Economist talking crap: shock

Andrew Sentance, a member of the Bank of England's interest-rate setting committee*, as reported by the FT:

Moreover, Britain is particularly sensitive to rising demand elsewhere because imports account for a much bigger percentage of gross domestic product than they do in the US or in the eurozone, where inflation readings are lower. British imports are about 32 per cent of GDP compared with 16 per cent for the US and eurozone.

“In a highly integrated global economy, demand pressures can be less easily contained within national borders,” Mr Sentance said. “They can spill over and affect neighbouring countries,” he added.

Well duh.

Of course imports (or exports) as a percentage of GDP are higher in the UK than in the USA or the Eurozone, because their economies are five times as big (five times as many people).

Think about it: if you looked at the import-to-GDP ratio of a single individual, it would be close to 100% because he spends all his cash income (from 'exporting' his labour) on stuff produced by somebody else (consumption of your own labour, like doing your own cleaning, cooking, changing your own light bulbs is not usually measured in GDP).

Conversely, the import-to-GDP ratio of the whole world is by definition 0% because we don't import anything from the Moon or from Mars (a physicist could argue that metal atoms were 'made' in the heart of distant suns, so when we mine them, they are thus imported from outer space, but let's gloss over that).

Somewhere in between the two extremes, the UK is only one per cent of the global population, so we can only make 68% of the stuff we want, whereas the USA or the Eurozone are five per cent of the global population, so they can make 84% of what they want, and so on.
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We also note that if his rule of thumb "Large economies don't have inflation" were true, then larger economies like the USA or China would never have inflation? Yeah right. In any event, the main reason that inflation in the UK is so high at the moment is because our currency fell by about a quarter a couple of years ago and higher import prices are still feeding through, end of.

Disclaimer: personally, I would love interest rates to increase and/or inflation to go down, but that's not the case for a lot of people.

* One day we'll look back and laugh at the idea that a small group of political appointees were given the power to decide the optimum interest rate is, and laugh even harder at people believing that they had the power to enforce it on the real world.