I mean this in two different ways.
First, the hope is that lower interest rates will stimulate the economy by encouraging people to spend rather than save. For many people, however, the correct advice is to do the opposite - save more. This is because lower returns on our cash mean it'll take longer to reach our target level of savings, which means we must save more.
Secondly, it's hoped that interest rate cuts will push investors along the risk spectrum, causing them to shift from cash to equities, thus reducing companies' costs of finance. Financial advice, however, says investors would be unwise to do this: the Bank's cutting rates because it fears the economy will be fragile, and that's not the environment in which you should hold more equities.
If people follow good financial advice, therefore, interest rate cuts won't do much to boost the economy.
In fact, macroeconomists know this. Economists at the Bank of England have estimated that a quarter-point rate cut raises GDP by less than 0.2 per cent - which isn't much. Much of this comes not so much because of a change in households' behaviour but because of lower corporate borrowing costs. And as Stanford University's Nick Bloom has pointed out, heightened uncertainty can clog up even this channel.
All of this also applies to quantitative easing, which is why it too has only moderately stimulative effects.
This explains two things.
First, it tells us why economic forecasters have slashed their forecasts for GDP growth next year - from 2.1 per cent to 0.8 per cent according to the latest Treasury survey - despite expecting lower interest rates. It’s because the adverse shock caused by heightened uncertainty is far stronger than the mild stimulus looser monetary policy can give (the weaker pound also has only mildly cushioning effects).
Secondly, it helps explain why the new chancellor, Philip Hammond, has promised to "reset fiscal policy". He recognises - correctly - that monetary policy and the lower exchange rate are insufficient protections against the threat of a sharp slowdown and so more needs to be done.
Herein, however, lies a problem. Looser fiscal policy won't be announced until the Autumn Statement and won't reach the real economy until next year - by which time the damage caused by Brexit uncertainty will be well under way. This is the good reason why, in the 1980s and 1990s, governments reduced their reliance on activist fiscal policy in favour of monetary policy: they believed, rightly, that administrative lags meant that fiscal policy-makers couldn't react as quickly as monetary policy-makers. At the zero bound, however, even monetary policy-makers are constrained.
This raises a point that many ideologues - with their faith either in markets or in technocratic policy-makers - have underplayed: the economy is prone to downturns that cannot be prevented by timely policy.
However, although ideologues haven't sufficiently appreciated the force of this fact, markets always have. There's a good reason why assets prone to cyclical risk, such as housing and cyclical shares, have offered good long-run returns on average. It's because they must offer a risk premium to compensate for ineliminable cyclical risk.
