Because I am discussing what Rishi Sunak had to say when addressing the CBI last night with Nick Ferrari on LBC at just after 7 this morning I woke a little earlier than usual to see what others thought, and to watch what I could of the speech.
The conclusion that I have come to is the one that most right-thinking commentators have reached. Rishi Sunak does not have a plan.
He has no plan for corporation tax, which it was trailed that he would talk about last night, but about which he and the Treasury obviously got cold feet, realising that to talk about tax cuts for business would, right now, be unwise, to say the least.
So instead he talked about inflation.
"It's hard", he said.
"We'll see how things develop", he suggested.
And "We'll do all we can", he added, subject to the rather specific caveat "So long as we maintain the integrity of government finances and cut the deficit", ruling out any spending of any significance in the process.
Bluntly, Sunak was exposed for what he is. He's a person with very limited understanding of economics, clueless as to what his prime minister might say next, without power as a result, and in any case ideologically opposed to taking any action on behalf of those suffering right now, which suffering is entirely beyond his comprehension. The result was meaningless babble.
I doubt he can get away with this for long. 9% inflation is bad. 10% is worse. And 10% will happen.
So too, to follow, will deflation happen, which is just as difficult to manage. As my colleague and fellow Mile End Road Economist Danny Blanchflower will point out in an article in the New Statesman today, 810 years of inflation data in the UK or its predecessors shows that once inflation hits 10% a pretty massive correction follows soon after, as night follows day, and deflation is often a part of that.
But that does not mean nothing need be done now.
The peak of inflation in the costs the government can control, like fuel and energy, needs to be capped by cuts to VAT and duties.
Support for those who will lose out most - whether pensioners and those on benefits who need them increased now, or those on low pay who need to see the minimum wage rise, again - could happen at this moment.
The Bank of England could be told to stop the ruinously stupid increases in interest rates that are targeted on an economy where households have too much to spend, which is not what we have.
Windfall taxes on energy companies and banks (who stand to be the biggest gainers if interest rates rise further) are required.
And nothing is being done to help those who quite reasonably live in fear of Covid who are creating the labour shortage in the UK right now, and our supposed "red hot" employment market. Announce sensible measures to help them and that problem can be solved.
Nor. come to that is anything being done about ending Brexit trade wars.
And where is the investment programme we actually need rather than the bungs to business that were sidelined last night? Nowhere to be seen, is the answer.
So Sunak could have a plan. But he hasn't.
Is that due to incompetence, political paralysis, a lack of comprehension or a dogmatic lack of willingness? Who knows? But whatever the cause the result is a man sleep-walking himself to failure, dragging us with him.
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So much for studying at Oxford eh? Not a good advert for the institution.
If I was to organise a public enquiry into this shower, looking at what Oxford was ‘teaching’ them is something that would be on the top my list.
Woeful.
You’d think that these Tories were still playing at being in the debating society at Oxford and just hadn’t quite grasped than they are supposed to be running a country fro real.
And – worked for Goldman Sachs. A top bank. As you say “you’d think’ he seems to be well qualified.
It says a great deal about the system and its understanding of the system.
They got ‘light touch regulation’ wrong. They got austerity wrong.
At some point we will stop regarding them as the experts.
I don’t know they got these things wrong, rather they took actions (or exercised inaction) which led to the poor getting poorer and the rich getting richer. This seems like deliberate policy to me rather than inappropriate behaviour based on any misunderstanding.
Could be all of them, simultaneously: incompetence, paralysis, incomprehension, and a dogmatic neoliberalism. A recipe for failure. And a failure he is. And, contrary to his protestations, he doesn’t seem to care, or perhaps notice, so dim-witted does he seem to be, that he is dragging everyone else along with him.
It is remarkable how the Conservatives manage to maintain a reputation for good financial management, notwithstanding the repeated economic and financial disasters that happen under their watch, but Labour struggles to shake off the legacy of the late 1970s, notwithstanding the progress made from 1997 to 2008. After 12 years of Conservative government, and all the things that have happened by accident or negligence or design, it is still Labour’s fault.
“…. he suggesrewd”.
Can you patent this as the technical definition of Sunak’s ‘policies’ ?
🙂
Corrected. Thanks
In forty years I have never detected any purpose in Tory governments other than to gain power by any means necessary, to use that power to make themselves, and their friends, very rich and generally to make sure that their lives are very enjoyable. The last point should not be underestimated. You may have to go back to Edwardian times or even the 18th Century since life was so good for them.
When you understand that these are the standards by which Tory governments measure themselves it makes it much easier to understand their denial of reality, their utterly callous beliefs and their mind-bendingly incompetent behaviour.
Could Tory dim-wittedness and narcissism be inherited? Surely not.
Who do you think said the following about rising prices and their effects on people’s lives and why States should be interested in mitigating them:
‘We must take these problems very seriously. People are very sensitive to prices. If we do not pay attention to this, we will have a problem. Price fluctuations can breed political problems’.
‘…If we do not stop this, people will become very unhappy. Economic instability can lead to political instability.’
This was Chinese communist reformer Chen Yun quoted on page 126 of ‘How China Avoided Shock Therapy’ (2021) by Isabella M. Weber.
