Rishi Sunak: lifejackets on please (Yui Mok - WPA Pool/Getty Images)
“We are living in an expensive and increasingly poor country,” thundered The Guardian‘s political editor, furious at the crumbling state of the nation unable to pay its workers properly. “It is not much use lecturing people about paying themselves more than the country can afford. A better way of putting it is that increasingly the country cannot afford to pay people enough.” A fair point, perhaps. But this was not a column from the weekend, taking aim at the blundering Bank of England governor, Andrew Bailey; it was written 45 years ago, in the depths of the Winter of Discontent. As much as some things change, it seems much else never does.
Are things as bad as they were in 1978? Not on the surface, at least. Back then, the dead were left unburied and rubbish piled up in the streets as the government and trade unions entered into a battle to the death that both would lose. But today, like then, spiralling inflation is tearing at the fabric of society, forcing policymakers to squeeze the life out of the economy just to contain rising prices. And this time, it comes after 15 years of stagnant living standards; in the Seventies, life for the ordinary worker had improved year on year thanks to strong unions who could squeeze real-terms pay rises from employers.
Britain’s post-war economic history could be seen as one long battle against inflation and the search for an “anchor” to stop the doom loop of stop-start, boom and bust. In the Sixties and Seventies, both Labour and Tory governments adopted a “prices and incomes policy” believing that the way to control inflation was to manage people’s pay rises and what companies could charge for certain goods. This collapsed with the Winter of Discontent and the election of Margaret Thatcher, who came into power with her own grand theory, monetarism, which also failed.
Next, the European Exchange Rate Mechanism was taken up — only to spectacularly collapse in 1992, along with John Major’s economic credibility. At this point, we formulated the “inflation target” and then outsourced the problem to the Bank of England in 1998: a monetary policy committee of technocratic experts was allowed to set interest rates which would keep inflation to this target. With this, we believed we had solved the problem.
For most of the next 20 years, inflation was not much of a story. First came the boom years of Blair and Brown when, apparently, the business cycle had been abolished — an era Mervyn King referred to (tongue firmly in cheek) as the “nice” years of “non-inflationary consistently expansionary” economics, his point being that no such thing existed. This was in 2005 and King was worried about rising oil prices fuelling inflation again. But then came the crash of 2008 and the subsequent years of austerity and stagnating living standards, cushioned only by the record-low interest rates which have now spectacularly come to an end.
Today, with inflation almost in double digits, the Bank of England is squeezing the economy hard, ratcheting up interest rates. Sunak, meanwhile, is hinting at further wage restraint on public-sector workers to put even more downward pressure on the economy in order to hit his own political target to halve inflation by the end of the year.
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SubscribeSo let’s see then. We spent a couple of years suppressing production in response to COVID, printing vast amounts of money so the downside to this stroke of genius wasn’t immediately apparent to the electorate…
Parallel to this is an energy policy designed reduce ‘reliance’ on cheap and reliable sources, to produce energy in more expensive ways to ‘save the planet’.
Policies are now, scarcely credibly, being pursued in various places that will increase the costs of agricultural production. Even before that land that had been used to produce food for humans and livestock was now being (subsidised to be) used instead to produce ‘biofuel’. (Feeding machines instead of humans – never mind bad economics, it’s bordering on satanic)
And duh, where’s all this inflation come from all of a sudden? How come food and energy costs more? Must be Putin, must be Putin…can’t be anything we did.
Meantime after more than a decade of The Magic Money Tree, lending the fruit of the tree of financial knowledge to people for free, housing is unaffordable.
‘No magic cure’? Damn right there isn’t.
Maybe we could try not pursuing idiotic policies and then printing money to cover up the fact that they don’t work.
My thoughts exactly. This article purports to take a long term historical view but fails to recognise that successive revolutions have swept the UK economy; its very identity has changed maybe 3 times, making the notion of a continuum absurd. The post lockdown Socialist Big State Net Zero Anti Enterprise 2024 UK economy has absolutely nothing in common with the 1978 pre -Thatcher pre globalisation pre digital nation state economy, nor indeed the Blairite EU Clone New Order of 1997-2008 that dismantled that nation state and smashed our civic culture. Tom recognises the 2008 Crash as important, but fails to go on to discuss its long term consequence (and what might well be the prime hidden drivers of inflation & economic chaos -the 900bn QE and unsustainable Zero Interest Regime. To see the end of free movement of people (not necessarily workers) as another problem when 1.2 million are pouring into our haus-frei country a year post Brex is just odd. All very strange.
Thatcher/Howe didnt fail.
only half failed.
Maggie’s era ended with ERM crisis.
Private Sector debt as % of GDP:
1979 (Maggie comes to power) – 40%
1992/3 (ERM crisis) – 120%.
That is the failure. She sadly started the house bubble fueled by debt.
The Lawson house price bubble deflated again almost completely under Major’s admin, then inflated continuously under Brown/Blair from 1997 until 2008.
The Lawson house price bubble deflated again almost completely under Major’s admin, then inflated continuously under Brown/Blair from 1997 until 2008.
only half failed.
Maggie’s era ended with ERM crisis.
Private Sector debt as % of GDP:
1979 (Maggie comes to power) – 40%
1992/3 (ERM crisis) – 120%.
That is the failure. She sadly started the house bubble fueled by debt.
Thatcher/Howe didnt fail.
There are some issues at play here as well. Why does it cost so much and take so long to build infrastructure in UK? Why do we have so many systems and services that perform poorly and cost too much but are never changed?
Several builders have been at work for weeks and weeks near my house, building three so-called affordable homes. The total footprint of each is literally no larger than my sitting room, and my place is no palace.
They are currently surrounding the sloppily-laid breeze block outer walls of each house with an external layer of large stones, and the result looks like three twee (excuse tongue twister!) miniature castles.
The cost of materials and labour must be staggering, as is the time it is taking to complete the project. There’s no way the builder will make a profit, quite the opposite I assume. (I haven’t ventured to speak to him, because having raised numerous objections to the development and delayed it for some time, I am presumably not on his Christmas card list!)
For the life of me I can’t begin to imagine why they weren’t allowed to just go for well-made energy-efficient prefabs. These could have been driven to the site in a few parts and erected in a day or two, and would have been truly affordable and perfectly adequate.
Practical, affordable and adequate aren’t part of the plan, unfortunately.
Practical, affordable and adequate aren’t part of the plan, unfortunately.
The economist had a comparison for the construction industry between France and UK regarding high speed rail.
Yes, France has more experience (and that matters) but it also has big vertically integrated companies that can manage big projects.
UK companies are small, too many subcontractors that just “get in the way” of doing things.
German/Scandi/Swiss construction industry (and building materials) is far more advanced that the UK industry.
I’m sure those are significant factors but the cost of building high speed rail track in UK is 8 times the cost elsewhere.
I’m sure those are significant factors but the cost of building high speed rail track in UK is 8 times the cost elsewhere.
Several builders have been at work for weeks and weeks near my house, building three so-called affordable homes. The total footprint of each is literally no larger than my sitting room, and my place is no palace.
They are currently surrounding the sloppily-laid breeze block outer walls of each house with an external layer of large stones, and the result looks like three twee (excuse tongue twister!) miniature castles.
The cost of materials and labour must be staggering, as is the time it is taking to complete the project. There’s no way the builder will make a profit, quite the opposite I assume. (I haven’t ventured to speak to him, because having raised numerous objections to the development and delayed it for some time, I am presumably not on his Christmas card list!)
For the life of me I can’t begin to imagine why they weren’t allowed to just go for well-made energy-efficient prefabs. These could have been driven to the site in a few parts and erected in a day or two, and would have been truly affordable and perfectly adequate.
The economist had a comparison for the construction industry between France and UK regarding high speed rail.
Yes, France has more experience (and that matters) but it also has big vertically integrated companies that can manage big projects.
UK companies are small, too many subcontractors that just “get in the way” of doing things.
German/Scandi/Swiss construction industry (and building materials) is far more advanced that the UK industry.
Don’t forget our response to the banking crash, quantitative easing (a fancy name for printing money). The writing has been on the wall for a long time… before covid, before Putin et al.
In other words, the problem is monetarist. Inflation is, and always was, a disease of money. The author claims that monetarism failed – yet, we now almost certainly have a problem caused by money being far, far too cheap for much, much too long.
The author is wrong. Monetarism didn’t fail. Monetarism was forgotten. Monetarism is the reason that we have this problem. It’s nothing like as complicated as he’s making out.
It’s almost as though we’re in the middle of a neo-Marxist globalist coup, where we shut down the economy for a cold, further wreck the country chasing unachievable “Net Zero” insanity in response to a fabricated cLiMaTe EmErGeNcY, then engage in an insane proxy war with Russia to “teach Putin a lesson”.
It’s almost as though our great “leaders” are incompetent and insane…
…but there is a magic cure (that isn’t really magic but would provide an instant cure)… ann old fashioned idea that used to be common practice.. It’s called Wealth Tax!
Actually taxing income is counter to growth (hence the drive for tax cuts). Taxing wealth is harmless to the economy for several reasons:
1. Much of GB wealth is spent on foreign goods: Caribbean islands, French yachts, German super cars, Italian villas etc.
2. Such taxes can be ploughed into growing the economy, and paying for public services without impoverishment of workers.
3. Redistribution eliminates poverty and so greatly reduces the social welfare bill.
4. Wealthy people short of ready cash will have to sell land which can be acquired by the state to build much needed houses, hospitaks etc. instead of spending vast sums otherwise.
GB has obscene levels of wealth.. why wouldn’t it given the number of colonies looted over 200 years.. that accumulated wealth has grown enormously in the last 100 years into current astronomical sums.
(Arguably it should be paid back to the countries impoverished by the BE but in the meantime, use it to eliminate poverty in GB.)
Check out the wealth in GB and you’ll be amazed and then figure out how many billions can be raised by applying a 5% wealth tax.. Problem solved! Call it a “Solidarity Tax” or “Patriotic Tax” so that the obscenely rich can look like heroes; just like the Royal Family.. in fact you can start right there!
Sadly we live in a world of catastrophic unaccountability. Our leadership bench is so short and narrow that even Richi’s tiny bum can’t fit on it.
My thoughts exactly. This article purports to take a long term historical view but fails to recognise that successive revolutions have swept the UK economy; its very identity has changed maybe 3 times, making the notion of a continuum absurd. The post lockdown Socialist Big State Net Zero Anti Enterprise 2024 UK economy has absolutely nothing in common with the 1978 pre -Thatcher pre globalisation pre digital nation state economy, nor indeed the Blairite EU Clone New Order of 1997-2008 that dismantled that nation state and smashed our civic culture. Tom recognises the 2008 Crash as important, but fails to go on to discuss its long term consequence (and what might well be the prime hidden drivers of inflation & economic chaos -the 900bn QE and unsustainable Zero Interest Regime. To see the end of free movement of people (not necessarily workers) as another problem when 1.2 million are pouring into our haus-frei country a year post Brex is just odd. All very strange.
There are some issues at play here as well. Why does it cost so much and take so long to build infrastructure in UK? Why do we have so many systems and services that perform poorly and cost too much but are never changed?
Don’t forget our response to the banking crash, quantitative easing (a fancy name for printing money). The writing has been on the wall for a long time… before covid, before Putin et al.
In other words, the problem is monetarist. Inflation is, and always was, a disease of money. The author claims that monetarism failed – yet, we now almost certainly have a problem caused by money being far, far too cheap for much, much too long.
The author is wrong. Monetarism didn’t fail. Monetarism was forgotten. Monetarism is the reason that we have this problem. It’s nothing like as complicated as he’s making out.
It’s almost as though we’re in the middle of a neo-Marxist globalist coup, where we shut down the economy for a cold, further wreck the country chasing unachievable “Net Zero” insanity in response to a fabricated cLiMaTe EmErGeNcY, then engage in an insane proxy war with Russia to “teach Putin a lesson”.
It’s almost as though our great “leaders” are incompetent and insane…
…but there is a magic cure (that isn’t really magic but would provide an instant cure)… ann old fashioned idea that used to be common practice.. It’s called Wealth Tax!
Actually taxing income is counter to growth (hence the drive for tax cuts). Taxing wealth is harmless to the economy for several reasons:
1. Much of GB wealth is spent on foreign goods: Caribbean islands, French yachts, German super cars, Italian villas etc.
2. Such taxes can be ploughed into growing the economy, and paying for public services without impoverishment of workers.
3. Redistribution eliminates poverty and so greatly reduces the social welfare bill.
4. Wealthy people short of ready cash will have to sell land which can be acquired by the state to build much needed houses, hospitaks etc. instead of spending vast sums otherwise.
GB has obscene levels of wealth.. why wouldn’t it given the number of colonies looted over 200 years.. that accumulated wealth has grown enormously in the last 100 years into current astronomical sums.
(Arguably it should be paid back to the countries impoverished by the BE but in the meantime, use it to eliminate poverty in GB.)
Check out the wealth in GB and you’ll be amazed and then figure out how many billions can be raised by applying a 5% wealth tax.. Problem solved! Call it a “Solidarity Tax” or “Patriotic Tax” so that the obscenely rich can look like heroes; just like the Royal Family.. in fact you can start right there!
Sadly we live in a world of catastrophic unaccountability. Our leadership bench is so short and narrow that even Richi’s tiny bum can’t fit on it.
So let’s see then. We spent a couple of years suppressing production in response to COVID, printing vast amounts of money so the downside to this stroke of genius wasn’t immediately apparent to the electorate…
Parallel to this is an energy policy designed reduce ‘reliance’ on cheap and reliable sources, to produce energy in more expensive ways to ‘save the planet’.
Policies are now, scarcely credibly, being pursued in various places that will increase the costs of agricultural production. Even before that land that had been used to produce food for humans and livestock was now being (subsidised to be) used instead to produce ‘biofuel’. (Feeding machines instead of humans – never mind bad economics, it’s bordering on satanic)
And duh, where’s all this inflation come from all of a sudden? How come food and energy costs more? Must be Putin, must be Putin…can’t be anything we did.
Meantime after more than a decade of The Magic Money Tree, lending the fruit of the tree of financial knowledge to people for free, housing is unaffordable.
‘No magic cure’? Damn right there isn’t.
Maybe we could try not pursuing idiotic policies and then printing money to cover up the fact that they don’t work.
Repeat after Friedman: inflation is always and everywhere a monetary phenomenon.
Inflation isn’t a force of nature. It’s what happens when the banking system, led by the central banks, expands the amount of money in circulation.
When you have more money chasing the same goods & services, prices can’t help but rise.
It’s true that trade barriers and other destructive policies like Net Zero can increase prices, but mostly that’s a matter of redistribution. In the case of tariffs, domestic producers benefit at the expense of domestic consumers. In the case of Net Zero, well-connected corporations and landowners benefit at the expense of the general public and domestic industrial workers.
If we weren’t pursuing destructive policies, we’d expect prices to go gradually *down* over time, as technology advances (and gradual deflation is nothing to fear; nobody puts off purchases forever). It is only by printing money that the central banks ensure this doesn’t happen.
We might see less cheap labour from the EU (though that’s a choice). We might see fewer cheap goods from China. We might see oil price shocks. But the main problem is that the Bank of England printed £500 billion during the pandemic.
If you want to stop inflation, stop printing money.
Exactly. As my comment above. If you double the quantity of a commodity it halves in price, all other things being equal. Money is a commodity that enables the exchange economy. IMHO the rot really starts starts in 1971 (or 1913 / 1916 if one is being pedantic). From 1971 when the Bretton Woods fake gold standard collapsed the relative value of Sterling (and the USD) has declined by about 99% – e.g. it’s worthless.
Amen
Much as the might trigger some, the only solution is an ultra hard money that you can’t print more of, i.e. Bitcoin.
Anything that is open to democratic control will be debased by charlatan politicians buying votes.
Exactly. As my comment above. If you double the quantity of a commodity it halves in price, all other things being equal. Money is a commodity that enables the exchange economy. IMHO the rot really starts starts in 1971 (or 1913 / 1916 if one is being pedantic). From 1971 when the Bretton Woods fake gold standard collapsed the relative value of Sterling (and the USD) has declined by about 99% – e.g. it’s worthless.
Amen
Much as the might trigger some, the only solution is an ultra hard money that you can’t print more of, i.e. Bitcoin.
Anything that is open to democratic control will be debased by charlatan politicians buying votes.
Repeat after Friedman: inflation is always and everywhere a monetary phenomenon.
Inflation isn’t a force of nature. It’s what happens when the banking system, led by the central banks, expands the amount of money in circulation.
When you have more money chasing the same goods & services, prices can’t help but rise.
It’s true that trade barriers and other destructive policies like Net Zero can increase prices, but mostly that’s a matter of redistribution. In the case of tariffs, domestic producers benefit at the expense of domestic consumers. In the case of Net Zero, well-connected corporations and landowners benefit at the expense of the general public and domestic industrial workers.
If we weren’t pursuing destructive policies, we’d expect prices to go gradually *down* over time, as technology advances (and gradual deflation is nothing to fear; nobody puts off purchases forever). It is only by printing money that the central banks ensure this doesn’t happen.
We might see less cheap labour from the EU (though that’s a choice). We might see fewer cheap goods from China. We might see oil price shocks. But the main problem is that the Bank of England printed £500 billion during the pandemic.
If you want to stop inflation, stop printing money.
The free movement of workers from Europe was a brake on inflation? Here’s a little quiz. To make it easier I’ve provided the answers.
Q: What is the single largest cost that all householders face. A: accommodation.
Q: What happens when you bring 10 million new people into the country without providing any additional accommodation? A: The price of accommodation goes up.
Q: What happens then. A: Inflation.
…so how come house prices didn’t plummet when all those nasty EU people were sent home? ..are migrants so wealthy they can afford a GB home out of a Sudanese/Afghan income?
Something not right in your argument I hear?
…so how come house prices didn’t plummet when all those nasty EU people were sent home? ..are migrants so wealthy they can afford a GB home out of a Sudanese/Afghan income?
Something not right in your argument I hear?
The free movement of workers from Europe was a brake on inflation? Here’s a little quiz. To make it easier I’ve provided the answers.
Q: What is the single largest cost that all householders face. A: accommodation.
Q: What happens when you bring 10 million new people into the country without providing any additional accommodation? A: The price of accommodation goes up.
Q: What happens then. A: Inflation.
Thirty years of myopic politicians from all parties pursuing Panglossian policies involving high spend, tax and subsidy are responsible for this mess. And still they come with their vacuous promises to “ fix” everything for us. . The Net Zero dreamworld of high cost energy funded by subsidies and tax taken increasingly from industry and the less well off is a classic example of their collective mindlessness . “Save the planet “ they cry as our society crumbles under the weight of their mismanagement. We need a new crop of well grounded and more than half competent political leaders. Believing that any of the current bunch on offer is capable of doing the job properly is, I fear, delusional. Didn’t someone once point out that a fish rots from the head?
Anyone who tells some hard truths would not get elected to office. Only by promising to spend, spend, spend with more taxes on the rich will anyone get elected.
Anyone who tells some hard truths would not get elected to office. Only by promising to spend, spend, spend with more taxes on the rich will anyone get elected.
Thirty years of myopic politicians from all parties pursuing Panglossian policies involving high spend, tax and subsidy are responsible for this mess. And still they come with their vacuous promises to “ fix” everything for us. . The Net Zero dreamworld of high cost energy funded by subsidies and tax taken increasingly from industry and the less well off is a classic example of their collective mindlessness . “Save the planet “ they cry as our society crumbles under the weight of their mismanagement. We need a new crop of well grounded and more than half competent political leaders. Believing that any of the current bunch on offer is capable of doing the job properly is, I fear, delusional. Didn’t someone once point out that a fish rots from the head?
If we are being honest with ourselves, we still haven’t recovered from the 2008 crash. Instead of trying to assess what went wrong, we have ended up trying to do what we were already doing while pretending the 2008 crash didn’t happen. The end result was an economy based and reliant on low wages, low skills and high migration to keep those demands down. It took the British public a matter of years to show their opposition to this. First in Scotland where the electorate there rewarded the SNP with a majority, nearly breaking up the union, in 2015 with the rise of UKIP and the SNP in the election, followed by Corbyn’s election to Labour leader and most famously in 2016 when we voted to leave the EU. Even then, those who govern us (elected or otherwise) still refuse to take the hint.
I’m not sure what’s going to happen and how this will pan out, but go to almost any other country in the world and you will find Britain is increasingly a rip off place to live. I’ve just been in Singapore which is hardly associated with being cheap, but beyond rent and high taxes on booze, at worst it is certainly no more expensive than the UK. Even when you pay UK prices for day to day items, you get a lot more for your money (items are bigger, get more of them etc). Main difference is that wages in Singapore are actually high in the first place. The reality is that if you want people paying a fortune for basic essentials, their wages will have to go up otherwise things will get nasty. Your move Sunak, Hunt and Bailey.
I see no alternative to cutting public expenditure as the means of reducing our increased indebtedness. This might just allow us to channel resources that are currently funding our “national credit card” interest towards increasing the investment needed to improve GDP per head.
On that one, I think the plan is to replace everyone with AI at some point
The trouble is for some years UK governments (Labour and Tory) have become addicted to increasing public spending to artificially boost GDP (which includes public spending).
It seems like this Ponzi scheme is fast approaching the end of its rope, and is a large part of the reason why genuine productivity has been stagnant in the UK for at least the last twenty years, and the chickens are coming home to roost.
Not allowing them to use statistics to lie would be a start.
(e.g. the fact that half of the “2% increase in GDP” they crow about is just adding an extra 600,000 people to the population, but they pretend it’s Britain becoming better off.
GDP per capita should be the benchmark figure used to assess their performance, not GDP.
Not allowing them to use statistics to lie would be a start.
(e.g. the fact that half of the “2% increase in GDP” they crow about is just adding an extra 600,000 people to the population, but they pretend it’s Britain becoming better off.
GDP per capita should be the benchmark figure used to assess their performance, not GDP.
How about a Wealth Tax? ..check out the level of wealth in GB.. you’ll be amazed! 5% pa would solve all problems overnight.
On that one, I think the plan is to replace everyone with AI at some point
The trouble is for some years UK governments (Labour and Tory) have become addicted to increasing public spending to artificially boost GDP (which includes public spending).
It seems like this Ponzi scheme is fast approaching the end of its rope, and is a large part of the reason why genuine productivity has been stagnant in the UK for at least the last twenty years, and the chickens are coming home to roost.
How about a Wealth Tax? ..check out the level of wealth in GB.. you’ll be amazed! 5% pa would solve all problems overnight.
Remember Weimar.
Extrapolate and elucidate please… 6es, we know what the Weimar Republic was.. are you saying GB will repeat that?
Extrapolate and elucidate please… 6es, we know what the Weimar Republic was.. are you saying GB will repeat that?
Not everyone’s wages in Singapore are high. Income and wealth inequality is extreme.
Singapore is a semi-authoritarian city state with a small population.
I see no alternative to cutting public expenditure as the means of reducing our increased indebtedness. This might just allow us to channel resources that are currently funding our “national credit card” interest towards increasing the investment needed to improve GDP per head.
Remember Weimar.
Not everyone’s wages in Singapore are high. Income and wealth inequality is extreme.
Singapore is a semi-authoritarian city state with a small population.
If we are being honest with ourselves, we still haven’t recovered from the 2008 crash. Instead of trying to assess what went wrong, we have ended up trying to do what we were already doing while pretending the 2008 crash didn’t happen. The end result was an economy based and reliant on low wages, low skills and high migration to keep those demands down. It took the British public a matter of years to show their opposition to this. First in Scotland where the electorate there rewarded the SNP with a majority, nearly breaking up the union, in 2015 with the rise of UKIP and the SNP in the election, followed by Corbyn’s election to Labour leader and most famously in 2016 when we voted to leave the EU. Even then, those who govern us (elected or otherwise) still refuse to take the hint.
I’m not sure what’s going to happen and how this will pan out, but go to almost any other country in the world and you will find Britain is increasingly a rip off place to live. I’ve just been in Singapore which is hardly associated with being cheap, but beyond rent and high taxes on booze, at worst it is certainly no more expensive than the UK. Even when you pay UK prices for day to day items, you get a lot more for your money (items are bigger, get more of them etc). Main difference is that wages in Singapore are actually high in the first place. The reality is that if you want people paying a fortune for basic essentials, their wages will have to go up otherwise things will get nasty. Your move Sunak, Hunt and Bailey.
We need, as voters, that governments can achieve little and stop believing the lie of protection from cradle to grave.
Governments have a role but it involves them doing less.
Bingo! We are all guilty. If everyone wants government to give us everything, yet wants someone else to pay for it, we get what we currently have. It’s really that simple.
Yes, The People are to blame.
Oh no, that’s not so. It’s perfectly rational to take what is offered. Politicians need to have to courage to say, no, look after yourself.
..it seems their obscenely rich friends were/are happy to take even more wealth. Perhaps they should say No? Perhaps they should give a ppn of it back even?
..it seems their obscenely rich friends were/are happy to take even more wealth. Perhaps they should say No? Perhaps they should give a ppn of it back even?
Oh no, that’s not so. It’s perfectly rational to take what is offered. Politicians need to have to courage to say, no, look after yourself.
Yes, The People are to blame.
Bingo! We are all guilty. If everyone wants government to give us everything, yet wants someone else to pay for it, we get what we currently have. It’s really that simple.
We need, as voters, that governments can achieve little and stop believing the lie of protection from cradle to grave.
Governments have a role but it involves them doing less.
Just read the last paragraph again.
There is a magic cure for inflation. Mrs Thatcher knew it and so did R Reagan. It is amazingly simple. Stop printing money. Cut government expenditure and slowly cut taxes to encourage productivity and capital accumulation and investment. Poltically painful, but not for long, and it works every time.
Hear, hear.. more food banks and frozen pensioners please..
Hear, hear.. more food banks and frozen pensioners please..
Just read the last paragraph again.
There is a magic cure for inflation. Mrs Thatcher knew it and so did R Reagan. It is amazingly simple. Stop printing money. Cut government expenditure and slowly cut taxes to encourage productivity and capital accumulation and investment. Poltically painful, but not for long, and it works every time.
If only this article were shorter and written with the key point at the start and not buried later. It’s too long and muddied by dubious assertions in the preamble.
And the key point (for me at least) is this: that post-WWII Britain has been a country with a weakness for inflation that we have never been able to suppress. The fact that it seemed to be “fixed” from the mid 90s until around 2020 was always an obvious illusion due to a set of one-off structural changes (cheap Eastern European labour and cheap Chinese manufacturing being the main ones; perhaps also cheap oil prices resulting from the US shale revolution; cheap global shipping is another factor).
10 years ago the price of food and household goods and appliances in Tesco was astonishingly low (and the quality better than ever). And yet no one stopped to question just how or why this was possible.
The fact that prices in Tesco have now reverted to something more normal should not be a surprise. Nor “wrong”. Nor suggest that there’s profit gouging going on. These things are still cheap by historical standards.
It is quite clear that there has been no fundamental change in Britain that makes us any less immune to inflation than we were in the 1970s and 1980s. Our luck has run out.
I keep finding this sort of statement in UnHerd articles:
“And this time, it comes after 15 years of stagnant living standards; in the Seventies, life for the ordinary worker had improved year on year thanks to strong unions who could squeeze real-terms pay rises from employers.”
It’s quite clear that almost none of UnHerd’s writers were around in the 1970s. Yet they keep writing about a period they never experienced and don’t really understand as though they have some authority to do so.
I remember the 1970s as a child. Pretty grim. Not everyone was in a union and able to get inflationary pay rises.
Wages increased significantly for most jobs in the 1970s. Price also rose, but people were still better off in 1979 than they were in 1970. The average weekly wage in 1970 was £18.37, in 1979 it was £68.92. The 1979 wage in 1970 money was £23.79, so I think it’s fair to say that strong unions did indeed squeeze real terms pay rises from employers
That’s doubtless true. But not everyone was in trade unions – in fact I think the majority. I know from personal experience what happened to some who weren’t.
And again, in pushing through inflationary [real terms] wages rises, workers were effectively borrowing from the future. Also reflect on how well those heavily unionised industries survived the 1980s. Most didn’t.
It’s entirely possible we’re about to relive something like the 1970s. Only this time, the “protected workers” will all be on the state payroll. You can easily imagine Labour blundering into this. Not something I’m looking forward to.
Unions squeezing real terms pay rises from employers makes everyone outside the union poorer. It makes the goods and services produced by unionised industries more expensive which lowers the quality of life of those buying the goods and services and it makes the goods and services less attractive to the international market. In short, it leads to economic decline.
Just because a union gets your weekly wage up to £23.79, it doesn’t make your productivity worth £23.79.
My figures were for the nations average wages, not union members. Also are you suggesting the way to prosperity is for nobody to receive wage rises?
Whilst an increase in wages will increase the overall cost of a product, it isn’t the only component that goes into the final sale price therefore higher wages still leaver people wealthier overall, even if it does cause a slight increase in the cost of living
“Also are you suggesting the way to prosperity is for nobody to receive wage rises?” No. I am suggesting that wages rise in line with productivity.
Your second paragraph does not add up and your “therefore” is a false conclusion. If just one component in the cost of a product is inflated, then that item is more expensive than it would otherwise be under free market conditions. That means everyone’s pound goes less far and somebody somewhere else can make it cheaper.
Since the unions were smashed though wage rises haven’t kept pace with productivity, and during the latest bout of inflation wage rises haven’t kept pace with that either. So for the last 40 years those working for wages have seen their quality of life diminishing while those at the top have hoarded an ever increasing share of the pie
The unions have not been “smashed”. The trains are extremely expensive precisely because of the unions, precisely because the unions extract so much share of the pie that they are run for the benefit of the employees, not the customers.
“wage rises haven’t kept pace with productivity” Not true. Productivity has been terrible whilst real wages have increased.
“during the latest bout of inflation wage rises haven’t kept pace with that either”. That is true, generally, but that is a separate argument.
“…for the last 40 years those working for wages have seen their quality of life diminishing while those at the top have hoarded an ever increasing share of the pie…” Not true. The GINI coefficient has been stable for much of the last 4 decades. Wealth inequality has increased but again, that is a separate argument.
What I should have mentioned in my previous post is that wages ought not to just rise in step with productivity but also the market cost of labour, which is itself partly a product of productivity.
I note your loaded language betrays a class warfare angle. You can hiss and wail at the rich as much as you like and the injustice of it all, but it does not affect basic economic maxims; unionised pay demands pushing up the cost of labour above market make the rest of us poorer.
The trains are extremely pricey because they’ve been privatised and those that own them extract vast profits from running the service, neglecting basic maintenance until the government (taxpayer) has to step in and take control again, spending million to bring them up to scratch at which point they’re sold to wealthy cronies again
The trains are extremely pricey because they’ve been privatised and those that own them extract vast profits from running the service, neglecting basic maintenance until the government (taxpayer) has to step in and take control again, spending million to bring them up to scratch at which point they’re sold to wealthy cronies again
The unions have not been “smashed”. The trains are extremely expensive precisely because of the unions, precisely because the unions extract so much share of the pie that they are run for the benefit of the employees, not the customers.
“wage rises haven’t kept pace with productivity” Not true. Productivity has been terrible whilst real wages have increased.
“during the latest bout of inflation wage rises haven’t kept pace with that either”. That is true, generally, but that is a separate argument.
“…for the last 40 years those working for wages have seen their quality of life diminishing while those at the top have hoarded an ever increasing share of the pie…” Not true. The GINI coefficient has been stable for much of the last 4 decades. Wealth inequality has increased but again, that is a separate argument.
What I should have mentioned in my previous post is that wages ought not to just rise in step with productivity but also the market cost of labour, which is itself partly a product of productivity.
I note your loaded language betrays a class warfare angle. You can hiss and wail at the rich as much as you like and the injustice of it all, but it does not affect basic economic maxims; unionised pay demands pushing up the cost of labour above market make the rest of us poorer.
Since the unions were smashed though wage rises haven’t kept pace with productivity, and during the latest bout of inflation wage rises haven’t kept pace with that either. So for the last 40 years those working for wages have seen their quality of life diminishing while those at the top have hoarded an ever increasing share of the pie
“Also are you suggesting the way to prosperity is for nobody to receive wage rises?” No. I am suggesting that wages rise in line with productivity.
Your second paragraph does not add up and your “therefore” is a false conclusion. If just one component in the cost of a product is inflated, then that item is more expensive than it would otherwise be under free market conditions. That means everyone’s pound goes less far and somebody somewhere else can make it cheaper.
My figures were for the nations average wages, not union members. Also are you suggesting the way to prosperity is for nobody to receive wage rises?
Whilst an increase in wages will increase the overall cost of a product, it isn’t the only component that goes into the final sale price therefore higher wages still leaver people wealthier overall, even if it does cause a slight increase in the cost of living
That’s doubtless true. But not everyone was in trade unions – in fact I think the majority. I know from personal experience what happened to some who weren’t.
And again, in pushing through inflationary [real terms] wages rises, workers were effectively borrowing from the future. Also reflect on how well those heavily unionised industries survived the 1980s. Most didn’t.
It’s entirely possible we’re about to relive something like the 1970s. Only this time, the “protected workers” will all be on the state payroll. You can easily imagine Labour blundering into this. Not something I’m looking forward to.
Unions squeezing real terms pay rises from employers makes everyone outside the union poorer. It makes the goods and services produced by unionised industries more expensive which lowers the quality of life of those buying the goods and services and it makes the goods and services less attractive to the international market. In short, it leads to economic decline.
Just because a union gets your weekly wage up to £23.79, it doesn’t make your productivity worth £23.79.
Wages increased significantly for most jobs in the 1970s. Price also rose, but people were still better off in 1979 than they were in 1970. The average weekly wage in 1970 was £18.37, in 1979 it was £68.92. The 1979 wage in 1970 money was £23.79, so I think it’s fair to say that strong unions did indeed squeeze real terms pay rises from employers
If only this article were shorter and written with the key point at the start and not buried later. It’s too long and muddied by dubious assertions in the preamble.
And the key point (for me at least) is this: that post-WWII Britain has been a country with a weakness for inflation that we have never been able to suppress. The fact that it seemed to be “fixed” from the mid 90s until around 2020 was always an obvious illusion due to a set of one-off structural changes (cheap Eastern European labour and cheap Chinese manufacturing being the main ones; perhaps also cheap oil prices resulting from the US shale revolution; cheap global shipping is another factor).
10 years ago the price of food and household goods and appliances in Tesco was astonishingly low (and the quality better than ever). And yet no one stopped to question just how or why this was possible.
The fact that prices in Tesco have now reverted to something more normal should not be a surprise. Nor “wrong”. Nor suggest that there’s profit gouging going on. These things are still cheap by historical standards.
It is quite clear that there has been no fundamental change in Britain that makes us any less immune to inflation than we were in the 1970s and 1980s. Our luck has run out.
I keep finding this sort of statement in UnHerd articles:
“And this time, it comes after 15 years of stagnant living standards; in the Seventies, life for the ordinary worker had improved year on year thanks to strong unions who could squeeze real-terms pay rises from employers.”
It’s quite clear that almost none of UnHerd’s writers were around in the 1970s. Yet they keep writing about a period they never experienced and don’t really understand as though they have some authority to do so.
I remember the 1970s as a child. Pretty grim. Not everyone was in a union and able to get inflationary pay rises.
What a spectacularly economically ignorant article. And the author simply ignores the success in controlling ‘inflation’ in the years from 1979 to 1990. Which benefited the economy until 1997 when the rot was re-started by the New Labour Terror who arbitrarily expanded the money supply and destroyed the financial system regulation with their egregious FSMA2000.
Listen son, ‘inflation’ is always and forever a monetary phenomenon. Prices rise because of inflation, they do not cause it. It is a universal failure of government and bureaucrats.
What a spectacularly economically ignorant article. And the author simply ignores the success in controlling ‘inflation’ in the years from 1979 to 1990. Which benefited the economy until 1997 when the rot was re-started by the New Labour Terror who arbitrarily expanded the money supply and destroyed the financial system regulation with their egregious FSMA2000.
Listen son, ‘inflation’ is always and forever a monetary phenomenon. Prices rise because of inflation, they do not cause it. It is a universal failure of government and bureaucrats.
No mention of quantitive easing, furlough, energy price caps and other money-printing wheezes?
Pumped up by all this “free” cash, our economy could be compared to a speeding car: it only takes a little knock to flip it over. These knocks came in the form of global supply chain issues, war in Ukraine, and Brexit – although none of them are the underlying causes for our inflationary woes.
The extend and pretend strategy is the same as kicking a can along the road. You may get it to work provided you can kick hard enough and are not in a cul-de-sac. Arguably, higher interest rates may even take the can away.
“free” = paid for by someone else
“No mention of quantitive easing, furlough, energy price caps and other money-printing wheezes?”
Your broad point is correct but, by lumping furlough into the mix with QE, I think you’re eliding a really important distinction.
Furlough gave mostly low paid people more money than they would have otherwise had in a situation where they were being asked to sit at home and not work. It was, however, rather less money than they would have had in the absence of the pandemic. It was not, therefore, inflationary because the effect of mothballing the economy and giving people less money meant that there was less spending in the economy overall.
QE on the other hand, involved showering the economy with money. Vastly more money than was involved in the furlough scheme. Moreover, that money was poured into the economy through the specific conduit of the banks, which then used it to prop up the stock market, buy back shares and so on. This vastly increased the spending power of the upper end of the income distribution – which is how we had a property and stock market boom while the economy was collapsing.
Part of the solution to this problem is to extract the money back out of the economy again, through taxation – being careful, wherever possible, to ensure that the taxes are levied on those who benefitted from QE and the “other money-printing wheezes”
Notice how corporate profits are up but the share of the economy represented by wages is down? Well, there’s your blueprint.
We should extract money out of the economy by taxing corporate profits and suppressing rents but, on the wage side, we need to strike a balance. On the one hand, we want wages to rise significantly in order to avoid people getting poorer (in absolute terms and relative to our OECD neighbours and competitors) whilst offering just enough restraint to avoid a wage – price spiral (which we are presently nowhere near).
“free” = paid for by someone else
“No mention of quantitive easing, furlough, energy price caps and other money-printing wheezes?”
Your broad point is correct but, by lumping furlough into the mix with QE, I think you’re eliding a really important distinction.
Furlough gave mostly low paid people more money than they would have otherwise had in a situation where they were being asked to sit at home and not work. It was, however, rather less money than they would have had in the absence of the pandemic. It was not, therefore, inflationary because the effect of mothballing the economy and giving people less money meant that there was less spending in the economy overall.
QE on the other hand, involved showering the economy with money. Vastly more money than was involved in the furlough scheme. Moreover, that money was poured into the economy through the specific conduit of the banks, which then used it to prop up the stock market, buy back shares and so on. This vastly increased the spending power of the upper end of the income distribution – which is how we had a property and stock market boom while the economy was collapsing.
Part of the solution to this problem is to extract the money back out of the economy again, through taxation – being careful, wherever possible, to ensure that the taxes are levied on those who benefitted from QE and the “other money-printing wheezes”
Notice how corporate profits are up but the share of the economy represented by wages is down? Well, there’s your blueprint.
We should extract money out of the economy by taxing corporate profits and suppressing rents but, on the wage side, we need to strike a balance. On the one hand, we want wages to rise significantly in order to avoid people getting poorer (in absolute terms and relative to our OECD neighbours and competitors) whilst offering just enough restraint to avoid a wage – price spiral (which we are presently nowhere near).
No mention of quantitive easing, furlough, energy price caps and other money-printing wheezes?
Pumped up by all this “free” cash, our economy could be compared to a speeding car: it only takes a little knock to flip it over. These knocks came in the form of global supply chain issues, war in Ukraine, and Brexit – although none of them are the underlying causes for our inflationary woes.
The extend and pretend strategy is the same as kicking a can along the road. You may get it to work provided you can kick hard enough and are not in a cul-de-sac. Arguably, higher interest rates may even take the can away.
The iron law of supply and demand determines income but as there are lots of moving parts in an economy and there are different time lags for discovering where the balance lies all sorts of theories are able to flourish to explain what is going on.
Clip the coinage by increasing the amount of money and you will produce inflation but it will be unevenly spread, lagging and its effect will be affected by differences in demand and supply in the economy. Increase the supply of labour and wages for the skills that have been increased will tend to fall but again there will be lags and constraints to muddy the picture.
Covid resulted in a great reset in behaviour shifting demand for some things as well as supply, again with unevenly spread lags in the system. As others have observed government policies and events have tended to constrain the supplies of energy so it is no surprise that this has become more expensive and affected to supply of all sorts of other commodities and services. The basic mechanism of supply and demand is simple but in a complex economic system the precise way it plays out may be less easy to determine particularly since lots of politicians and economists want to obscure the picture to shift blame.
The iron law of supply and demand determines income but as there are lots of moving parts in an economy and there are different time lags for discovering where the balance lies all sorts of theories are able to flourish to explain what is going on.
Clip the coinage by increasing the amount of money and you will produce inflation but it will be unevenly spread, lagging and its effect will be affected by differences in demand and supply in the economy. Increase the supply of labour and wages for the skills that have been increased will tend to fall but again there will be lags and constraints to muddy the picture.
Covid resulted in a great reset in behaviour shifting demand for some things as well as supply, again with unevenly spread lags in the system. As others have observed government policies and events have tended to constrain the supplies of energy so it is no surprise that this has become more expensive and affected to supply of all sorts of other commodities and services. The basic mechanism of supply and demand is simple but in a complex economic system the precise way it plays out may be less easy to determine particularly since lots of politicians and economists want to obscure the picture to shift blame.
Essentially, there is only one solution: the British workforce must become much more productive. I don’t have a magic prescription for how to achieve this but stopping paying people to do nothing must be in the mix somewhere.
Essentially, there is only one solution: the British workforce must become much more productive. I don’t have a magic prescription for how to achieve this but stopping paying people to do nothing must be in the mix somewhere.
Permanent economic crisis may be the only source of restraint in a country whose voters and politicians alike have lost any sense of the cost of public spending and borrowing.
Permanent economic crisis may be the only source of restraint in a country whose voters and politicians alike have lost any sense of the cost of public spending and borrowing.
Who says monetarism failed? Successive governments may have lost their nerve but that’s another matter.
Who says monetarism failed? Successive governments may have lost their nerve but that’s another matter.
And finally, the free movement of workers from Europe has ended with Brexit.
The free movement of workers from Europe was brake on inflation? Here’s a little quiz. To make it easier I’ve provided the answers.
What is the single largest cost that all householders face.
Tax! How do I claim my Ten Pounds prize?
While we wait to see if Steve won, a quick observation about free movement. Accession to the EU gave every single citizen – 250 plus – the right to cross our borders without any permission and to live and work here…it was a mass movement of people not workers. Whilst we certainly gained from the fantastic work ethic of the young adult Poles in particular, granny & grandpa & young kids could all come too to enjoy the benefits of our massively better health & welfare policies. Only now do we learn that 5-6 million came to what Rwmainiacs call a terrifying unwelcoming raycist nation – way more than the pop of Norway. The fact this massive wave of people was not even counted nor anticipated meant the entire provision of public service – schools roads GPs resevoirs and hospitals – all requiring a 5- 10 year planning phase – was detonated & thrown into chaos. This demographic crisis is yet another factor in our inflationary doom loop. Ending free movement of people was and will always be a first great achievement of Brexit. Its workers we want.
Tax! How do I claim my Ten Pounds prize?
While we wait to see if Steve won, a quick observation about free movement. Accession to the EU gave every single citizen – 250 plus – the right to cross our borders without any permission and to live and work here…it was a mass movement of people not workers. Whilst we certainly gained from the fantastic work ethic of the young adult Poles in particular, granny & grandpa & young kids could all come too to enjoy the benefits of our massively better health & welfare policies. Only now do we learn that 5-6 million came to what Rwmainiacs call a terrifying unwelcoming raycist nation – way more than the pop of Norway. The fact this massive wave of people was not even counted nor anticipated meant the entire provision of public service – schools roads GPs resevoirs and hospitals – all requiring a 5- 10 year planning phase – was detonated & thrown into chaos. This demographic crisis is yet another factor in our inflationary doom loop. Ending free movement of people was and will always be a first great achievement of Brexit. Its workers we want.
And finally, the free movement of workers from Europe has ended with Brexit.
The free movement of workers from Europe was brake on inflation? Here’s a little quiz. To make it easier I’ve provided the answers.
What is the single largest cost that all householders face.
I have a novel idea. Instead of squeezing consumers and the private sector, why doesn’t the government cut its own spending? That would reduce demand and tax cuts and deregulation can be brought in to reduce costs. We know this would bring about both lower inflation and higher growth.
Deregulation? Would you include all the extra Brexit related costs for SMEs?
Which bits would you cut? Triple locked pensions? In work benefits so we make lots of folks even poorer? Health care so we extend the waits for things keeping people off work for longer? Or maybe £169k per Rwandan transfer?
Or perhaps we tax those who’ve done v well a little more and instead of allowing Businesses to take short term dividend and share buy back decisions for Board member personal financial advantage we change the way we incentivise Business in the UK to invest?
Why don’t we just nationalise everything so we don’t have these pesky business owners taking decisions about how best to allocate capital. Much better done by technocrats.
Capitalism is always managed by the way we set up costs and incentives and how the Law works. Nothing new there and a million miles from a communistic solution. You’re just deflecting by associating with a daft idea. Engage with what we could do differently without chucking the baby out with the bathwater.
Capitalism is always managed by the way we set up costs and incentives and how the Law works. Nothing new there and a million miles from a communistic solution. You’re just deflecting by associating with a daft idea. Engage with what we could do differently without chucking the baby out with the bathwater.
Why don’t we just nationalise everything so we don’t have these pesky business owners taking decisions about how best to allocate capital. Much better done by technocrats.
Deregulation? Would you include all the extra Brexit related costs for SMEs?
Which bits would you cut? Triple locked pensions? In work benefits so we make lots of folks even poorer? Health care so we extend the waits for things keeping people off work for longer? Or maybe £169k per Rwandan transfer?
Or perhaps we tax those who’ve done v well a little more and instead of allowing Businesses to take short term dividend and share buy back decisions for Board member personal financial advantage we change the way we incentivise Business in the UK to invest?
I have a novel idea. Instead of squeezing consumers and the private sector, why doesn’t the government cut its own spending? That would reduce demand and tax cuts and deregulation can be brought in to reduce costs. We know this would bring about both lower inflation and higher growth.
“Governance is art, not architecture: the management of circumstance, not the building of permanent structures. Inflation is back and so too are the politics of inflation. Strap in for a bumpy ride.”
Great insight and an excellent article, imo.
Sort of like fallowing the track of a snail after it has been wondering about aimlessly……A mix of the writers pet theories presented as truth, and a hundred other items and factoids all jumbled up together and presented as meaning something (my subscription ends tomorrow or the next….so you should get a break from my rambling soon).
the end: ”Governance is art, not architecture:” haha…. pass the sick bucket….
Governance now is Pandering to the lowest voter’s lowest wishes – to get voted in, so that the politician may sell their position for wealth. It is Criminal, not Art, or Architecture…
How about sticking to the basics:
‘‘“IN SHORT” – MR WILKINS MICAWBER”
”“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” ~ David Copperfield”
See – it is Annual income twenty pounds, annual expenditure forty pounds….. haha… and then print the difference, or borrow it with promises to be paid – by printing the difference.
This means inflation, as the amount of goods fails to increase, but the supply of money does. Wages do fully not keep up though, sorry…..
It also is intentional as causing inflation means it pays off the created debt by reducing the real value of it. That it also reduces the wealth, savings, pensions of the citizens is how it works. They print money – you pay it back by the ‘Stealth Tax’ of inflation.
The money is depreciated by being increased. That is the process; it makes the elite very wealthy, and the working people poor, this is just a extra bit of good news to the Elites, that you become poor, and thus clients instead of citizens, and thus have the ring through your nose to be led about by…..haha
And then you have Zero Interest on top… Wow, but I will let that one go today….
” We will own everything, and you will own nothing, and you will be happy” haha...
”here have some fentanyl, its really cheap and it will make you happy”, haha…….
