I keep pointing out that the last person you should listen to about economic policy is anyone who has had a modern education in economic theory. Here is a bit of proof, from today’s Oz: Dismay at RBA as wages growth goes backwards. Here is the opening line of the article:
The person most disappointed with Wednesday’s sluggish wages growth figure is surely the Reserve Bank Governor. Real wages are now going backwards at 2.7 per cent.
How would it even have been possible for real wages to rise while the country has been in lockdown, our future sources of energy are under threat, government spending has risen at every turn, and while real interest rates are in negative territory?
Real wages can only grow if the flow of goods and services that wage earners can buy is rising. This can, of course, only happen if the private sector is expanding.
It is the proliferation of all these Keynesians who believe that increases in public sector spending on useless junk will somehow “stimulate demand” and therefore lead to a higher level of productive enterprise.
That is, these people believe that if governments waste our available resources and capital on unproductive projects of their choosing that when their overpaid virtually entirely unproductive public servants spend the wages they receive that this will propel the economy forward.
It does sicken me to watch all this in action since I can see how not only almost everyone else but also I too will have to experience a fall in my real level of income because of all this.
That central banks around the world seem to believe that negative real rates of interest are a stimulus to growth is just how it is. If you would like to be cured of this absurdity, the only place I can think to send you is to Chapter 17 of the third edition of my Free Market Economics: An Introduction for the General Reader which is titled, “Saving and the Financial System”. There are other books as well, but virtually all of them were written at least a century ago.
It is maddening to watch our economy trashed by such ignorance, but there you have it.
FROM THE COMMENTS: I try not to do this, and hardly do it at all, but this was the sole comment which to me really demands a response since I think it is so instructive. From Hubris:
I read these tirades. Do you essentially advocate a return to industrial protection and supply? It seems like you just don’t like markets.
I know I am beating my head against a brick wall, but massive levels of public spending, enormous unfunded fiscal deficits and adjustment of market rates of interest by central banks are not in any sense leaving things to the market. Why is that not utterly obvious?
46 thoughts on “What would a modern economist know about economic theory?”
I read these tirades. Do you essentially advocate a return to industrial protection and supply? It seems like you just don’t like markets.
There are times when I think economists are the stupidest educated people out there.
Theories utterly divorced from anything clearly observable in reality and human nature.
The problem at the RBA in a nutshell:
Here’s where you are (partially) mistaken Steve….
A) We live in a predominantly services-based economy, and services do not “flow” at all without demand. THIS should be “utterly obvious” too, and
B) Under developed economies now manufacture many of the goods which were generally made by developed countries until a few decades ago.
Put these together and you get the situation where Production does not HAVE to come before consumption as in the good old days when classical theory was almost 100% correct. (when Production DID precede Consumption / demand0
Classical theory works as follows: Something is manufactured as a result of the inputs Land, Labour, Capital and Enterprise coming together. Labour/ Land gets paid “money” which is then used to buy goods (predominantly) which have already been produced by someone else who has also been paid “money” so’s they too can buy stuff which has already been produced (is on the shelves). Land (ie primary production) gets paid up-front like Labour for what they have produced, but Capital and Enterprise get paid when the produced stuff is bought / sold. So far so good.
However, how do the 70% of people involved in service-production produce anything PRIOR to demand coming through the door? How can the vast majority be paid for stuff “produced BEFORE demand”. They CAN’T. Which means that “printing money” DOES oil the wheels for services to start rolling..
Now, if say there is a total of $500 billion “worth” of goods produced in Oz, but $700 Billion in “money” chasing it, there is not NECESSARILY any excess demand, since the $200 billion extra can EASILY buy stuff already produced overseas: already sitting on their shelves; in their warehouses.
OK, so I’ll pull this all together….
Commonwealth Govt issues $100 billion in bonds, which the RBA buys with “money pulled from thin air”: a bunch of digital cyphers and some physical notes, which it gives to the Govt.. Comm Govt then owes $100 billion to the RBA and it gives teh 4100 Billion away to the citizenry and to it’s departments. These citizens and departments then pass it on to barbers, accountants engineers, social workers, mechanics, child-care centres, soldiers, sailors, tinkers, tailors and spies., who are predominantly DOING THINGS rather than MAKING THINGS. The money DOES also buy some locally made goods, but a lot of goods bought with the billions are imported.
