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The Nobel Prize, And The Ons

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Two US economists, Thomas Sargent and Christopher Sims, have won the 2011 Nobel prize, "for their empirical research on cause and effect in the macroeconomy."

You might ask: what other kind of macroeconomics is there? Aren't economists always concerned, in one way or another, with cause and effect?

The answer to that question is yes. But it is often hard, in a complex world, to distinguish between the two. Especially when the 'facts' provided by statisticians are themselves up for debate, as we discovered, once again, last week in newly revised GDP data from the Office for National Statistics (ONS).

To take a topical example of cause and effect, we might observe the government announcing budget cuts, and we might also observe the economy slowing down. But are the cuts causing the slowdown, as Ed Balls believes, or are both of these developments a symptom of the global financial crisis and its aftermath, as the Chancellor believes?


But whether you're a fresh water economist or a salt water one, empirical analysis - working out what's actually going on in the economy - depends on knowing the facts. And last week's revised GDP data revealed that, at crucial times in our recent economic history, the facts that policy makers had in front of them were completely wrong.

An opinion piece that also fails to address another problem, having even the right stats doesn't help you make good policy if all you do is deny them.

House prices had a boom but that fact was ignored by everyone in power because it wasn't politically convenient to address the issue, to address is was to take away peoples "wealth" and no one wanted to do that. Far better to deny it and pretend it isn't happening and that you've abolished boom bust.

You can only work out what's happening in the economy if you want to consider all the facts especially those which are unpleasant and won't be popular.

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  • 276 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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