined to politicise monetary policymaking, and undo all of the good work of the past 20 years.

Here's some data: searching for "money supply" on Iain Dale's blog domain reveals 59 hits; searching for "bank of england" reveals 183 hits. Suspiciously high for a gossip site.

[BenP]

Thought Redwood was sent to back to the red planet after his report calling for total deregulation of the mortage markey in 2007 was scrapped. Oops.

[reason]

We need to save more in order to lower real interest rates... oh wait...

[reason]

He is correct, indirectly, we do need higher real interest rates, but the way to get them is to lower the exchange and increase inflationary expectations (by printing money and spreading it around - CBI?). More base money, less debt.

[Sam Langfield]

Reason -

Higher inflationary expectations would decrease the real interest rate, not increase it...

[Andrew Russell]

To be fair to Redwood (this year's top entry in "things I never thought I'd type"), his problem with forecasts isn't that the Bank should do them better. As you quote, his problem is that if the bank can't do them, then it should stop pretending to.

"The economy might do this, but it might not and frankly, we're just guessing here" is not an information-rich statement. It's vacuous. And it's worth asking why anyone thought it was a statement worth making.

[Sam Langfield]

The Bank's job is to forecast inflation. If it can't forecast inflation, then it can't set interest rates with any degree of accuracy. So Redwood's position, if you represent it accurately, is a ludicrous one.

[sean]

"I think I'm missing something, but what?"
It begins with P and ends with S, sometimes it begins with B and ends with S.

[Diversity]

I fear the translation is, in both the Iain Dale comments and John Redwood:
"The Bank of England is a horrible beast! It sets interest rates so that imprudent borrowers are getting off lightly, while I get less and less income every time I roll over my fixed interest deposits."

[David Boycott]

I love the assumption in the comments that monetary policy making in the UK is de-politicised.

Dd you nit notice the move from RPI to CPI targeting? A move that helped lock-in unsustainable low interest rates and fuel an unprecedented housing boom.

[David B]

He's often right. We have borrowed to consume and to invest for years. That has made us dependent on foreign lenders. Now we have a problem. Our tax revenues are collapsing and the state doesn't know how to do anything but borrow. They are printing money to default. The savers will be paying for that default. We get bugger all interest for our money, so why should we save it? The banks which need our capital will end up starved of it and a vicious circle will begin where the inadequately capped banks are bailed out by the state with printed money which is increasingly valueless. His demand is essentially for privatisation of the recapitalisation of the banks.

As to the B of E. His attacks are perhaps sideswipes at the alleged independence of the Bank. It is no more independent than Speaker Martin. For instance, its remit has been to control inflation. It gerrymanders the figures and still misses its target. It is a pretence that it is independent. The Bundesbank was meant to be the model. Its successor in the ECB is not printing money, or setting virtually zero interest rates. The bank might as well cease to exist if it has no function other than to fake figures to make Baldrick look better. Why wasn't the housing bubble nipped in the bud years ago?

Redwood is often interesting to read, and I for one disagree with the partisans posting here.

[Geoff]

What a lot of shit you lot talk.

Whisper it, I work at the BofE and Redwood and Randall have very sound argument.

You lot on the other hand are knobs!

[kardinal birkutzki]

The usual disingenuousness here. You're on even more flimsy ground here than usual. And the comments aren't much better: Jeff Randall and Spock have been the two people who have called the current economic situation best and that over a number of years. Just slagging them off because they are apparently from a different tribe is not analysis.

[John]

Interesting points regarding the savings, I've always been a believer in having a good-sized savings to fall back on should your operational cash begin to thin.

[Bob B]

"Did you not notice the move from RPI to CPI targeting? A move that helped lock-in unsustainable low interest rates and fuel an unprecedented housing boom."