The key here is that producers/sellers in China, or Germany or the USA KNOW the citizenry and govt departments in Oz have borrowed the “money”: that there’s nothing already produced in a warehouse someplace backing it YET…. and they are still very willing to accept the $As that have been borrowed (“out of thin air”) and will sell / send the bought goods. How hard is this to understand?
Come the day that the Comm Govt bonds are due to be redeemed, the RBA says “nah, don’t worry about it. We excuse the debt” and that is the end of it. How hard is this to understand, Steve?
Summed up: we have supply disruptions and shortfalls of goods caused by 2 years of F’wittery due to F’wits running govts world-wide, exacerbated by 6 months of flooding in Oz, exacerbated by wars and Civil disturbances etc etc overseas;. the latest supply squeeze due to the Chinese lock-down mania.
IT is NOT excess demand but insufficient supply causing problems. Isn’t THIS “utterly obvious”?
BTW: Anyone wanting to discuss food price-inflation in OZ: is it “for real” or just manipulation / price gouging: a narrative?
You don’t have anything to do with the Rural economy do you?
Sky high fertilizer prices due to shortage.
No where near enough workers to get the crops in.
Farmers taking every opportunity to stick it to the 2 big supermarket chains that have paid a absolute minimum for their produce for so long. Supply and demand finally swinging their way.
And the real increase have yet to flow thru.
My vote is “for real”.
I read these tirades. Do you essentially advocate a return to industrial protection and supply? It seems like you just don’t like markets.
For years we have had the benefit of sober economic commentary by Steve Kates and others, but there’s often some idiot who tries to denigrate their expertise while amply illustrating their own ignorance.
Steve, economists have become the useful idiots of the political scum and their promoters. Very few people will listen and those that do have no power against the rush for the trough. Until the political class are held to account nothing will change.
Layer upon layer upon layer of “regulation”, nanny laws, helf un safetee, ticket clippers, bans and restrictions. Any wonder we’re going backwards?
As to inflation so much of it is due to high energy costs imposed upon us for stupid not-happening global warming. Even ScoMo banned gas drilling off the coast of Newcastle a few weeks ago? What chance have we when Albo gets in?
Just watch what happens to the economy when the stifling License Raj is removed, taxes are lowered and the green restrictions on coal, oil, gas and electricity production are lifted. We’d be a Pacific Tiger. But no, it won’t happen since our elites have got the ole time climate religion.
I should also mention Professor Judith Sloan, who I’ve seed derided by idiot commenters at The Australian, Terry McCrann, and Henry Ergas.
All have made many valuable contributions over quite a few years, and it’s asking for a roasting to take them on about economics unless you have what it takes to assemble a proper argument.
As for free markets – free of government regulation? Free of stock exchange trader tactics like short selling? Free of restrictive trade practises? Free of media distortions?
May 19, 2022 at 4:52 am
I think you are wrong on this, being in the service industry, they already produced the goods by simply being there, available.
me…. I’ll opt for good old Henry George or Adam Smith.
It begins and ends with the only stuff you have to stand on.
Then…. as to whom (owns) controls it.
All else is up to the fairies
But I do like you too Steve
They get away with it because no one tells the public otherwise. Most people think stimulus spending and blowing borrowed money on garbage is the only way.
You know most people think FDR’s response to the Great Depression was brilliant.
Economists write in the papers and so on but they are only read by people who are interested.
If you could get someone on Sky with a segment in a high profile show giving a classical interpretation – predicting what will actually happen when policies are implemented and then being right, you will have a captive audience who will watch it because unlike a paper they cannot skip over it to get to the next bit. People might even be surprised at how easy it is to understand as it is really just common sense.
This at least would introduce new questions in conversations. As it is, and as we have already tragically seen with Covid, people are bowing religiously to the word of ‘experts’ and are afraid to doubt.
Mantaray – the way I see it supply side comes in as they can do something cheaper,better (improved product/service) or more pleasant in the delivery. Consumers go to them.
Then a suppliers see’s /hears some thing new, reasearches it , says wow no one else is doing this and does what everyone else is afraid of doing – action it.
