Bank of England officials have a knack for the telling phrase that misfires. Chief economist Andy Haldane described economic forecasters as having a “Michael Fish moment”, a reference to the hapless TV weather forecaster who said there would not be a hurricane on what turned out to be the eve of the great storm of 1987 – the worst for a century.
This was taken to mean that he had a similar lack of trust in economic forecasting. Actually he was making quite the opposite point: that weather forecasting had improved massively since then, thanks to the huge increase in available data. Economic forecasting would, he thought, improve in a similar way in the years ahead, and for similar reasons.
Now it is the turn of deputy governor Ben Broadbent. In a newspaper interview he described the economy as “menopausal”. This did not go down well. He found himself savaged by a number of people, including Frances O’Grady, the general secretary of the TUC. She said the language was: “totally inappropriate ... There’s no need to resort to lazy, sexist comments to describe problems in the economy.”
Broadbent swiftly apologised, and clarified what he was trying to say: “I was explaining the meaning of the word ‘climacteric’, a term used by economic historians to describe a period of low productivity growth during the 19th century. Economic productivity is something which affects every one of us, of all ages and genders.”
Leave aside the fact that many women make their greatest achievements in later life, and focus on the idea, which is really interesting, that we are living through a once-in-a-century period of slow growth, akin to the latter years of the 19th century when steam power was reaching its zenith and before electricity was developed and applied.
I have huge admiration for Ben Broadbent, who is decent, thoughtful and humane, as well as being one of the best economists in the land. I appreciate too that he is articulating a widespread perception. But I think he will be proved utterly wrong.
There are two sorts of economic growth. There is frontier growth, the pace at which technical change is advancing. And there is cut-and-paste growth, where the innovations at the cutting edge are applied through the rest of the world. No-one doubts that the world economy as a whole will carry on growing swiftly, because there are years of cut-and-paste growth left as the emerging countries apply technologies developed in the so-called advanced world. So the question is whether frontier growth is really slowing down.
The problem is how to value the output of the IT revolution, when so many services are delivered free. We can sort-of measure the improvements to a known product or service. For example modern cars are much better than those of 30 years ago, and we can allow for that in calculating the increase in GDP or wealth. It is harder to put a price on the decline in the cost is some other items, such as a photograph, where the marginal cost is taking one is zero. If we had to pay for developing and printing we would not take as many photos, of course. But you can make some sort of adjustment.
What is almost impossible is putting a value on a service such as a Google search, because it did not exist, and which appears to be free. Those of us who worked in newspapers had access to the library, where a librarian would fish out the facts we needed. Now we just Google it. There is a huge increase in efficiency, but it shows up as a negative in GDP because the librarians are no longer employed.
So what would people really pay for Google if they had to do so? There was a paper published last month in the US by the National Bureau of Economic Research, Using Massive Online Choice Experiments to Measure Changes in Well-being, which tried to put a price on these services. It came out with a number of $17,000 (£13,000) a year to use Google, which sounds a bit high to me. But it is the right question. Intuitively these new technologies must be boosting productivity. So how can productivity be stuck?
That is the central point. We are all being told that technology has never advanced faster. Actually I am not sure that is true, compared with advances during the early 20th century, when the car and aeroplane came in, but it is certainly moving very fast. And there is a further twist: young people, who feel their living standards are not rising (or even falling relative to earlier generations) are the most adept at using the new technologies and so benefit the most.
More work needed. Meanwhile we should thank Ben Broadbent for highlighting the issue, even if he might have made the point somewhat differently – and even if he is wrong in his gloomy conclusion.