Bank economists
June 15th, 2008 at 9:18 am by David FarrarAfter Michael Cullen attacked bank economists as talking up their own banks’ interests, the SST has looked at whether it is true. Extracts:
“It’s absolute bollocks,” says Westpac chief economist Brendan O’Donovan. If bank economists were seen to be always trying to talk their business up “and not talking the reality of the situation, then our credibility’s out the door and no one will listen to anything we say”. …
BNZ chief economist Tony Alexander says some of the policies he publicly espouses are not in the bank’s interests. He advocates a fixed interest rate levy, which increases whenever the Reserve Bank puts up interest rates. This effectively removes fixed interest rates. …
ANZ chief economist Cameron Bagrie says the material produced by the bank’s economists “is not the bank’s thinking. No, it comes out of the economics team led by myself but it’s not reviewed by a higher order of the bank”.
The team had to give its customers honest forecasts. Sometimes the bank management had “grimaced” at some of his statements. …
The bank economists’ case gets support from a perhaps unexpected corner Council of Trade Unions (CTU) economist Peter Conway. …
One reason the bank economists got a lot of media attention, Conway says, was that they were “very good”. They had a lot of resources and could quickly produce well-informed commentaries on a variety of subjects.
Bank economists clearly have some constraints on their freedom to speak, but so do other economists. Conway can’t publicly criticise the economic position of the CTU. Reporters, says Conway, need to “shop around” and get the views of economists from a variety of backgrounds.
In other words Dr Cullen was shooting the messengers.
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June 15th, 2008 at 9:25 am
http://www.nzherald.co.nz/topic/story.cfm?c_id=221&objectid=10338315
July 2005
The cost of Labour’s interest-free student loans could blow out to nearly $1 billion – three times the Government’s prediction – a leading bank economist has warned.
Westpac chief economist Brendan O’Donovan has released costings he concedes are extreme, but which predict the annual bill for Labour’s election pledge will be far higher than the $300 million Education Minister Trevor Mallard says.
http://www.nzherald.co.nz/topic/story.cfm?c_id=221&objectid=10338315
However theres this
ANZ-National Bank chief economist John McDermott said it would take a couple of years for the impact of the policy to be known.
So one tells the usual economic bullshit while the other says the sensible thing
Vote:June 15th, 2008 at 9:31 am
And more bullshit from O’donovan
Finance Minister Michael Cullen’s ninth budget was “extremely stimulatory” and will delay interest rate cuts and their magnitude, economists said today.
“Dr Cullen has thrown the kitchen sink and pot scrub at winning an election,” said Westpac chief economist Brendan O’Donovan.
http://www.stuff.co.nz/4556990a13.html
Of course the nutjob allways get the headline
but buried further down the story
Goldman Sachs JBWere economist Shamubeel Eaqub said he did not believe the tax cuts would be sufficient to offset rekindle a sharply slowing economy.
He saw the cuts as providing a much-needed cushion to the bleak outlook of a sharply slowing economy.
“The tax cuts do not alter the economic outlook sufficiently and we maintain that interest rates will need to fall over the year ahead. We do not think the budget today will impede that process
You would think that Westpac pays to allways get top billing
Vote:June 15th, 2008 at 9:32 am
One calls the gummint on its under estimation, the other says the situation is opaque so he cant make an estimate, so how can the gummint?
Vote:June 15th, 2008 at 9:34 am
Hey Ghostie, do you have a portfolio of pre-prepared replies to topics that may be raised during the election campaign? Are you an employee of the liarbore machine?
Vote:June 15th, 2008 at 9:48 am
Banks serve rich pricks.
Vote:Rich pricks should be shot.
The messengers work for banks.
That is why Dr Cullen shoots the messengers.
June 15th, 2008 at 9:56 am
I can’t fault your logic.
The Standard may need some help on that front… eh..?..!
Vote:June 15th, 2008 at 12:03 pm
Is everybody who is rich a prick? (By rich, I assume you mean monetarily rich.)
I’d like to think not. In fact, I’d like to think that many people who are rich are so because they’ve worked for it. Being rich is a goal for many people, and they work towards it. Others have goals which are seen as more laudable, ie, helping people through charity work, etc. (That is not to say rich people do not help other people while attaining riches.) These people who have these goals which are seen as more laudable often do not concentrate on becoming rich monetarily. They primarily seek to enrich themselves in other ways. Different strokes for different folks. Being rich is not immoral. It’s often just a consequence of having different life-goals. I don’t think it makes you any more or less a prick than anybody else.
Regarding the bank economists: yes, they do work for the banks, so it is obvious they are constrained by their role in what they can say, but they cannot come out and speak untruths. There would be huge problems for their credibility if they did, and given what banks deal in, they require credibility. That is not to say bank economists don’t get it wrong with their predictions; they do (predictions are after all by their nature not fact, and forwards-looking), but they need to maintain credibility by having valid reasons for their predictions, and failures to predict with reasonable accuracy. The reason there are differing predictions is that different economists may extrapolate different conclusions from the variables and/or incorporate different variables. So while bank economists do talk up their own interests, they shouldn’t be criticised for doing so. It’s expected from their roles, and it’s not as if they can really come out and lie about their expectations.
As well as that, it’s probably fair to say that all economists will talk up their own interests, including Michael Cullen. As a member of Labour, I expect him to talk up the expected impact of government economic policies. This is not to say that he will lie about the expected impact, but that he will choose more flattering interpretations of what his policies will do, over more negative interpretations. I expect those opposed to the government currently in power to criticise many of the policies, and offer solutions which they would see as doing better. (I know, many don’t offer solutions…) Strangely enough, I don’t see the bank economists as opposed to the current government. In fact, I think they would be more impartial than Michael Cullen, and other political parties. As such, it probably is a case of shooting the messenger.
