Of the many FT columnists Merryn Somerset Webb is one that irritates me. I would not be surprised if the feeling was mutual. She has a column this morning that is example of the reason.
As she notes, she is in Cornwall for half term. And as she also notes, prices are high. From this she extrapolates that we are heading for growth and inflation. And that, I suggest is a mistake for a lot of reasons.
I am not disputing the evidence. Surfing lessons for seven on a trendy beach may be £380 for an hour. And coffee and a croissant my be £7 each. Holiday home prices may also be going through the roof. But, and this is a massive but, this does not reflect normality, or a trend.
Prices are high because of short term pent up demand. Going on holiday has not been easy of late. Of course there was always going to be pressure on prices when places opened up again.
And as matter of fact, QE has pumped hundreds of billions into the economy. As I have sought to point out, many times, this has increased inequality. By far the biggest gainers from QE have been those already rich. The friends and holiday home rivals of Merryn Somerset Webb, in other words. They are the most likely to have excess cash right now. And as economist Torsen Veblen was keen to point out more than a century ago, there is nothing that those with spare cash like more than to flaunt it on excess, and very conspicuous, consumption. He could almost have predicted Somerset Webb's article and its implicit bragging about her ability to pay the prices in question.
But, and gain it is a big but, that does not mean everywhere is like a smart Cornish holiday destination where the wealthy want to be seen to hang out. Nor (and I think this may be quite shocking for some at the FT) is everyone well off, and much more so as a result of coronavirus. Some have died. Many more are suffering substantial stress, and in many cases that stress is about household economics.
The best off may be very much better off now. They may be fuelling house price increases. They my cause some local inflation as they literally compete to flash their cash, which traders will be pleased to help them do. But they are not normal. In fact they are very far from it.
I have made this point before. Andy Haldane, soon to depart the Bank of England, has claimed the UK economy is a coiled economy waiting to spend. But that is because he has chosen to sample his friends. And given that his friends are all likely to be in secure employment and be in possession of some financial worth, he too made the mistake of extrapolating his personal situation and then concluded the whole country is in the same position.
The reality is that the whole country is not in this position. Millions are still on furlough and most now be wondering what might happen in September as a new wave of Covid hits.
Millions more fear losing their jobs.
It is thought that around three million missed out on Covid support claims.
And many, mainly lower paid, workers did not benefit from working at home.
For all these people there is no Covid bonanza.
Nor, given the very strong likelihood of increasing unemployment is there any chance of a wage rise.
For all these people the struggle is to make ends meet. And any funds saved are going to be kept for a rainy day. That is what happened after 2008, and it lasted for years. There will be no ‘flashing the cash'. There might be a treat or two, but no more.
We live in a deeply divided country. There is a risk of short term demand led inflation created by a few. But sustained inflation requires that wages rise in response to price pressure. Without organised labour there is no mechanism to deliver that. It is not going to happen as a result. The reality is that, just like in 2011 and 2012, inflation will make people worse off, but will not result in wage adjustment.
So, is Merryn Somerset Webb's extrapolation of her holiday experience in any way realistic? Yes, when it comes to holiday home prices. These are a good indicator of divided Britain. Otherwise, I suggest not. There are no real signs of sustained inflation in the UK economy, although there are enough people wanting to flash the cash in front of their fickle friends and acquaintances to persuade some otherwise. But that says more about their own desire to conspicuously consume than anything else.
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There was something similar going on in Euractiv with respect to the Euro-zone but with mention of the UK. I BTLed and, I hope you don’t mind, mentioned your name and a couple of other people as having the knowledge/insight to pass comment on these matters, certainly more so than the journalist.:
https://www.euractiv.com/section/economy-jobs/opinion/the-brief-powered-by-unesda-europes-debt-disciple-raises-the-alarm/
The common point between the two articles are two jorunos trying to put a spin on economics – which suit certain interests.
“Nor, given the very strong likelihood of increasing unemployment is there any chance of a wage rise.”
This may well be true. With this in. mind controlled migration as a result of Brexit and a retraction of low skilled workers entering the country is surely a good thing?
As an exercise in kissing the pint that has spectacular
The absence of trade union rights may be the big issue
Minimum wage protects all low paid workers – migrants too
Unions are required to push wages up
Wow, your typos are legendary, Richard (I am not immune myself) but “kissing the pint” must be some sort of record!
Millions of people on furlough or otherwise out of work, with no other income support, and now at risk of losing their home as rental repossessions restart, will be in no position to restart the economy.
