Haldane, of course, was part of the Project Fear debacle given the Bank, itself immediately claimed that the GDP loss would be a cumulative 2.5 per cent, which at the time was the largest ever downgrade in two consecutive quarterly inflation reports since they were first published in February 1993. But, as the Treasury document which produced the forecasts states, they were based on a ‘widely accepted modelling approach’ Groupthink culture in the economics profession … The notorious projections by ‘Project Fear’ of the immediate impact of a Brexit vote have been shown to be completely wrong. On January 9, 2017, British economist Paul Ormerod wrote a piece in the Prospect Magazine – Why are so few economists Brexiteers? – where he cited Haldane (then chief economist at the Bank of England) as saying that the Project Fear that the mainstream economists in Britain ran during the Brexit referendum and afterwards during the exit negotiations was an example of: Then the Bank predicted very bad outcomes that were consistent with the doom predicted by the Treasury and a raft of New Keynesian economists – all part of the same crop. I note that this is not the scenario that the Bank of England predicted in 2016 in the lead up and aftermath of the Brexit referendum. Last week, the outgoing Bank of England chief economist (Andy Haldane) claimed that accelerating inflation was now a real prospect and fiscal and monetary policy would need to be tightened. Fiscal policy has a long way to go yet in reducing unemployment and underemployment from their elevated levels before that capacity becomes functional again. But these pressures in some segments of the economy are unlikely to instigate a major shift to high generalised inflation rates because the capacity of workers to defend their real wages is diminished now. There are some areas of our economies that will experience price pressures in the coming period given the disruptions in supply and various administrative pricing decisions by governments (reversing pandemic assistance in areas like rents, energy, child care etc). The latest I saw came from Britain, where the outgoing chief economist from the Bank of England started beating on the inflation drum. Where pray tell are the inflationary pressures going to come from? I also keep reading of similar fears from economists and central bankers. Households were already cutting back consumption spending growth, given record levels of indebtedness and no prospect of wages growth. The Output gaps are still significant and were significant even before the pandemic. Wages growth is projected to be so low over the next several years that real wages will decline for at least 3 to 4 years. Tomorrow, I am giving a similar presentation in Sydney and I expect a similar line of questioning. The other day I gave a talk to the ‘investment’ community in Melbourne and they wanted to talk a lot about inflation, which seems to be their foremost concern at the moment.

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