Exactly. And try this BBC report from December 2003 on Gordon Brown announcing the change in the inflation target and the graph posted there showing how the HCPI and RPIX measures of inflation diverge:
http://news.bbc.co.uk/1/hi/business/3188470.stm

For a continuation of the plot of the different measures of the inflation rate, see an update of the graph posted yesterday:
http://news.bbc.co.uk/1/hi/business/8057032.stm

Increasingly, economists are questioning whether the remit to the Bank of England to target some measure of the inflation rate in retail prices is sufficient to prevent asset-price bubbles and the painful economic and social consequences when the bubbles burst. But before anyone dismisses inflation targeting as a really silly idea inflicted on us by Gordon Brown, one early leading professional proponent of inflation targeting as the focus monetary policy is the present chairman of the Board of Governors of the FED, Ben Benanke, when he was an economics prof at Princeton.

As I've posted and documented here several times, Charles Goodhart and Roger Bootle were warning about the house-price bubble at least as far back as 2002 and 2003. The steady increase in the ratio of average house prices to average earnings was very evident and Yvette Cooper was the minister responsible for housing from 2005 to 2008. She was educated at Oxford and the Kennedy School of Government, Harvard, and then she took a masters degree in economics at the LSE: she is married to Ed Balls (ex Oxford and the Kennedy School of Government), who was previously Brown's chief economic adviser in the Treasury. It can hardly be claimed that the government was unaware of the house-price bubble and the implications downstream.

[Bob B]

Btw this is HM Treasury in December 2003 introducing the New Inflation Target:
http://www.bankofengland.co.uk/monetarypolicy/pdf/annex031210.pdf

[Bob B]

The truth of the matter is that the government not only softened monetary policy by announcing the change in the BoE's inflation target as from February 2004, the government has also been running lax budgetary positions for years - try this press report of 1 May 2002 on commentary about the government's fiscal stance by the NIESR:

"The extra borrowing Mr Brown has pencilled in to pay for improvements to the national health service and his over-optimistic assessment of tax revenues will lead to shortfall equivalent to 1.5% of GDP or £15bn in the long term fiscal position, according to the National Institute for Economic and Social Research."
http://www.guardian.co.uk/business/2002/may/01/politics.budget2002

Besides the house-price bubble, another outcome has been the persistent deficits in the UK's current balance of international payments.

[russell]

Another threat to the MPC's "independence" is the fact that Brown has attempted to promote doves as the independent members at every opportunity.

[Bob B]

"Brown has attempted to promote doves as the independent members at every opportunity"

C'mon. Prof Blanchflower is the only notable, self-avowed and persistent dove appointed by GB to the MPC and Blanchflower is stepping down after serving only one term. Besides, that criticism detracts attention from more fundamental concerns - such as with the switch in the measure of inflation from RPIX to the CPI announced in December 2003, despite reported opposition from the BoE at the time, and whether it was sensible to remove any reference to asset prices in the inflation target. There is also continuing controversy about where exactly ultimate responsibility for maintaining systemic stability of the UK's financial system resides, with the FSA or the BoE. Apparently, the government's view is that ultimate responsibility is with the FSA, which leaves scope for uncertainty over what the BoE is to do if there are doubts about systemic stability

See discussion at: Martin Wolf on: Central banks must target more than inflation:
http://www.ft.com/cms/s/0/34f7848e-39a7-11de-b82d-00144feabdc0.html?nclick_check=1

[Neil]

"I thought key parts of conservative thinking were that free will exists"

The misapprehension being that conservatives think.

[Bob B]

At least we now know how deeply concerned MPs really are about spending taxpayers' money.

Mind you, I was rather worried to learn that the Conservatives are now evidently so desperately short of suitable prospective parliamentary candidates among the party's membership that they are seeking to fill the increasing number of vacant slots from outside the party. Ho humm.

Btw do read Walter Munchau in Monday's FT on: We cannot inflate our way out of this crisis:
http://www.ft.com/cms/s/0/b498f790-4893-11de-8870-00144feabdc0.html?nclick_check=1

I liked the apt quote from Ernest Hemingway.

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