Vote:June 15th, 2008 at 3:31 pm
Asking a bank economist about interest rates is like asking your greengrocer about fruit & vege prices… you think he won’t try to steer you towards that stack of almost-expired dodgy potatoes (with the almost-rotten ones hidden at the bottom of the bag) if he has an excess of supply?
About the only statement I trust in that lot of self-serving toadying is Conway’s when he says the media need to “shop around” economists with different employers. But since they all have an agenda, and that agenda is primarily to justify just how far they can get their hands in my pockets, I think I’ll stick with those methods of forecasting with better rates of accuracy than the pronouncements of most economists. Now, where did I leave those entrails…?
Vote:June 15th, 2008 at 3:35 pm
GhostieWhoLies:
Oh, thanks for bringing up the student loans policy costing fiasco. How about that egg facial Cullen got when — after calling O’Donovan a liar — he was ordered by the late Chief Ombudsman John Belgrave to release the Treasury costings he initially denied even existed?
Vote:June 15th, 2008 at 4:10 pm
One reason the bank economists got a lot of media attention, Conway says, was that they were “very good”. They had a lot of resources and could quickly produce well-informed commentaries on a variety of subjects
The other reason would be that when you put a large companies name on the end of the prediction, its instant credibility, easy news. There’s far better economists out there (to start with, every one that doesn’t have a vested interest), but it’s too much work a) going to them for comment, and b) fact checking what they say.
And don’t be fooled, while they are legally obliged to give their clients the best possible information they have, that relationship isn’t conducted via the 6 o’clock news, they can say what they like.
Vote:June 15th, 2008 at 4:41 pm
Wow, ghostwhowanks, you mean to tell us that not all economists agree with each other? Shocking.
Vote:June 15th, 2008 at 4:44 pm
So the message is that Dr.
Muppet’sCullen’s economic management has caused issues as highlighted by the banks, then Dr.MuppetCullen shoots the messenger becasue the massege reflects badly on him – who would have picked that from such aCullenMuppet !Remember: Anything good in the economy is a result of Labour policies, anything bad is a result of external factors of the National govt of the 90′s. In this context Dr.
Vote:MuppetCullen is at least being consistent.June 15th, 2008 at 4:48 pm
Kimble, it is shocking for GWW because his/her masters have created an opinion-free zone… where one is told what to think.
Vote:June 15th, 2008 at 5:47 pm
Jivekitty – you say the following;
1. You don’t think all people who are rich are pricks.
2. You are a Labour Party member.
Please tell your friend Dr. Cullen about No1. – because he thinks all rich people are pricks.
Actually I found your post refreshing – a Labour Party member prepared to debate the issue and not troll or play the man. Please keep posting in that vane – it is good stuff.
Vote:June 15th, 2008 at 8:16 pm
Sorry, I’m not a member of Labour. My wording was unclear. I meant that as Michael Cullen is a member of Labour I expect that he will talk up the government’s economic policy, of which he is a member, out of self-interest.
I am, in fact, unaffiliated with any party.
As to bank economists versus other economists, it doesn’t really matter who you go to, because everybody has some kind of vested interest, even if it is not immediately apparent. Some people less so than others, yes. Also, bank economists are NOT going to lie to the media, unless they are very stupid. They have to appear credible to the general public, as well as their shareholders.
Vote:June 15th, 2008 at 8:46 pm
pdm said “Actually I found your post refreshing – a Labour Party member prepared to debate the issue and not troll or play the man.”
JiveKitty said “Sorry, I’m not a member of Labour. My wording was unclear”
Sorry pdm is was too good to be true!
Vote:June 15th, 2008 at 10:09 pm
“One reason the bank economists got a lot of media attention, Conway says, was that they were “very good”. They had a lot of resources and could quickly produce well-informed commentaries on a variety of subjects.”
Yeah right! It would be interesting to go back a year and find out what their forecasts were for oil prices, or if they even mentioned it.
Vote:June 15th, 2008 at 11:37 pm
I’ll pick that up.
It’s just a pity the Govt seem incapable of coordinating a lot of resources to quickly produce well-informed commentaries on a variety of subjects then isn’t it. Private enterprise wins again eh?
Vote:June 16th, 2008 at 9:01 am
WOW campit, are you really suggesting that economists CAN’T tell the future?
OMG, silly me has been taking all their predictions as gospel for all these years, no wonder I’m not a rich prick after punting along with the forecasts.
Sheeeeesh
Vote:June 16th, 2008 at 9:39 am
With so many variables to consider, there is no way economists can tell the future. They cannot consider all variables, or else they’d never be able to try to offer predictions for anything (as they’d still be busy computing variables), so of course they get it wrong. Sometimes they even consider variables which are not particularly important, and/or miss variables which are. It’s not an exact science, as we all should know.
Vote:June 16th, 2008 at 3:04 pm
No, david. I’m just saying that economists have no credibility on oil / petrol prices because their track record is so poor, and perhaps we should start listening to the people that called it right.
Vote:June 16th, 2008 at 8:05 pm
The prices have increased dramatically rapidly. In all honesty, I didn’t expect it, and I’m not sure how many people did.
I ask these questions in good faith: Did no economist see it coming? Who were the people who called it right?
I keep seeing criticism of economists, but I haven’t seen alternatives offered.
Vote:June 17th, 2008 at 9:23 am
Good question. Me. Three years ago in this article, also published in the Herald:
http://www.bettertransport.org.nz/news/12/53.htm
Could be published again today almost word for word, just with the prices changed.
Vote:June 17th, 2008 at 11:54 am
Good article.
Vote: