Via ACCANews, we find the following gem in The Independent:

Andrew Haldane, the Bank's executive director for financial stability, said that taking into account the permanent damage done to the productive potential of nations across the world, as well as the immediate costs of supporting the banks and the recession, there is an output loss equivalent to between $60trn and $200trn for the world economy and between £1.8trn and £7.4trn for the UK.

He put the hidden cost to the taxpayer of the implicit support offered to the big UK banks at more than £50bn.

The crummy journalists at the Indie have found the screechiest possible headline to accompany this story. "Credit crisis cost the nation £7trn, says Bank of England," they exclaim. As the excerpt above makes it clear, this isn't what Haldane is saying at all.

He's claiming that the loss in economic output from where we are now to where the Bank of England thinks we would have been is somewhere between £1trn and £7trn. Because newspapers love to sensationalise, the Indie has picked the highest point of the range as representative of the range.

And nobody had to write a cheque for £7trn. This was an opportunity cost - something we never did because events got in our way. This isn't the same as having to hand over cash for something. For the cost to be real, you'd have to believe that the credit crunch unfairly tripped us up on the never-ending path to ever higher and greater consumption. I don't accept this at all. For me, the credit crunch was merely the event which triggered the correction to get our economy back on a more sustainable footing. I don't believe even the £1trn figure claimed by the Bank. This mean-reversion was always going to happen. It just happened when it did because of the credit crunch, so it's a fallacy to blame the credit crunch for the entire output gap.

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Filed under: Economics, Other blogs with tags acca, andy haldane, bank of england, deficit, independent