Thursday, 1 September 2011

Andrew Sentance and the confidence fairy.

The so called “confidence fairy” is a term used for the most part by advocates of Modern Monetary Theory (MMTers) to describe a popular but largely mythical obstruction to economic growth. This is the extent to which business confidence in government finances impinges on economic growth.

So far as I can see from actual surveys of business opinion, this confidence or lack of it is near irrelevant compared to other problems which entrepreurs face or think they face, e.g. lack of orders, shortage of skilled labour, taxes, etc etc. E.g. see page 18 here.

This survey gives entrepreneurs main problems as being, first, poor sales, and second, taxes.

See also page 26 here.

This gives excess regulation, tax and lack of demand as the main problems.

The URL of a third survey giving similar results is thus:

But the latter was unavailable when I put this post online. Might be a temporary problem.

But empirical evidence, the truth, reality and so forth, are of no great concern to a large portion of the human race, in particular those who believe in fairies, unicorns, astrology etc. Andrew Sentence in an article in today’s Wall Street Journal appears to be a firm believer in unicorns – sorry I meant the confidence fairy. He cites no evidence to back his claim: presumably this is because the evidence does not exist. For some strange reason, Andrew Sentence was a member of the Bank of England’s Monetary Policy Committee.


Afterthought, 4th Sept: Just noticed Brad de Long making a similar point.


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