People then buy this and the suppliers expands – that’s all going well but it is never that easy.
People need services which are supplied. There is a lead time for delivery as well.
It’s the same as the product.
What is a drag is govt. This election highlights the pathetic “we are gunna do this and that”.
The govt spending is on propaganda – climate change education, more govt inpectors eg if you do not have an exit sign in the corridor you could face a fine of $10k , we have people coming into your work place telling you how to speak to one another.
No one wants to pay for this stuff.
Further the proliferation of ngo, charities etc who receive donations and govt funding ie $2 million – that is so hard to get to for a business person and you are top of your game- now these people have cash more of it as they not only get the income tax theshold but another 9k tax free as their wages are apparently lower than in business.
One again no one buys or wants their shit – except wimmenz – the teals – talk about fly’s flocking to a horses arse.
Money is sent to education fmd – when I got pulled out of the parish school with nun teachers ( yes the ruler and the old man on the bridge in money python and the holy grail) and went to a boys school I went from a grader in term 1 to c grader in term 3.
How many teachers do you need.
Then there is the entitlements compassion leave, Covid leave, domestic violence leave annual leave sick leave long service leave.
The there is the increase in super at 1/2 of 1 percent- that’s $500 wages increase that employers cannot afford to pay.
Could some one tell me where to live – I just wanna get away from the morons.
BTW came have from work at 9 last night and saw the United Aust Party launch – only person missing was big Kev – I noticed there were no wimmenz in the audience but no fat, good looking women in the audience who gave off. Gracious nature. This may have legs.
Perhaps industrial scale printing of money at the same time as restricting the supply of goods has something to do with it?
As Friedman said …’inflation is always and everywhere a monetary phenomenon’
2dogs plan to fix government debt:
1. Federal government pass deficits down, not on. The grants to the states are set as whatever balances the books.
2. Insolvent states are placed under administration – the same as we do for insolvent local governments.
I have often mused on the relative merits of ‘goods’ vs ‘services’ as contributing to an economy by looking at all life as an ‘energy transfer’ transaction: At its basest level, life and its necessary inputs are all energy related. Food provides energy to the animal, shelter reduces energy lost to heating or cooling, security stops others stealing your energy stores, goods are produced by energy inputs (‘aluminium is congealed electricty’) etc etc etc.
Viewed through this framework, it would seem to me that ONLY goods contribute to providing the necessities of life, whereas SERVICES do not – the ‘service producers’ require others to produce goods for them, which they consume to meet their energy balance requirements, and acquire by swapping them for services.
I would much appreciate others thoughts on this, as I have really never been able to believe that ‘services’ are a positive to an economy, which is hugely important now that we have a ‘service based’ economy.
“Services” are no different to “Products”. A “server” must be ready to serve (produce) when required. If there are no hairdressers, there are no haircuts.
I was not expecting your “Demand side” rant to end with an affirmation of Say’s Law.
Goods only are are fine….. after you find some place for production. But having done so and paid the tithe someone has to service the shovels and hoes… er… tractor; and then also deal with the excess of production.
One could always cease the production to supply only your own sustenance I suppose, but those bloody Kings still demand their tithe
The only way out of this mess is for everything to “Crash and Burn” with the Good Phoenix rising from the ashes to save the World. This goes for the Economy, Politics, the Climate Change Madness, the Electricity Generation Non System and many others. Other than that – A 15 mile wide Asteroid to smash into the Plant. There, that should fix everything. Planet Earth then back to normal where life can begin again……………………………..
Smash into the Planet I mean and not “Plant”………….Typo Thursday for me……………………..lol
Then they are not theories, but hypotheses. As someone with an economics degree, it infuriates the hell out of me to hear the term “economic theory” bandied about without second thought, usually by people who know absolutely nothing about even basic economics. An economic theory would need to have been tested and the results replicated under real world conditions. It is effectively impossible to do this with many economic hypotheses.
That’s not to deny that we’ve often seen the results of utterly absurd economic hypothesising being inflicted on long suffering populations across the globe. The classic example of course, being marxism. It was beyond absurd as a hypothesis and in practice has been an economic and humanitarian disaster every time it’s been visited on various unwitting denizens of particular countries.
