I have already mentioned the interview that Huw Pill, the new chief economist to the Bank of England, has given to the FT once this morning. There is another dimension to this worth mentioning though. It is this comment, made by Pill in response to the suggestion that he did not bring diversity as most would consider the issue to the Bank:
“I do think I bring diversity on other dimensions,” he said. “I'm not sure there are many other members of the MPC who would want to be identified as an acolyte of Otmar Issing whereas I am quite proud to be identified as that.”
That is pretty troubling. Otmar Issing was the German who was first chief economist for the European Central Bank. He had but one aim. It was the elimination of inflation. Nothing else mattered. And as Pill notes:
One thing that is totally confirmed is that [as a result of his arrival the BoE] is an institution that's in the price stability business.
In other words, the Bank will ignore unemployment. It will ignore climate change. It will ignore fiscal policy. What is happening outside the City walls will not matter to it. All that will be of concern as far as he is concerned is the control of inflation so that the value of debt, which is owned by the wealthy and owed by those less well off, does not fall. Maintenance of the existing hierarchy of wealth within society will, then, be his priority, come what may.
This is especially worrying in the light of comments Adam Tooze has made in the Guardian, where he has noted the negotiations now going on as to who will get control of German economic policy in the new governing coalition now being crafted in Berlin. If, as he fears, the FDP get this then a hard line will be taken:
The FDP stand for low taxes, debt limitation and a hard line towards Germany's European partners. The climate crisis is to be addressed by private investment and carbon pricing.
The balanced budget brigade will be back - and will be demanding the same across Europe. The policy will be to repay government debt, however much austerity that creates. Inflation will again be the priority. And as for climate? That will be considered an issue for others, but not for government. And because of the power of Germany this will be the line it will promote for the EU as a whole.
That's bad news for Germany and the EU. But we have a person of similar persuasion now at the Bank of England. That is very bad news for us all.
As Pill notes during his interview, his attitudes may not make him popular, either within or outside the Bank, but he does not care. It is only inflation that matters to him - and everything else is secondary. Such people are dangerous. He has power.
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Inflation is a tax, and it effects those least able to hedge against it the most.
I.e. the people who have the least disposable income – the poorest in society.
Inflation also tends to increase inequality.
Surely you should be advocating fighting higher inflation, given its effects on the poorest in society and on inequality?
If wages are protected – and there is no reason why they should not be – then what you are saying is not true
What inflation is if you want to call it a tax is one ion wealth – by reducing the liability of the poor fo their debts and reducing the value of debt in the ownership of the rich
Why can’t you tell the truth?
Spot on… what Anshul says is only true if we want it to be true.
They feign concern for the poor in order to protect their monetary wealth.
Glad you agree
Inflation isn’t a tax as such but tax and inflation have one common trait.. they reduce purchasing power. One key difference however is tax is completely under the control of Government. Policy makers make soundings that inflation is under their control also but control is never immediate and inflation can run out of control very easily, history shows that. And to believe wages can keep up with inflation is highly contentious. History often shows that this is not the case. Very modest inflation is good other wise economic activity might be delayed… but if it extends beyond modest then that is dangerous.
Tell me, how often has inflation run out of control in the UK?
Evidence please
Tell me, how often has inflation run out of control in the UK?
1970 through to 1990 inflation bounced between 5% and 25%. That 20yr period motivated it’s control thereafter.
Do you agree inflation reduces purchasing power?
Do you agree wages do not always keep up with inflation?
Do you agree when inflation occurs it is difficult to control?
Is that out of control?
25% maybe, but it was very brief
Did the economy collapse? Nit until Thatcher trashed it…..
So tell me what the issue is, especially when as then there were effective trade unions
“Is that out of control? 25% maybe”
I think the 25% “maybe” comment pretty much sums up where the disagreement lies..
Hang on – the issue was it out of control?
Look at the data
There was a massive over-reaction called Thatcher’s destruction of the economy
That’s the disagreement
“Hang on – the issue was it out of control?..Look at the data”
I have looked at the data. Do you think 25% or 15% or even 10% inflation which was commonplace for a 20yr period is controlled?..I think not and that is the disagreement..
