20 January 2010

The Need for Context

From a speech by Mervyn King, Governor of the Bank of England (emphasis is mine):
But the cost of the banking crisis has been high. After an unprecedented period of sustained growth, total output in the United Kingdom has now fallen for six consecutive quarters. It contracted last year by around 5%, the largest fall in output since 1931. National income is around 10% below the level it would have reached in the absence of the financial crisis.
That last sentence might be reasonable in that context if the financial crisis and the previous levels of growth weren't related, but as they were both driven, at least in part, by unsustainable growth in debt and the money supply, it’s a bit disingenuous. Without the unsustainable build-up of risk which led to the financial crisis, the previous levels of growth would not have existed either.

Hypothesising a scenario in which we would have enjoyed the benefits of the course of action that was followed, but not the costs, is unrealistic.

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