As an aside, when did anyone here last meet a “rational consumer” possessing “perfect knowledge”? Hint – they do not exist.
LOL. Yes and I remember taking the Microeconomics unit as part of my Accounting BA. When I came across the phrase “Perfect Competition” and I laughed my head off. The Economics Tutor (an Academic) was not impressed. Just like the “Efficient Market Hypothesis”. Never been proved which still makes it a hypothesis. Warren Buffett has proved it to be a hypothesis over time and time again.
One could always cease the production to supply only your own sustenance I suppose, but those bloody Kings still demand their tithe
The Robber Barons you mean, surely. The Serfs will be surly if allowed…………………………..
Typical day at the RBA. What time are we going for lunch?, just after you get in. Don’t we have an important meeting this afternoon? Er, umm, who’s got the 3 sided coin?. We’ll ask the cab driver on the way to lunch. Who’s turn to pay?, same as last time, the taxpayer. We’re taxpayers! Well yes but we get a rise to cover that. The things we have to suffer for the good of the Country.
We become wealthier by becoming more efficient, more productive.
I can’t recall who originally said it but they made the point that a lot of the things we enjoy started out as originally being the preserve of the rich, beyond the financial resources of the everyman. TV’s, cars, swimming pools, international travel etc.
Someone comes up with an idea that sells, others then look for ways to streamline processes, find alternative materials, and overcome technical problems.
Governments interfere in innovation, any kind of change, procurement, how a business is run, they tax heedlessly and fiddle with and distort markets with their social justice agendas and incentivising schemes.
Then they tell us they will now get involved and fix everything up.
Do go on, so exactly who doesn’t like markets, or better still, likes interrupting the free flow of goods and services ?
I have over 1,500 tonnes of export Lupins to sell but can’t sell either into the domestic market or export because there are fuck all containers, fuck all container ships available, fuck all available road transport trucks and then, on top of all that, there are these things called fucking sanctions ?
Who do you think caused all that mate ??? Also explain who and how the supply chain ‘Just in Time’ was (has been) completely fucked up and artificially forced production costs to go through the fucking roof ?
So lets talk about markets ole mate, would it not be these very same “Keynesians” ?
RobMW: ironic that you are in fact railing against the trumpist outcomes that Lord Kates proposes.
Also ironic that Lord Kates wants zero government – a man whose entire career has been at the public teat.
The inflation lift off was obvious to us farmers a year ago.Steel prices,tube,pipe,rail,posts,wire exploded with some up 40%.Farm insurance up 24% on a policy I have never claimed on.Insurance on the Ute’s up 11%.More recently the price of single super has almost doubled as has the price of Grazon herbicide.It is almost impossible to find labour.No one wants to work in farming any more.
ThebLittlest Anklebiter returns to us under a new name, but with as little.idea.of how the world works as ever.
Please explain to me how government-induced supply and transportation shocks, lockdowns and artificially increased costs of production and living are ‘Trumpist’ outcomes.
Because, you see, the average American (or anybody else for that matter) sees nothing wrong with markets or free and open international trade. But they do like being employed and able to buy things and support their families and not lose their jobs to outsourcing and offshoring, or be replaced by underpaid migrant labour and have nowhere else to go. All very loudly expressed (and ignored) grievances prior to 2016.
The only waay your putburst makes sense is if you are a Chinese troll, Littlest Anklebiter, and this is your clumsy way of throwing tantrums on Beijing’s behalf about the trade wars they kept losing under his watch…
So you got nothing mate, good to know. Dipstick much !!
At least he gave himself an appropriate screen name. Probably because he doesn’t understand what it actually means.
“However, how do the 70% of people involved in service-production produce anything PRIOR to demand coming through the door?”
A “good” service, just like a “good” product, saves you time, money, effort or some combination of those.
Eg, a petrol powered lawn mower saves you effort and normally time as well, compared to the old “push” mower.
A mowing “service” saves you time (you don’t have to do it yourself), money (you don’t need to obtain the required mowing assets like mower, trimmer etc, nor fuel them or service them), and effort (again, someone else is doing it).