Anyway you chose not to answer the questions.,
Do you agree inflation reduces purchasing power?
Do you agree wages do not always keep up with inflation?
Here I suggest you look at the data!!!
You really do not get this do you?
I will try to find time to data in the morning – but it is a busy weekend…..
The Thatcher inflation was self-induced by Geoffrey Howe doubling VAT while cutting income tax. That transferred the burden onto the poor. The 2% inflation target of the BoE while not a care in the world about employment or wages is entirely about protecting the capital of the top 1%. Not new as that was what returning to gold at $4.86 was about in 1926. The fact it halved wages and destroyed much industry in the north and Scotland was merely ‘collateral damage’.
Inflation is not a tax.
It’s only a tax if you believe that tax is a bad thing. You do don’t you?
Actually tax is a good thing. It controls inflation actually if we used it properly.
Let’s be clear what inflation is at the moment in this country:
Inflation is BREXIT
Inflation is Covid
Inflation is Austerity
Inflation in this country is the product of the lies, incompetence and callousness of our Government – not wages or benefits.
OK?
As for interest rates as a controlling mechanism on inflation?
Are you serious?
Since when has that actually worked? It’s not worked since Thatcher tried it because the same base rates obviously increase the profits of lenders and increase yields on existing debt and also mean flows of money for debt are increased into the financial system as it chases the increased return gravy train being created by interest rate rises. Result? Why – inflation of course!
It also means that the poor you are so concerned about pay more for longer on their debts (many of which are losing money from Universal Credit cuts).
Sunak is the latest in a long line of Tory chancellors who sup the neo-liberal garbage about controlling inflation through interest rates.
Its a Trojan Horse policy, aimed at one thing only: to feather the nests of their supporters.
I have to mention one thing. Higher interest rates create cost push inflation over the long term. After all, the interest has to be passed onto the prices of products. The vast majority of people do not get more interest out than they paid in and the excess is obviously going to those who have the most money.
There is only one reason why people dislike low interest rates. As yields approach zero it becomes viable to engage in real estate speculation. However, the problem is the fact that location is a monopoly and the owner has the ability to do perfect price discrimination in tight housing markets. This means lower interest rates don’t make housing more affordable, the profits just shift from interest payments to land owners. Extortion is always more profitable than doing actual work. It’s inevitable. We shouldn’t seek fault in the interest rate and instead attempt to get rid of extortion.
It’s not just land. The American VC industry has been built around the idea of tech startups being forcefed money to grow quickly and become a global monopoly (think of Uber). So many viable startups have been shut down because they had to chase this delusion.
I agree with you about Germany – I don’t like the look of their new Finance Minister – he has ‘ordoliberal’ written all over his face.
Wolfgang Streeck is stirring I bet (How Will Capitalism End? – 2016).
Wrt Germany: “The climate crisis is to be addressed by private investment and carbon pricing.”
Simplistic nonesense (that said – we have a man on the inside @ the Finance ministry & the FDP view is by no means a “done deal”). Addressing the climate crisis splits into two bits – one relatively easy to finance cos it stands on its own two financial feet and the other, hard (cos it doesn’t).
Renewables, mostly have a business case, the Euro2bn bond raised by Orsted last week is illustrative. The problem with RES is the need for total energy market reform. Stanfing in the way the “TINA to markets” Taliban embedded in the Commission a legacy of the Thatcher-ere believe it or not – but this lot will be sorted out in due course. Anyway, market-reform will allow RES to expand at a rate of knots and with a nice business case & probably mostly with “private” money.
The other side of the coin is energy efficiency – which at the moment does not, in conventional terms, stand on its own financial two feet. There are work-arounds to this – but this requires “flexibility” on the part of finance ministries, as opposed to an ideological approach (hello FDP). As one Director General in the Commission observed: “the energy system of the future is going to be highly complex” – that being the case it will be interesting to see if the imbecilies in the FDP are able to understand that this requires a rather more complex approach to financing and by extension a far less idelogical approach.
Lindner seems to be one of those who are not prepared to learn the lessons of history.
It would be a tragedy if under his management, we saw an increase in far-right activity both in Germany and the EU zone.
He’s a loose cannon in my view and needs to be stopped.