Stop writing haha after every point, it makes it read as if it’s been written a teenaged simpleton
Stop writing haha after every point, it makes it read as if it’s been written a teenaged simpleton
I dont agree with the notion that our political class ARE actually in control at the wheel; that there is any ‘art’ in their governance. They have totally lost control – all four tyres have burst, the windshield is smashed and the gearbox broken. We have collapsed into a Big State/High Tax Super Indebted, Mass Migration & Bailout Addicted economy now warring on enterprise. The housing education energy and labour markets have all been twisted and warped since the 90s and are simply beyond repair; they do not have the tools or will to fix such structural mayhem. Hence the impotent politicos have simply given up & detached themselves from the terrible reality beyond their privileged final salary tower (us), virtue signalling like hysterical teens about climate emergencies, George Floyd, our evil raycist History and about what a woman is. They have leapt from the speeding car with us poor saps sitting in back seat ready to hit the wall.
Housing has been turned into a Ponzi scheme, the state lacks the will or ability to guide investment away from unproductive assets and towards industry that creates growth and wealth, inequality has been allowed reach gigantic proportions where assets earn more in a year than wages, industry has been allowed to be shipped off abroad and mass immigration and cheap credit has been used as tools to artificially push up GDP to disguise the drop in living standards. 40 years of neoliberalism and believing that the market will fix everything has done wonders for the country!
Housing has been turned into a Ponzi scheme, the state lacks the will or ability to guide investment away from unproductive assets and towards industry that creates growth and wealth, inequality has been allowed reach gigantic proportions where assets earn more in a year than wages, industry has been allowed to be shipped off abroad and mass immigration and cheap credit has been used as tools to artificially push up GDP to disguise the drop in living standards. 40 years of neoliberalism and believing that the market will fix everything has done wonders for the country!
Sort of like fallowing the track of a snail after it has been wondering about aimlessly……A mix of the writers pet theories presented as truth, and a hundred other items and factoids all jumbled up together and presented as meaning something (my subscription ends tomorrow or the next….so you should get a break from my rambling soon).
the end: ”Governance is art, not architecture:” haha…. pass the sick bucket….
Governance now is Pandering to the lowest voter’s lowest wishes – to get voted in, so that the politician may sell their position for wealth. It is Criminal, not Art, or Architecture…
How about sticking to the basics:
‘‘“IN SHORT” – MR WILKINS MICAWBER”
”“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” ~ David Copperfield”
See – it is Annual income twenty pounds, annual expenditure forty pounds….. haha… and then print the difference, or borrow it with promises to be paid – by printing the difference.
This means inflation, as the amount of goods fails to increase, but the supply of money does. Wages do fully not keep up though, sorry…..
It also is intentional as causing inflation means it pays off the created debt by reducing the real value of it. That it also reduces the wealth, savings, pensions of the citizens is how it works. They print money – you pay it back by the ‘Stealth Tax’ of inflation.
The money is depreciated by being increased. That is the process; it makes the elite very wealthy, and the working people poor, this is just a extra bit of good news to the Elites, that you become poor, and thus clients instead of citizens, and thus have the ring through your nose to be led about by…..haha
And then you have Zero Interest on top… Wow, but I will let that one go today….
” We will own everything, and you will own nothing, and you will be happy” haha...
”here have some fentanyl, its really cheap and it will make you happy”, haha…….
I dont agree with the notion that our political class ARE actually in control at the wheel; that there is any ‘art’ in their governance. They have totally lost control – all four tyres have burst, the windshield is smashed and the gearbox broken. We have collapsed into a Big State/High Tax Super Indebted, Mass Migration & Bailout Addicted economy now warring on enterprise. The housing education energy and labour markets have all been twisted and warped since the 90s and are simply beyond repair; they do not have the tools or will to fix such structural mayhem. Hence the impotent politicos have simply given up & detached themselves from the terrible reality beyond their privileged final salary tower (us), virtue signalling like hysterical teens about climate emergencies, George Floyd, our evil raycist History and about what a woman is. They have leapt from the speeding car with us poor saps sitting in back seat ready to hit the wall.
“Governance is art, not architecture: the management of circumstance, not the building of permanent structures. Inflation is back and so too are the politics of inflation. Strap in for a bumpy ride.”
Great insight and an excellent article, imo.
We know some factors should settle. Sunak wouldn’t have promised to half it without knowing that. But it looks like we’ll have an underlying rate higher than comparable countries. That begs fundamental question about what is different.
It’s not Unionisation as Unions much weaker than in many prior decades. Unique to the UK labour shortages do seem to be playing a part right now. However the UK inflation problem may also be a symptom of an underlying UK productivity problem with our model of capitalism failing repeatedly to encourage sufficient investment in productivity improvements.
There is also an uncomfortable issue about profit-push inflation. Even a Right Wing Govt has signalled it’s slightly worried that some have used the current challenges to further drive margins whilst the adverse impact of inflation falls disproportionately on others.
There will be a tendency for some to use this to beat down on public spending and public sector workers – neither though has driven the current problem. I mean how does the v significant reduction in the real value of junior doctor and nurse salaries over last 10yrs contribute to higher inflation now? It doesn’t does it. Look at Board room pay first perhaps. Look at the fact Banks don’t pass on Interest rate rises in Savings accts too – encouraging saving more would help reduce inflation.
UK has some fundamental issues on our model of capitalism we’ve been able to gloss over for some time.
Which right wing government is that? I’ve looked round but I can’t see one.
Which right wing government is that? I’ve looked round but I can’t see one.
We know some factors should settle. Sunak wouldn’t have promised to half it without knowing that. But it looks like we’ll have an underlying rate higher than comparable countries. That begs fundamental question about what is different.
It’s not Unionisation as Unions much weaker than in many prior decades. Unique to the UK labour shortages do seem to be playing a part right now. However the UK inflation problem may also be a symptom of an underlying UK productivity problem with our model of capitalism failing repeatedly to encourage sufficient investment in productivity improvements.
There is also an uncomfortable issue about profit-push inflation. Even a Right Wing Govt has signalled it’s slightly worried that some have used the current challenges to further drive margins whilst the adverse impact of inflation falls disproportionately on others.
There will be a tendency for some to use this to beat down on public spending and public sector workers – neither though has driven the current problem. I mean how does the v significant reduction in the real value of junior doctor and nurse salaries over last 10yrs contribute to higher inflation now? It doesn’t does it. Look at Board room pay first perhaps. Look at the fact Banks don’t pass on Interest rate rises in Savings accts too – encouraging saving more would help reduce inflation.
UK has some fundamental issues on our model of capitalism we’ve been able to gloss over for some time.
“…life for the ordinary worker had improved year on year thanks to strong unions who could squeeze real-terms pay rises from employers.”
Unless ALL ordinary workers are in a union squeezing money out of employers, this cannot be true. If unions are pushing the cost of labour above their market value, it makes the price of those goods and services produced by that labour more expensive than they would otherwise be. This means that everyone, including ordinary workers, is paying more for less, which is pretty much the definition of life getting worse and the nation getting poorer. There’s no point being paid more if your pound goes less far as a result. The “as a result” point is crucial here; unions’ higher wage demands CAUSES everyone else to become poorer.
We should always ask, where does the money come from? If unions are demanding higher pay for the same amount of productivity, in the absence of an increase in the supply of money, everyone else must spend less on other things. The result is economic contraction but no long term inflation. The state can address this by increasing the money supply and then the result is inflation but the economic contraction is kicked down the road (temporarily). The same applies to any price shock, whether that’s labour, oil or wheat.
Monetarism didn’t fail. What failed was people’s ability to understand it. The price of money is subject to the laws of supply and demand, just as any other commodity is.
2002 to 2008 may have felt like golden years but Blair and Brown unnecessarily increased the money supply with fiscal stimulus so that you thought you were wealthier in the noughties than you actually were. This was borrowed wealth rather than an increase in productivity.
“…life for the ordinary worker had improved year on year thanks to strong unions who could squeeze real-terms pay rises from employers.”
Unless ALL ordinary workers are in a union squeezing money out of employers, this cannot be true. If unions are pushing the cost of labour above their market value, it makes the price of those goods and services produced by that labour more expensive than they would otherwise be. This means that everyone, including ordinary workers, is paying more for less, which is pretty much the definition of life getting worse and the nation getting poorer. There’s no point being paid more if your pound goes less far as a result. The “as a result” point is crucial here; unions’ higher wage demands CAUSES everyone else to become poorer.
We should always ask, where does the money come from? If unions are demanding higher pay for the same amount of productivity, in the absence of an increase in the supply of money, everyone else must spend less on other things. The result is economic contraction but no long term inflation. The state can address this by increasing the money supply and then the result is inflation but the economic contraction is kicked down the road (temporarily). The same applies to any price shock, whether that’s labour, oil or wheat.
Monetarism didn’t fail. What failed was people’s ability to understand it. The price of money is subject to the laws of supply and demand, just as any other commodity is.
2002 to 2008 may have felt like golden years but Blair and Brown unnecessarily increased the money supply with fiscal stimulus so that you thought you were wealthier in the noughties than you actually were. This was borrowed wealth rather than an increase in productivity.
It’s always easy to blame governments. I think we tend to get the governments we deserve. The root of the British economic problem is low productivity ff high wages, allied to being net importers of goods and having a consumerist attitude to life fueled by easy credit.
Hard work and only spending what we can afford is the only way out of this. Austerity in other words. But a self imposed austerity by individuals.
Business meanwhile needs tax incentives to invest.
It would also rather help if big ticket governnent spending was (a) the right projects (nuclear power not HS2) and (b) contracted to UK owned companies not the French and China.
It’s always easy to blame governments. I think we tend to get the governments we deserve. The root of the British economic problem is low productivity ff high wages, allied to being net importers of goods and having a consumerist attitude to life fueled by easy credit.
Hard work and only spending what we can afford is the only way out of this. Austerity in other words. But a self imposed austerity by individuals.
Business meanwhile needs tax incentives to invest.
It would also rather help if big ticket governnent spending was (a) the right projects (nuclear power not HS2) and (b) contracted to UK owned companies not the French and China.
Oh, and Tom, something else whilst I think of it, interest rates are a price, not a policy tool.
Oh, and Tom, something else whilst I think of it, interest rates are a price, not a policy tool.