Some facts about immigration. https://migrationobservatory.ox.ac.uk/resources/briefings/long-term-international-migration-flows-to-and-from-the-uk/ Historically migration to the UK from the EU has usually been much lower than from places outside the EU, which we have always been able to control. In the last few years, the number of people coming to the UK from the EU has crashed, but net immigration remains much the same because many more are coming from non-EU places instead. Why do we obsess about a net flow of a few hundred thousand largely young fit and productive people coming to a country of 65 million each year, but not obsess about 600,000 births each year: young people who will need to looked after and educated for 18 years before they start earning and paying taxes?
Typos mainly happpen when I am on an iPad trying to clear comments in haste because I hate them backing up. Then autocorrect kicks in….
I agree with your points entirely
And I think there are no typos in this!
I have noticed that prices are high when going to the pub on the few occasions I have met friends for drinks since lockdown was eased. It’s typical to pay £4.50 a pint in Essex now, which is higher than before Covid. However, this may well be due to the additional costs of hiring extra staff to provide table service and additional cleaning etc. In which case is it really inflation in a technical sense? Because we’re not comparing like with like; post-Covid beer has a fundamentally higher cost base than pre-Covid beer.
Prescisely
It will take time for this to be appreciated
It seems very simple to me – transfers to the well-off get spent and their costs may well inflate because they are competing for a finite pool of goods and services, or they are so rich that they don’t need to worry about high prices. Transfers to the less well-off (partly) replaced previous earnings and are spent on essential goods and services or may be saved as you say.
She refers to the INET paper https://covid.econ.cam.ac.uk/de-ridder-government-expenditures-during-coronavirus-pandemic, which she says provides evidence that the fiscal multiplier is > 1 for transfers to poorer students, and she extrapolates that to justify her thesis.
However, the INET paper also says ” a multiplier below 1 means government expenditure crowds-out private expenditure, for instance because it raises inflation or requires an increase in taxes”. The crowding-out point is surely nonsense in this crisis, but INET clearly disagrees with her proposal that a multiplier above 1 will cause inflation. Comical, or what?
That multiplier discussion appears confused
The Somerset Webb approach is part of what I have come to think of as an illustration of the irony of what we are living through. Writers like Somerset Webb seems to presume we will somehow return to something very similar to the ‘normality’ we have left and lost, something familiar and recognisable, whose very flaws seem reassuring; how quaint.
What we are living through is better thought of as a kind of economic ‘danse macabre’ (think Saint-Saëns); an endless, rythmic, manic, spiralling compulsion to continue repeating what we have always done, too terrified now to stop, as if that somehow will end other than badly, and in spite of the repeated portents of its inevitable failure.
The partners in this fevered waltz are neoliberalism and globalism, who together composed this dance of death, only to be condemned to perform it in an endless, swirling rotation, with the whole world as their dance floor. Globalism has created the possibility of permanent cycles of pandemic into our futures (ensuring any serious malfunction in globalism is instantly and catastrophically transmitted world wide), and from which there is now no escape; neoliberalism, on the other hand is the demonstrable proof not only that neoliberal free-market ideology has no capacity whatsoever to fix the problem, save providing the repeated demonstration of its own fragility and weakness; but much worse; it shows that neoliberalism is the very agent carrying the pathogen that condemns us to an endless dance of death.
In order to ensure their own triumph neoliberalism and globalism combined to eliminate redundancy from the world economic system, and instead have brought us almost inevitably to this endless, whirling dance of death, keeping us always at the edge of catastrophe.
I will now be humming that all day……..
There is clearly some massive inflation in things like holidays and of course a much higher cost base for some products and services.
BUT in some parts of the Country, I can see the potential for house price inflation kicking off civil unrest.
I couldn’t agree more.
It was the same when talking about BREXIT before it happened.
I noted how often people advocating it or not worrying about it and encouraging others to not worry about it were mostly well above the average wage, driving around in high end SUVs with plenty of other bling too.
Sobering isn’t it?
“Nor, given the very strong likelihood of increasing unemployment is there any chance of a wage rise.”
Although I suspect moves are already being made to massage the unemployment figures.
I’m 60+ with bronchitis and a shoulder injury that restricts the type of work I can do. In the past, although I made sure that both of these are on my Jobcentre records, I’ve had to apply for at least 5 jobs a week, in the current climate that often meaning jobs I’ve very little realistic chance of getting.
In the last month, though, my Job coach at the Jobcentre has been very insistant that I move onto something called the Limited Capability For Work aspect of Universal Credit. The main benefit of which appears to be that I’ll no longer be expected to apply for x number of jobs per week.