Once the cost of the service is lower than the perceived cost to the consumer of DIYing it, service industries expand to meet the increased demand – the demand was always there (people are lazy!), but the cost/benefit was not, or was not for a large section of potential consumers (there are always the few who can afford almost any service). And additionally, as more people “demand” such services, often times the cost of providing it actually falls – economies of scale apply to services as well.
This is true of many “services” like plumbing, electrical work, building work, even computer repair and so on – these are not, for the most part, the sort of jobs that require any particularly great skill set (although many now require GovCo “qualifications”), but are often onerous or require careful attention to detail and some “specialist” knowledge that – while fairly easy to obtain – is also a drain on the consumers time, effort and money.
There are now so many demands on an individuals time, and so many “specialist” areas, that taking the time to learn everything you need to know to complete all the jobs you need done is often impractical. So you hire someone to do it for you. They have “serviced” your need.
Often this is a hierarchy – you hire the builder, the builder hires the plumber, the plumber engages a labour hire company for someone to dig holes etc etc. Services abound, and will only expand as population and specialisation expand, and along with those, the number of things you need to “get done” but simply don’t have the time to learn how to do or don’t have the time to actually do.
How many people now do even basic servicing of their car (oil and filter change, spark plugs etc)?
How many people now oversee construction of their home?
And so on and so forth.
As above, the truth is that many people would prefer to outsource almost everything they need done, but the cost is currently prohibitive for most people, so they make the required trade-offs. When a plurality sees a benefit to outsourcing to a “service provider”, that industry will expand, often explosively.
The answer to your question then, is that the demand was already there – it just required an innovation or an economy of scale to make it worthwhile for the required number of “clients” and therefore make an economic case for “service provider” to get in and make a living from it.
I worked with a kid who was studying economics, and he was always carrying on about everything was estimates, very rarely quantified, solid data. Ever since I’ve viewed economists as akin to soothsayers reading the entrails of a chicken.
Rex: you are very loud aren’t you?
In case you forgot Trump reintroduced managed trade concepts together with unilateral negotiations based on literal trade balances. He also promoted ignorance of health measures in the US which has been a major factor in the breakdown of shipping movements.
Interesting tgst you seem to want market based trade and protectionism all at once. Typical trump fantasist.
cross posted at https://freedomaustralia.freeforums.net/thread/2369/listen-modern-educated-economists
Labor’s spending won’t help inflation
John Kehoe Economics editor
Labor is pouring in about $16 billion of spending to a hot economy that is running at near full tilt with a historically low 3.9 per cent unemployment rate.
Plunging global stock markets show that the international inflation threat and rising interest rates are a real danger to the world economy.
Now is the time for governments to be reining in excessive pandemic-era spending to help the Reserve Bank of Australia fight inflation and avoid a hard economic landing that the United States seems destined for.
Regrettably, neither the Coalition nor Labor are prepared to deal with budget repair before the election for fear of frightening voters.
The Coalition is projected to run annual structural deficits of $50 billion to $80 billion over the next few years and take gross debt to $1.2 trillion.
Labor adds to the government’s largesse by about $16 billion of higher gross spending over four years.
Labor claims the bottom budget line is only $7.4 billion worse than the Treasury’s pre-election forecast, after accounting for its savings and revenue raising.
On paper, Labor claims it can raise an extra $9 billion in revenue from cracking down on tax avoidance by local businesses ($3.1 billion) and multinationals ($1.9 billion), ditching consultants and contractors in the public service ($3 billion), increasing foreign investment fees ($445 million) and fines for anti-competitive conduct ($555 million).
If history is any guide, the magnitude of these projected savings will struggle to be realised.
Labor also has about $50 billion of “off budget” investments for things such as building social housing, a national reconstruction fund for manufacturing, the National Broadband Network and to finance a renewable energy grid.
Labor, if elected, will need to get much more serious about reining in structural spending if it wants to help the RBA fight inflation and limit interest rate rises.
Promisingly, shadow treasurer Jim Chalmers suggested he is prepared to have a serious “budget repair”, line-by-line spending audit by Treasury and Finance after the election.
But Chalmers ruled out cuts to social services such as for disability, aged care and health – the fastest growing parts of government expenditure.