Bizarre article. Full of errors and misunderstandings. Just one example: we have not had 15 years of stagnant living standards. We have had reasonable and reasonably widely spread growth, after the recession of 2008.
Most citizens are clearly better off than they were in 2007, though in the last couple of years taxation and inflation, both the products of governmental and Bank of England utter incompetence have put an end to that.
“We have had reasonable and reasonably widely spread growth, after the recession of 2008.”
So, my reading of the data is that we have had reasonble growth since 2008 but very little growth in median earnings (basically none). Whilst in Germany and France, growth has been similar but median earnings are up 27% and 35% respectively.
That doesn’t fulfil my idea of reasonably widespread growth.
AM I wrong or are you citing something different? Do you mean widespread in a geographic sense, or across industrial sectors?
Median real equivalised UK household disposable income of individuals, in the 25 years up to financial year ending 2022 shows a consistent pattern of growth from £26,100 in 96/97 to £38670 in 20007/08. Over the next 5 years it fell to £34,735 in 2012/13 before recovering slowly to £39,218 in 2019/20 and remaining essentially unchanged for the following two years. Median income in the last three years has been higher than in any other year in the record, but only trivially higher than in 2007/08.
These data are not consistent with the claims that “We have had reasonable and reasonably widely spread growth, after the recession of 2008” or that “Most citizens are clearly better off than they were in 2007”. Stagnant overall since 2007 looks closer to the mark.
Also the remark that “… in the last couple of years taxation and inflation, … have put an end to [citizens being better off].” Is also unsupported by this data, though these are untypical years, and we don’t have data for 2022/23.
Yep my understanding too GV and I can’t find any ThinkTank arguing much different. Maybe JRS will enlighten us?
Which thus means what growth there has been has left many just further behind. And it’ll be the less well off feeling more pinched by inflation and likely even more by the potential medicine that will be applied.
We’ve a fundamental inequity here. Some would contend it’s worse than that and a proper racket.
I mean average earnings, gross earnings have increased in line with the most advanced economies, over the periods cited. Obviously not after 2008 but the recovery was reasonable as the figures cited by Mr Hodgson show. It’s tricky comparing national economies but overall UK growth was slightly ahead of France.
But to person in the street, what matters is net growth, after taxation and inflation. That certainly has not been good in the last two years – 2022 and even 2023 can be accurately guessed at. The outlook is certainly not good under the present administration for the average working person, even less the unworking person, though there is present the enormous complexity of adding benefits. Much better for state pensioners for example very bad for young unemployed.
But, that’s my point. Average earnings in the UK have barely grown at all since 2008 but, in France and Germany they grew by around 30%.
Growth was indeed similar in all three countries.
What I am saying is that all of the benefit of the growth in the UK. – all of it – went to the better off. This was not the case in France or Germany.
This is not my idea of “reasonably widely spread growth”.
I personally want the poor to be getting richer quicker than the rich.
But, whatever my politics, I think that immiserating the bottom half of the income spectrum will actually reduce growth because, if half the country has no disposible income, how can they buy the products and services that make up growth?
Worse, if a growing proportion of the population doesn’t earn enough to cover the essentials then they will be eligible for more benefits and more support which has to be extracted from taxes.
This is the “doom loop” to which people sometimes refer.
The high taxes of which you complain are a result of the low earnings (in combination with a failure to restrain the housing market and the growth of other non-discretionary cost such as energy, and student debt)
But, that’s my point. Average earnings in the UK have barely grown at all since 2008 but, in France and Germany they grew by around 30%.
Growth was indeed similar in all three countries.
What I am saying is that all of the benefit of the growth in the UK. – all of it – went to the better off. This was not the case in France or Germany.
This is not my idea of “reasonably widely spread growth”.
I personally want the poor to be getting richer quicker than the rich.
But, whatever my politics, I think that immiserating the bottom half of the income spectrum will actually reduce growth because, if half the country has no disposible income, how can they buy the products and services that make up growth?
Worse, if a growing proportion of the population doesn’t earn enough to cover the essentials then they will be eligible for more benefits and more support which has to be extracted from taxes.
This is the “doom loop” to which people sometimes refer.
The high taxes of which you complain are a result of the low earnings (in combination with a failure to restrain the housing market and the growth of other non-discretionary cost such as energy, and student debt)
Median real equivalised UK household disposable income of individuals, in the 25 years up to financial year ending 2022 shows a consistent pattern of growth from £26,100 in 96/97 to £38670 in 20007/08. Over the next 5 years it fell to £34,735 in 2012/13 before recovering slowly to £39,218 in 2019/20 and remaining essentially unchanged for the following two years. Median income in the last three years has been higher than in any other year in the record, but only trivially higher than in 2007/08.
These data are not consistent with the claims that “We have had reasonable and reasonably widely spread growth, after the recession of 2008” or that “Most citizens are clearly better off than they were in 2007”. Stagnant overall since 2007 looks closer to the mark.
Also the remark that “… in the last couple of years taxation and inflation, … have put an end to [citizens being better off].” Is also unsupported by this data, though these are untypical years, and we don’t have data for 2022/23.
Yep my understanding too GV and I can’t find any ThinkTank arguing much different. Maybe JRS will enlighten us?
Which thus means what growth there has been has left many just further behind. And it’ll be the less well off feeling more pinched by inflation and likely even more by the potential medicine that will be applied.
We’ve a fundamental inequity here. Some would contend it’s worse than that and a proper racket.
I mean average earnings, gross earnings have increased in line with the most advanced economies, over the periods cited. Obviously not after 2008 but the recovery was reasonable as the figures cited by Mr Hodgson show. It’s tricky comparing national economies but overall UK growth was slightly ahead of France.
But to person in the street, what matters is net growth, after taxation and inflation. That certainly has not been good in the last two years – 2022 and even 2023 can be accurately guessed at. The outlook is certainly not good under the present administration for the average working person, even less the unworking person, though there is present the enormous complexity of adding benefits. Much better for state pensioners for example very bad for young unemployed.
“We have had reasonable and reasonably widely spread growth, after the recession of 2008.”
So, my reading of the data is that we have had reasonble growth since 2008 but very little growth in median earnings (basically none). Whilst in Germany and France, growth has been similar but median earnings are up 27% and 35% respectively.
That doesn’t fulfil my idea of reasonably widespread growth.
AM I wrong or are you citing something different? Do you mean widespread in a geographic sense, or across industrial sectors?
Bizarre article. Full of errors and misunderstandings. Just one example: we have not had 15 years of stagnant living standards. We have had reasonable and reasonably widely spread growth, after the recession of 2008.
Most citizens are clearly better off than they were in 2007, though in the last couple of years taxation and inflation, both the products of governmental and Bank of England utter incompetence have put an end to that.
The pain needs to fall on “someone”. The point of politics is to choose your someone(s).
The ideal candidtates would be those who would be receiving a big windfal in the absence of action and/or anyone on whome the imposition of pain would contribute towards other public goods.
So, one group well qualified to fill both criteria would be… landlords (both residential and commercial).
Rents are already incredibly high in most parts of the country and it is bananas that landlords are currently forcing rents even higher.
The private rented sector currently accommodates 20% of all huseholds and consumes – on average – c.35% of the incomes of those households – i.e. about 7% of all household expenditure. Simply imposing a rent freeze would therefore make a measurable impact on inflation and the money that tenant households save would almost certainly be spent immediately in the economy (rather than being reinvested in proprety or extracted overseas). This is a cheaper and more impactful policy than anything you can do to energy prices – simply because it’s a bigger slice of spending.
Many landlords would of course find this painful – their borrowing costs are currently rising. But most landlords have actually done pretty well – values have risen. It should therefore be relatively unusual for any individual landlord to have both a high debt:equity ratio and a need to renew their borrowing.
Some will, of course. And some are already heading for the exits. Again, it wouldn’t be beyond the wit of man to ensure that landlords wishing to sell up might have to offer the home first to the sitting tennant or to a Housing Association – which could bridge the gap between the rent and the cost of acquiring the property using a mortgage.
Commercial rents are equally bananas – a proper payment for nothing. And very few people own commercial property. A commercial rent feeze would help an awful lot of struggling businesses – with massive, positive knock-on effects throughout the economy.
And yet, no major party is even talking about this.
It’s totally taboo – because of what? Ricardo’s law? The edict of a single nineteenth century economist. If you think that’s OK then try to imagine Marx’s utterances being treated as sacred in this way.
Back in the empirical world, where Ricardo’s law is given it proper status as a theory, research has been conducted over the past couple of centuries. Surprise! It turns out that controls sometimes work and sometimes don’t. It depends on the neture of the controls and why they were introduced.. But you know what really never works? Imposing galloping inflation on a population whose living standards have stagnated for a decade and recently declined sharply.
In an ideal world, you wouldn’t need rent controls but I think that we can all agree that we’re not in one of those.
Landlords are not forcing rents higher. It is one of the most competitive markets there is. More correct to say tenants are forcing them higher! But the simple truth is that the government has restricted supply and demand has increased. So rents will go up until tenants can’t afford them. Rent controls will.merely further restrict supply.
Have we learned nothing of housing economics since 1945?
I don’t know what you’re smoking but I’d love to try some, it looks wild!
There is no overall shortage of housing. Check the census. the number of new homes built has exceeded household formation since 2001. Overcrowding is rare and underoccupation common. When we say that we have a housing shortage what the government actually means is that we have not built enough new homes to prevent prices rising. The problem is that the people charged with building so many homes that prices cease rising are… developers. And I’m not being mean about developers when I say that it is not in their interest to oversupply the market with homes until prices cease rising and so… they don’t. We have a housing policy that relies on a broken linkage to control prices.
As to the idea that tenants rather than landlords drive rents up. It’s simply bananas.
Landlords force rents higher because they set rents. If you can show me a single instance of a tenant asking their landlord to raise the rent I will eat my hat. They raise rents when they think they think that they can find a tenant who will pay more for the property.