Given that my circumstances and health haven’t changed since last year, when i was officially fit enough to work, I suspect that the unemployed in my age group are being shifted into a sort of pre-retirement limbo. And, like being ‘on the sick’ in the Thatcher era, we wont be counted in the unemployment figures.
I could be wrong. If anyone knows what I’ve missed, be sure to share.
There’s nothing I like better then kissing a pint or two.
Me too….
“The Fed is keeping a close eye on the booming US used-car market, which has emerged as an unlikely bellwether for future inflationary pressures. Used-car prices have soared since the pandemic shifted preference away from public transport, while stimulus cheques boosted demand.”
taken from todays FT..big article on inflation
Short term supply chain disruption in new cars limiting second hand car supply is not an indicator of long term inflation
Those who think it is really need to observe the real world a little more
Err yes partly but there is a direct correlation between cheques from the state and second hand car prices., some of the state money will have gone into new cars but not all..to deny a link is dogmatic irrationality
No it isn’t: I looked at facts
You’re doing the dogma
While it is unsurprising to read ill informed journalism in the FT, it is astonishing that this carefully selected individual should be superficial and or arrogant enough not to feel that economic ‘analysis’ based on undiluted impressionism might reflect on their credibility!
I agree with you about Merryn Somerset Webb.
Rather than enduring a 14 hour drive from Edinburgh she should have popped over to the West Coast of Scotland. After the best part of a month sailing there I can confirm that the breakfast at the Fishermans’ Mission in Mallaig is unchanged in both quality and price since last year (ditto several other fine establishments)….. the scenery is beautiful and it is a tad less crowded than Cornwall.
But, on the question in hand we should not confuse a price rise with inflation. Prices have risen but to be considered “inflation” they need to rise again and again.
If a coffee and croissant has gone from £6 to £7, will it be £8 next year and £9 the year after? I don’t think there is anyone out there who thinks that – not even Merryn.
It is years since I have been to Mallaig
I wholeheartedly agree about not bothering with Cornwall
I would suggest Aberystwyth as somewhere altogether nicer
“I wholeheartedly agree about not bothering with Cornwall”
Oh feck off you pompous prick
Since when was having an opinion on where to go on holiday pompous?
I’ve just come back from a week in Porthmadog, it was sublime. No traffic issues either.
It was a long time ago now but if you go to the Missions to Seamen in Swansea they pick you up and drop you off afterwards!
Did you do the Ffestiniog?
Ffestiniog, Welsh Highland to Beddgellert, Snowdon, Llanberis Lake & Tallylyn.
All very good, my wife was impressed.
Good stuff
I like them all
The view from The Cob over the estuary and towards the mountains beyond has got be one of the most beautiful in the world. The first time I saw it I was in AWE. I mean it – it took my breath away.
The Talyllyn however is my favourite – Abergynolwyn, Dolgogh etc.
You can take a footpath that follows the line to Tywyn. It’s beautiful but fascinating as over the years, people have scribed their passing into the slate tiles that cover the brick work on the lines bridges going back years – I remember one inscription by a trainee commando unit from WWII (you wonder what happened to them) and there are other much older ones too.
I agree: that is staggering.
But which is my favourite? The Talyllyn is higher on my list than the Ffestiniog but in some ways the Welshpool and Llanfair s my favourite: it is the archetypal light railway built to swerve a community. And it is superbly preserved in many ways. But there are no quarries to explore at the top.
I have a suspicion that the Corris is the one that got away. I walked the lines north of Corris last summer – including the horse tramway routes. They are staggeringly beautiful. The Ratgoed valley is amazing, bit I did it on a great day – and did not see a sole during most if it.
Well the price of petrol has definitely gone up considerably, as has the price of a lot of food items. Given that post Brexit there is a shortage of agricultural workers and higher import costs I assume the latter prices will remain higher. So whilst holiday price inflation may be a result of post lockdown demand, and therefore maybe transient, I would suggest that there are some basic cost pressures in the system that aren’t going to go away.
Maybe
But remember, these will fall out after a year if they are one off adjustments, which they may well be
In that case they are still not indication of long term inflation
We were staying in South Snowdon Wharf – the ‘new’ development at the end of the Harbour Station so could both look over the estuary and see the trains crossing the Cob.
The one that I am looking forward to is the extension of the Lynton & Barnstaple, the views from the very short bit that exists at the moment are superb. As of course is the rolling stock and now ‘Lyn’
The coast between Minehead and Ilfracombe is superb, either from the land or the sea.
I stayed there once…..
L&B is fun, but quite short
Mind you I was at the Mid Suffolk today, which is short, but very well done, as is the L&B