Labor’s higher social spending was dreamt up when inflation was subdued and the jobless rate was higher.
However, the economic environment has shifted significantly in recent months, necessitating a return to more disciplined fiscal policy.
If Labor wins the election and claims a mandate for the higher social spending, it must find major savings elsewhere in the budget.
The 48-year low jobless rate, 5.1 per cent inflation rate and supply chain bottlenecks suggest the economy is running at near full capacity.
Hours worked are up, workforce participation is high and the under utilisation rate – which combines unemployment and underemployment – is at its lowest since the mining investment boom in 2008.
Workers and materials are in short supply. Higher government spending risks further stretching the economy’s finite resources.
This mattered less when there was more slack in the labour market and inflation was seemingly subdued last year.
Labor argues its spending on childcare and free TAFE will ease inflation and boost productivity by growing the skilled workforce.
Any marginal participation and productivity benefits are likely to be years away, whereas the spending will add extra demand pressure to the economy more immediately.
Moreover, the $5.4 billion earmarked for higher childcare subsidies, mainly for high-income families, needs a serious plan to increase the supply of childcare centres and workers.
Otherwise, with a relatively fixed supply of childcare in an already stretched market, subsidies will just fuel higher fees for parents.
Australia now faces a tricky global economy. Some of the world’s major economies face the risk of stagflation – the combination of rising inflation and higher unemployment.
Inflation in the United Kingdom is at a 40-year high 9 per cent and inflation in the US is 8 per cent.
Excessively loose US fiscal stimulus by the Biden administration and ultra-easy monetary policy by central banks has caused too much money to chase too few goods.
Australia has the opportunity to avoid the same fate, but we’re still waiting for the political parties to get serious.
So hard to keep up with the format on this blog, since you cannot directly answer a post in THAT place where a claim is made….You need to read EVERY post to find the one or two directly addressing what you have written….Too much f’ing around but here goes…..
Riversutra (6.38am): says “You don’t have anything to do with the Rural economy do you?”…here’s a video..https://youtu.be/jKM9PA811lc. see especially at 4.15 secs to 4.22 secs. That BC’s grand-dam is sitting under the table as I type, waiting for a visit to the local racetrack for a jog. Almost every working dog on a dozen stations from Emerald to barcaldineBar4caldine has her in their line, so you are stone-cold wrong with your narky nonsense. I know plenty about ‘the rural economy” . Fertilizer shortages are supply-side probs.
Kneel (1.13pm). that’s a good / an already produced manufactured product. IF someone owned that motor-mower and was offering to do the mowing for you, that would be a service. The good is sitting there at the business but the service will not be activated until someone contacts to DEMAND the mowing be done.
SO, let’s get to food prices at supermarkets….
250g of Arnott’s Scotch Finger biscuits is $3.30 at all three big chains (Woolies/Coles/IGA). This is an increase of about 35-40% in the past year or two. 250g of home brand Scotch Finger Biscuits…all made in Oz: all with Oz wages and the similar ingredients as Arnott’s (especially IGA: Butter vs Palm Oil) NINETY CENTS. No increase in many years. Home-brand dry pasta 500g EIGHTY CENTS…San Remo 500g $2.95…likewise ALL made in Oz. Every aisle is packed with the same dichotomy…Home brand canned rice-cream $1, Parsons $4!!
There is a food scam going on here. the prices of brand-names are being somehow manipulated; prices being gouged, Very clear example: No-name Rolled Oats $1.75 a kilo. All other brands $4.50-$6.00. These different brands are not processed in any way.: the no-names and the “Red Tractor” or “Uncle Toby’s” etc are simply “squashed and then dumped in a box or bag”. So why the massive increases for the brand-names ONLY?
Britain is heading for economic oblivion
The prime minister and his unimpressive cabinet have no idea how to navigate the cost-of-living crisis facing the country
The last time UK inflation was at these levels, British troops fought a war 12,875 kilometres away in the Falklands, Prince William was born and Steven Spielberg’s ET the Extra-Terrestrial became the highest grossing film of all time.
Inflation is now at a 40-year high after the consumer prices index rose to 9 per cent in April, according to the latest ONS figures. That’s the sharpest jump since 1982, which, as Torsten Bell of the Resolution Foundation pointed out, means much of the country has never experienced an inflationary shock of this ferocity “in their working lives”.
