No one ever accused Goldman of being unbiased, but two British economists claim the bank’s recent self-serving analysis of the UK general elections is particularly egregious.
The background: in a note out this week, Goldman spells out what it says are the dangers of a “leftward shift” in government. Here are the basics:
The business community may be sceptical that a Labour-led government would deliver market-friendly policies at the micro level in the face of adverse shocks. By contrast, the existing Conservative-led coalition has established some market credibility as a consequence of the stabilisation it has achieved in the UK economy since 2010. More generally, a Conservative-led government would likely be expected to react in a more business- and market-friendly manner in the event of unforeseen challenges...
While the published party programmes do not provide a basis for arguing that the UK would be placed on radically different macroeconomic trajectories by the election of one of the main parties rather than the other, it is likely that market and business sentiment would be supported by the emergence of a Conservative government.
In part, this reflects doubts that the Labour party’s manifesto commitment to fiscal prudence and limited intervention in markets would be maintained once it took office. More fundamentally, the policy programmes outlined in manifestos will have to confront macroeconomic and financial shocks that will inevitably emerge in the coming years. Given the mixed record of Labour administrations dealing with such challenges in the past, the business community may be sceptical that a Labour-led government would deliver market- friendly policies in that context, weighing on market sentiment now.
By contrast, the existing Conservative-led coalition has established some credibility in markets as a consequence of its contribution to the stabilisation of the economy and revival of growth that has been achieved since 2010. More generally, a Conservative-led government is expected to react in a more business- and market-friendly manner in the event of unforeseen challenges emerging to its economic management.
In other words, the usual “left is worse for the markets and the business community than right.” For their part, economists James Meadway and Michael Burke claim Goldman’s analysis is outright silly.
Via RT [5]:
Speaking to RT on Wednesday, British economist James Meadway insisted Goldman Sachs is not a credible voice on economic policy.
“Listening to Goldman's for advice on how to run the economy is like listening to Dracula on how to run a blood bank,” he said.
UK economist and anti-austerity campaigner Michael Burke added Goldman Sachs’ general election analysis amounts to “laughably bad economics.”
Burke told RT Goldman’s assessment of Labour’s prospective role in government appears to “confuse the economy with the well-being of its own bankers.” He added the Wall Street banking giant’s prognosis is“blatantly political” and born of self-interest.
And while that assessment is more humorous than anything else, Burke’s criticism gets a little more pointed later in the interview:
“Like all the other Wall Street firms, Goldman had to be bailed out by the US and British governments from a financial crisis that Wall Street caused,” he said.
“They caused the economic turbulence and in Britain were rescued from it by a Labour government.”
Burke said Goldman Sachs’ “moans about zero-hours contracts and a modest cap on energy bills” are a strategic diversion.
“This is because their real aim is to avoid 50p tax rates for high earners, the Mansion Tax and other small impositions which shift some of the burden of austerity onto the shoulders of the rich, the likes of Goldman Sachs bankers and their clients.”
The moral of the story: never trust a Vampire Squid when the topic is British politics.
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For those interested, here's Goldman's breakdown of campaign commitments:
[6]
