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November 16, 2021 - 1:35pm
There appears to be a growing recognition that governmental responses to the pandemic might be doing more damage to the economy than previously reckoned with. On Sunday, US Treasury Secretary Janet Yellen conceded that a key driver of inflation has been the pandemic. True, she framed this as an act of God when the reality is that the economic damage is due to man-made policies — but the recognition of the cause and effect is a step in the right direction.
Here in the UK the Government’s ‘rampdown’ plans were leaked. The plans do not address inflation directly but the chatter around the plan alludes to it, with one Whitehall source saying that the plan was effectively a response to the fiscal problems caused by the response to the virus. They include axing self-isolation laws, ending free testing and shutting down the ill-fated ‘Test and Trace’ system.
This rampdown could certainly ease inflationary pressures. Scrapping self-isolation will tackle one of the causes of the labour shortages — namely, clusters of workers having to stay at home when one produces a positive test. Getting rid of Test and Trace will have a similar effect. The new rules making people pay for lateral flow tests will stop the dreaded ‘casedemic’ keeping people from their jobs — testing in Britain in 2021 was more than twice what is was in 2020.
All this is good news for the economy. Stopping these impediments to workers doing their jobs will help the smooth delivery of goods and services. But in the short-term, this probably isn’t enough. A lot of the damage has already been done and much of it will take a long time to heal.
For example, even if the rampdown was activated tomorrow, there would still be queues for driving tests and therefore a dearth of new lorry drivers. Or take the massive loss of workers due to European immigrants going back to their home countries during the first lockdown — the Migration Observatory estimated a decline of the foreign born population of 894,000 in 2020. The borders are more open than they were last year but travelling is still a pain. Finally, there are the international supply chain issues which are simply out of the British government’s control.
All in all, the rampdown is a necessary but not sufficient condition to stem the tide of inflation. It is a step in the right direction and should be implemented as soon as possible. But further steps are needed; the most obvious being getting international travel back to normal. Still, it is good to see Government starting to pay attention to the economic repercussions of their pandemic responses. We are far ahead of other countries in that regard.
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SubscribeHear hear! I was so relieved to read of “operation rampdown” the other day. Let’s hope it happens or even happens earlier than March and that other countries like poor benighted Ireland see Britain acting rationally and reaping the rewards of a return to normality
Why not tomorrow, or even tonight? What’s the point of waiting?
This is a very sensible piece.
The first thing to do, I would say, is repudiate the failed politics of lockdown-ism and COVID hysteria, publicly and for good. Not only would this send a strong signal to those who continue to militate in this direction that they should hang up their facemasks for good, it would reassure businesses and investors that Britain will not slip down this rabbit hole again.
A second step is to refocus on stabilising supply chains: Sensible worker migration policies (the EU’s freedom of movement provisions were just that, btw), streamlining and facilitating a regulatory approach that stimulates a return to Britain’s productive capacity. And finally (though it will not be popular) frontloading some of the necessary fiscal consolidation to dampen demand-side inflation and sow the seeds for a quicker return to a recovery – one led by strong fundamentals.
“Rampdowns” is just a short way of saying:
“The beatings will continue until morale improves.”
“A second step is to refocus on stabilising supply chains:”
USA buys 80$ Billion more than it sells internationally A MONTH! (USA is doing $120 Billion QE A MONTH, and a trade deficit of $80 Billion A MONTH on top, and printing Trillions in ‘human infrastructure, and Trillions in the regular Fed Budget deficit as well) I do not know the British numbers, but they are likely very frightening.
So how will supply chains work in the year or two it is projected it will take to fix the supply issues? Will the Chinese still want foreign Central Bank Fiat Currency in exchange for their resources, work, and industry? Will supply diminish, and that be how it is fixed?
My guess is supply chains will be less stressed as foreigners want $ and Euros and Pounds less, as they are devalued more every day, inflated away – as $ are mere printed debt, piled on debt, with yet more debt issued to pay the interest on the debt –
I suspect that inflation is the medicine we are going to have to take to drain the vast amounts of cash pumped into the system during lockdowns. Yes some of this has once again found its way into the grossly inflated assets like property and the stock market but with the supply side shock of the pandemic, prices will inevitably rise.
I don’t expect the BoE to come riding to the rescue. With businesses and the government sat upon mountains of debt, charging higher interest rates would likely be even more harmful than inflation. Once the debts have been paid down and the economy has stabilised, interest rates may be able to normalised. Until then, we may be in for a rough ride.
Unicorn economics then? They going to pay the debt?
Inflation is a TAX, and an exceedingly regressive one as it taxes cash, pay, and savings. The wealthy have ‘Appreciating Assets’ instead of cash $ so are not hit by inflation – as well as they have intentionally big debt at low interest so that is inflated away so they get the asset they borrowed against cheap, win-win for them.
The Gov, via the incestuous relationship between the Central Bank and Treasury (an amazing story – look it up, how it works) causes money to be created by printing, this is spent out, this increases the money circulating, therefore inflation. Prices do Not Rise, the currency Devalues. If you double the amount of $ and keep the amount of goods and services constant, then prices inflate. BUT in this insane covid reaction the amount of Goods and Services were drastically Decreased as well. People sat at home being paid and not producing. That is also very inflationary.
SO what the deal is the Gov Debt can NEVER be repaid by tax, already every Western country was deficit spending during the good times, before the Trillions were added on, and the economy wrecked by lockdowns. Therefore it is to be Inflated Away – but it is really paid back by the stealth tax of inflation, as it sucks in all your savings, pension pot, income (which will never rise along with inflation, always lag, and FIXED incomes do not rise at all)
Then NO Interest for your savings and bonds to cover inflation – you are scre wed!
“I suspect that inflation is the medicine we are going to have to take to drain the vast amounts of cash pumped into the system during lockdowns.”
YES You Are. You have just been robbed by gov, they doubled the wealth of all the very wealthy in the last 18 Months by printing money for them to harvest! Now YOU are to pay it back by Tax Called inflation. Suck it up Bit *hes! You now have to pay for the trillions of $ the very rich just got given by the Government in the name of ‘Health’, although it did nothing of the sort – Lockdowns causing many times more harm than good, but it was a good excuse to make the filthy rich filthier, and the middle class and working poorer – just wait, the markets – super inflated values, as you point out, are poised to crash, taking you with them, but do not worry – the super Rich see it coming and have it all hedged, so will be fine…..