Unfortunately, that also applies to much of the current cabinet, some of whom were barely in short trousers the last time price spikes this severe tore through the economy – except the chancellor of the exchequer, who would have been in nappies.
Many ministers simply won’t even remember the huge economic turmoil of that period, including the deep recession of 1981 as Margaret Thatcher’s government desperately tried to tame an inflationary spiral that had started during the 1970s.
As a result, they struggle to relate to the current mess – although they have no problem recounting the go-go years of rising wages, rocketing house prices and a booming sharemarket that came later in the decade as if it were yesterday.
Is it this relative inexperience and youth that has seemingly left the government completely ill-equipped to respond to the economic chaos that is unfolding before our eyes? Although surely a factor, it is far from the only reason.
Chancellor Rishi Sunak was quick to respond to the latest jump by highlighting that “countries around the world are dealing with rising inflation”. What he neglected to mention was that Britain now has the highest inflation rate of Europe’s five biggest economies, as well as the G7 industrialised nations, if, as expected, Canada and Japan’s latest figures come in below the UK’s.
Yes, there have been global economic shocks to contend with but the Bank of England is not “helpless” to tackle the inflationary crisis, in the remarkable words of Andrew Bailey, governor of the Bank of England and the man whose primary task is to keep a lid on prices.
To get a sense of just how badly Bailey and his Threadneedle Street colleagues have dropped the ball, the increase is more than double the pace of basic wage growth, resulting in a violent squeeze on household spending power.
And yet, the inflation nightmare is far from over. Double-digit price growth is forecast by October, when energy bills are widely tipped to jump again; manufacturers are yet to pass on their full cost increases; and core inflation, which strips out volatile energy and food prices, is also at a three-decade high, suggesting it has become more embedded across the economy.
Failure of government
Inevitably, the poorest bear the brunt because low-income families spend a greater proportion of their total budget on gas and electricity, as the Institute for Fiscal Studies has pointed out. Amid the cost-of-living squeeze, two in three people have turned off their heating, almost half are driving less, and a quarter have skipped meals, according to an Ipsos Mori survey.
UK families warm themselves at McDonald’s – Guardian
Struggling UK families are spending their evenings at McDonald’s to cut energy costs, The Guardian reported on Wednesday.
They do so amid the highest inflation rate in 40 years.
These families reportedly turn to places like McDonalds for free wi-fi, heat, and less-expensive food.
“People are buying their kids a Happy Meal for a few quid and keeping them warm inside. Then they wash and brush their teeth in the sinks and watch television for hours on the free wifi,” Matthew Cole of the Fuel Bank Foundation said, as quoted by The Guardian.
Jo Gilbert, the CEO of energy-focused advice charity Cubes, told the newspaper that “in reality, we’re way past using energy-saving tricks at home to limit bills significantly. People need government help now.”
An Ipsos UK survey published by Sky News on Tuesday indicated that 65% of Britons have refrained from turning on their heat in an effort to save money, and that one in four have even skipped meals.
The recent surge that brought consumer prices to their current 40-year high was driven by rising energy bills. The energy price cap for a typical British family rose by £693 (about $860) in April, a 54% increase.
Britons are ‘way past energy-saving tricks’ to handle skyrocketing costs, a charity CEO told the paper
Reminds me of that great philosopher Marx. Groucho not Karl.
‘I stand by my charts and forecasts …and if you don’t like those I have others.’
There’s a clue, right there, but the climate screechers and the vast majority of their true believers will never, ever see it.
” … live in a predominantly services-based economy …” etc. Mantaray, May 19, 2022 at 4:52 am
Services (ie, the people performing those services) have ALREADY ‘manufactured’ a product (even though intangible), and that product IS ‘sitting on the shelf’ awaiting a buyer (at some calculable supply-demand curve ‘price’) just the same as a tangible good or product.
It’s the skillset and experience needed to perform that service. It took inputs, and human action, to manufacture that product.
Also, wants and needs are NOT “demand”, they are usually (nearly always) fundamental requirements for human beings to stay alive. “Demand” has a specific meaning (within economics), being the quantity of goods (or services) that are traded at a specific price.