The reason that tenants will pay more is because there are ever more people, who are priced out of home ownership. Working households with significant eanings are unlikely to be offered social rented housing because social homes are scarce and therefore offered preferentially to households in the most acute need.
Thus, the demographic which is both priced out of home ownership, and excluded form the social stock grows larger, richer and older all the time. Rational landlords therefore raise the rent to the highest level that this increasingly high-earning cohort can possibly “afford”.
The problem is that the tenants can’t actually “afford” it at all – in the sense of paying it whilst also sustaining a reasonable standard of living. They can afford it only in the sense that they will pay it if they have to in order to avoid homelessness.
That is why the average private sector tenant household pays 34% of their gross income in housing costs and tenants in London often pay nearer 50%
In any other area, we would call price-gouging or profiteering. No bank would offer these households a mortgage where the repayments made up as large a share of household income because it is unsustainable and, thus, the risk of default would be too great.
This means that landlords can often afford to take out bigger loans on the same property than a buyer could because the landlord’s loan repayments are supported by a rent higher than the bank would accept as a mortgage payment from the same household! Crazy? You bet!
And it gets worse because government’s idea of what households can afford to pay in rent is totally bananas. It is based on gross income minus actual essential spending minus an allowance for discretionary spending equals the affordable rent.
Can you guess the weekly allowance for all discretionary spending (books, clothing, entertainment, inessential travel, holidays etc).
£10/week per person.
A household earning £30,000 per annum but living in an expensive area like Surrey or the home counties would be assumed to need to spend no more than £10/week (1.7% of gross income) on non-essentials.
It beggars belief.
Ricardo’s law of rents is a general principle based on the operation of functional markets. The UK housing market is not functional. Not only is it failing as a housing market but it is extracting an increasingly unsustainable share of national wealth upwards, which has the externality of stifling economic growth by depriving working households of disposible income that they can spend to support the wider economy.
A huge programme of public housing could fix this problem slowly and at great public expense but rent controls could ameliorate it right now and at a trivial cost to the exchequer. And these are not mutually exclusive options. Rent control would make a house building programme cheaper.
I don’t know what you’re smoking but I’d love to try some, it looks wild!
There is no overall shortage of housing. Check the census. the number of new homes built has exceeded household formation since 2001. Overcrowding is rare and underoccupation common. When we say that we have a housing shortage what the government actually means is that we have not built enough new homes to prevent prices rising. The problem is that the people charged with building so many homes that prices cease rising are… developers. And I’m not being mean about developers when I say that it is not in their interest to oversupply the market with homes until prices cease rising and so… they don’t. We have a housing policy that relies on a broken linkage to control prices.
As to the idea that tenants rather than landlords drive rents up. It’s simply bananas.
Landlords force rents higher because they set rents. If you can show me a single instance of a tenant asking their landlord to raise the rent I will eat my hat. They raise rents when they think they think that they can find a tenant who will pay more for the property.
The reason that tenants will pay more is because there are ever more people, who are priced out of home ownership. Working households with significant eanings are unlikely to be offered social rented housing because social homes are scarce and therefore offered preferentially to households in the most acute need.
Thus, the demographic which is both priced out of home ownership, and excluded form the social stock grows larger, richer and older all the time. Rational landlords therefore raise the rent to the highest level that this increasingly high-earning cohort can possibly “afford”.
The problem is that the tenants can’t actually “afford” it at all – in the sense of paying it whilst also sustaining a reasonable standard of living. They can afford it only in the sense that they will pay it if they have to in order to avoid homelessness.
That is why the average private sector tenant household pays 34% of their gross income in housing costs and tenants in London often pay nearer 50%
In any other area, we would call price-gouging or profiteering. No bank would offer these households a mortgage where the repayments made up as large a share of household income because it is unsustainable and, thus, the risk of default would be too great.
This means that landlords can often afford to take out bigger loans on the same property than a buyer could because the landlord’s loan repayments are supported by a rent higher than the bank would accept as a mortgage payment from the same household! Crazy? You bet!
And it gets worse because government’s idea of what households can afford to pay in rent is totally bananas. It is based on gross income minus actual essential spending minus an allowance for discretionary spending equals the affordable rent.
Can you guess the weekly allowance for all discretionary spending (books, clothing, entertainment, inessential travel, holidays etc).
£10/week per person.
A household earning £30,000 per annum but living in an expensive area like Surrey or the home counties would be assumed to need to spend no more than £10/week (1.7% of gross income) on non-essentials.
It beggars belief.
Ricardo’s law of rents is a general principle based on the operation of functional markets. The UK housing market is not functional. Not only is it failing as a housing market but it is extracting an increasingly unsustainable share of national wealth upwards, which has the externality of stifling economic growth by depriving working households of disposible income that they can spend to support the wider economy.
A huge programme of public housing could fix this problem slowly and at great public expense but rent controls could ameliorate it right now and at a trivial cost to the exchequer. And these are not mutually exclusive options. Rent control would make a house building programme cheaper.
Rent controls? Are you having a laugh? Why try something that we know is a failure. It’s as if the 20th Century never happened. The quickest way to create a shortage is through price controls. Barking mad.
Rent contols aren’t without drawbacks but, in this case, shortages woudn’t be one of them.
It’s worth bearing in mind, for those who like to cite Ricardo’s theory of rents, that Ricardo was writing in the nineteenth century – at a time before mass home ownership. Any losses from the private rented stock would therefore take the form of sales to owner occupiers – itself not a bad outcome from a housing perspective. That would not have been the case in Ricardo’s era.
Moreover, a lot of the instinctive opposition to rent controls dates from the mid 20th century, when housing costs were vastly lower than they are now (relative to both incomes and the cost of building houses).
If you had capped rents at levels prevalent in the early sixties, then it would not have been possible to build houses and make a profit from renting them out at the capped rent. So supply would have dried up.
But rents on new stock in pressured markets within commuting distance of London are more than adequate to fund the cost of construction and a decent return. So capping rents simply suppresses land value – itself no bad thing.
Rent contols aren’t without drawbacks but, in this case, shortages woudn’t be one of them.
It’s worth bearing in mind, for those who like to cite Ricardo’s theory of rents, that Ricardo was writing in the nineteenth century – at a time before mass home ownership. Any losses from the private rented stock would therefore take the form of sales to owner occupiers – itself not a bad outcome from a housing perspective. That would not have been the case in Ricardo’s era.
Moreover, a lot of the instinctive opposition to rent controls dates from the mid 20th century, when housing costs were vastly lower than they are now (relative to both incomes and the cost of building houses).
If you had capped rents at levels prevalent in the early sixties, then it would not have been possible to build houses and make a profit from renting them out at the capped rent. So supply would have dried up.
But rents on new stock in pressured markets within commuting distance of London are more than adequate to fund the cost of construction and a decent return. So capping rents simply suppresses land value – itself no bad thing.
Landlords are not forcing rents higher. It is one of the most competitive markets there is. More correct to say tenants are forcing them higher! But the simple truth is that the government has restricted supply and demand has increased. So rents will go up until tenants can’t afford them. Rent controls will.merely further restrict supply.
Have we learned nothing of housing economics since 1945?
Rent controls? Are you having a laugh? Why try something that we know is a failure. It’s as if the 20th Century never happened. The quickest way to create a shortage is through price controls. Barking mad.
The pain needs to fall on “someone”. The point of politics is to choose your someone(s).
The ideal candidtates would be those who would be receiving a big windfal in the absence of action and/or anyone on whome the imposition of pain would contribute towards other public goods.
So, one group well qualified to fill both criteria would be… landlords (both residential and commercial).
Rents are already incredibly high in most parts of the country and it is bananas that landlords are currently forcing rents even higher.
The private rented sector currently accommodates 20% of all huseholds and consumes – on average – c.35% of the incomes of those households – i.e. about 7% of all household expenditure. Simply imposing a rent freeze would therefore make a measurable impact on inflation and the money that tenant households save would almost certainly be spent immediately in the economy (rather than being reinvested in proprety or extracted overseas). This is a cheaper and more impactful policy than anything you can do to energy prices – simply because it’s a bigger slice of spending.
Many landlords would of course find this painful – their borrowing costs are currently rising. But most landlords have actually done pretty well – values have risen. It should therefore be relatively unusual for any individual landlord to have both a high debt:equity ratio and a need to renew their borrowing.
Some will, of course. And some are already heading for the exits. Again, it wouldn’t be beyond the wit of man to ensure that landlords wishing to sell up might have to offer the home first to the sitting tennant or to a Housing Association – which could bridge the gap between the rent and the cost of acquiring the property using a mortgage.
Commercial rents are equally bananas – a proper payment for nothing. And very few people own commercial property. A commercial rent feeze would help an awful lot of struggling businesses – with massive, positive knock-on effects throughout the economy.
And yet, no major party is even talking about this.
It’s totally taboo – because of what? Ricardo’s law? The edict of a single nineteenth century economist. If you think that’s OK then try to imagine Marx’s utterances being treated as sacred in this way.
Back in the empirical world, where Ricardo’s law is given it proper status as a theory, research has been conducted over the past couple of centuries. Surprise! It turns out that controls sometimes work and sometimes don’t. It depends on the neture of the controls and why they were introduced.. But you know what really never works? Imposing galloping inflation on a population whose living standards have stagnated for a decade and recently declined sharply.
In an ideal world, you wouldn’t need rent controls but I think that we can all agree that we’re not in one of those.
The UK needs external credibility. It should join the euro, or the dollar.
What a useless article. Inflation is the reduction of the value of the money we have. The Romans emperors worked out how to reduce the value of money whilst increasing what they had. They did it by clipping the coins when coins had a value. Henry VIII did the same to fund his excessive spending. Now we have the modern equivalent of coin clipping – printing of worthless money. It benefits those who get their hands on it first, the banks. When it enters circulation it slowly reduces the value of existing money and especially our savings. End inflation by ending money printing. It will never happen whilst governments are obsessed with increasing their power and control.