Thanks Steve, I always enjoy reading your commentary.
Neville (6.42pm) This whole thread is about Steve asserting that money-creation is driving DEMAND which cannot be satisfied since there is / was not enough produced per item of input (=productivity) to match the newly created money.
That is only partially correct since “productivity” is not only what is produced HERE IN OZ if someone in Oz can buy the production of someone overseas with the locally “printed” $A. YOU are incorrect 100% (not just partially) in claiming the skills which MIGHT be utilized are the same as a good sitting in a warehouse. NO…..
A fully retired anything (doctor, engineer, plumber, builder , barber etc etc) no longer produces: no longer performs a service: is not part of GDP. Your claim that the “service” still exists is plain wrong. The capability yes, but not the service. On the other hand, maybe these retired people could be enticed back into action if, say, govt created new money and gave it to someone who then requested them to reconsider their retirement (this someone could be a govt department wanting to get a post-flood reconstruction underway, for example).
Hope this helps.
“In case you forgot Trump reintroduced managed trade concepts together with unilateral negotiations based on literal trade balances.”
Orange man bad, eh?
If you care to examine what Trump wanted – instead of what the leftist US media say he wanted – you’ll find that he was interested in free trade. Yes, really. He just didn’t think that opening the US up to unlimited Chinese competition while the Chinese still had trade barriers in place for US produced things was either “free” or “fair”.
Like many, he advocated for “fair” trade over “free” trade – that is, symmetrical style arrangements where each “side” has the same “access” to the other sides markets. It’s hardly “free” and definitely not “fair” to say “we’ll both reduce our tariffs by 50%” if one side is starting at 10% tariffs and the other side is starting at 100% tariffs!
Nor did he trust anyone to live up to all deals – which is why he insisted on agreement clauses that were along the lines of “we’ll start the ball rolling, but if you don’t live up to your side of the deal, you’re going to get things worse than they are now” – China in particular has a habit of disregarding such deals and they almost never pay a price for doing it.
None of this is unreasonable, but it is against how the west in particular has been dudded on trade deals for the last several decades. It has to stop, and Trump saw that and pushed to make it stop. If that makes him anti free trade by your definitions, then fine – I don’t want your definition of “free trade” either!
My main point was/is that the (economics) word “demand” is unsuited to describing humans’ wants and needs, of which the primary needs are altogether quite basic; food, shelter, water, clothing, etc, which upon being satisfied, human nature tends to generate secondary needs, which themselves tend to be related to the quality of the good which are satisfying those primary needs. But Steve’s contention that money-creation drives (the economics definition) “demand” is correct (of course), and such money-creation is (nearly always) non-beneficial to the economy as a whole, and people’s welfare and benefit generally, over the medium- and longer-terms (of course), due to the debasement by inflation of the currency (of course).
I say again that there is a wide difference between what a person may “want”, or “need”, and the price point for a good (or service) at a specific price. I have pondered this issue, and I find (so far) that there appears to be no reasonable single descriptive word that adequately defines what a person wants, or needs. The word “demand” is co-opted as a weak substitute.
A learned skillset giving a person the ability to provide a specific service is subject to the same demand-supply imperatives as any other good. If one’s car needs fixing, one would consider the repair job (assuming other inputs, like parts, are readily available) in the same manner one would consider buying a good; if the mechanic (the skillset) offers (asks) too high a price, and one does not accept that price, then the “demand” (using the Economics technical definition) at that point in time for that skillset at that price point is zero. If the Govt dumps artificially-created money on one’s head, then one may reconsider the stated offer price, and proceed with the transaction. Over the economy, the sum of such reconsiderations drives “demand”.
A skillset is a (economics definition) “good” or “product”, whether in use (like a shop that’s open, with products sitting there on the shelf), or whether ‘retired’ (like a shop that’s closed temporarily or permanently – with products sitting there on the shelf).
Kneel: I really don’t care if trump likes kaftans. He certainly went back to protectionism and literal ideas of trade balance to pursue transactional outcomes. It didn’t work.
I actually think the orange fella could have done some good as Washington is seriously screwed up. But unfortunately so is trump.