This is in the context of China’s dual-track economic management, where the State sets certain prices whilst allowing markets to set prices for others, ‘combining adjusting and letting go and progressing in small steps’ (p.273).
The Chinese called this ‘groping for stones’ (under water) where they kept trying different ways of controlling price inflation – experimenting, standing back, observing and then jumping back in again until they got the desired result – this was their continuous economic ‘war’ on prices because they had seen that markets left to themselves did not always operate for everyone’s best interests.
Even the World Bank conceded that the Chinese had been effective at price controls (anti-inflation measures). The Chinese never started from a point of theoretical certainty – they just tried hypotheses until they got it right or close to, guided by the principle of mitigating market pricing – that was the overarching ethos. They did not adhere to dogmatic rules – they were actually quite open minded about economic issues – in fact to me you could operate an insertion of MMT, taxes and other controls into our economy quite effectively this way to solve our own problems as they are now. Because it is involved and proactive and even Richard I think advocates this and not just standing off as Neo-liberals like us to do, hiding behind dogma.
Contrast this dynamism with the static and one eyed Friedmanite rejection of cost-push inflation which he rejected and favoured money supply containments only.
So now we know what these Tories and the BoE are doing – they’re doing Friedmanite economics – even though Thatcher secretly abandoned monetarism in the early 80’s due to inner city riots and public disquiet about her hardline Friedmanite policies.
Yes – these Tories are THAT stupid in reprising Thatcher’s own mistakes!!
Cynically we could say that this is a communist regime and so the communists have to be careful about this sort of thing anyway because they are communist (repressive, unpopular etc., typical Western assumptions about communist states) but when you think about it, the same ALSO applies to Western democracies where people vote for their Government.
And this is where the Tories lack of concern and action in the COLC really takes on a very dark aspect.
We have seen a constant effort by these bastards to reign in democracy in this country – from the Fixed Term Parliament Act, the proroguing of Parliament, efforts to get out of the Humans Rights legislation, efforts to curb public dissent and close down opposing views, even tinkering malignantly with our voting system.
All aimed at reducing democracy and thence democratic accountability which effectively makes them increasingly unassailable as a political force. And that means the Tories being permanently in power – just like the communists they belittle, funnily enough.
The Chinese are communists.
But the Tories are increasingly Fascists.
Again I will end by recommending to others here Isabella Weber’s ‘How China Escaped Shock Therapy: The Market Reform Debate’ (2021, Routledge).
It’s like rediscovering economics all over again through China’s journey to today and is a fantastic and relevant read.
Thanks
You are right, PSR, that, certainly, this group of Tories are becoming increasingly fascist. This government is exceedingly dangerous. I have tried to alert those I know who may be receptive to such a message, even mentioning recent work on the subject, such as the one by Jason Stanley, How Fascism Works. Thanks for the summary of the book on the Chinese.
You’re welcome.
I do wonder if what we are going through now is some sort of ‘shock therapy’ for some malign reason?
Is it possible that the plan is simply to let things play out, whilst coming up with the odd tweak to keep themselves in power? We know from experience that whatever the disaster there is always a group of people/entities that do very well. Additionally convenient ownership/location/accountability complexities make tackling exploitation more difficult than it should be.
I heard somewhere that the gaps/pressures in our energy requirements could be plugged within 18 months.
If I were setting out with a project to massively expand and co-ordinate Britain’s wind power. for instance, I would insist that anyone/any organisation wishing to be involved should have very clear company structures. Limited or no sub-contract chains and definately no dubious or shadowy financal trails, probably limited to the UK. No xenophobia simply clear local accountability.
Reading your article prompted me to write a post on facebook about inflation, because I feel that everyone is missing the point:
I want to paint a picture that is not often seen – what life was like for young *middle-class* people in the sixties and seventies. Why bother, when it’s the working-class that I believe matter? Because it’s the middle-, and upper-middle-class that make policy, and there is something here that is never spoken of – and should be recognised.
So, go to university, with either a student grant, or an income from parents that might, if you were lucky, be equivalent to a student grant – few young people got more than that, many got less. You survived, you passed your exams, and living on very little with a group of friends had been fun, not something scary. And now you’ve got your first professional job, and have got married, probably to someone else in their first professional job. The idea that women worked until they got married had pretty much faded out, now women worked until they had children, at which point they might arrange child care and carry on, or they might stop work to stay at home.
Financially, as a couple, with two incomes at the bottom end of the professional scale, you’re doing ok all of a sudden (after university that is) and you can take on a mortgage. So you go for the BIGGEST mortgage you can possibly manage, even if it will leave you short (remember that recent memories of a thin life were ‘fun’ not the endless dreariness of true poverty), but you’re at the beginnings of a professional career and can expect your income to increase, while INFLATION, will reduce your mortgage payments over time compared to your income. You’ve got your first step on the Property Ladder.
The very concept of the Property Ladder is based on INFLATION. That by the time you want to sell that first house, it will be worth a lot more, so you’re in a far better position to buy a better house than someone else buying without a house to sell.
So maybe five years later, when perhaps there will be children and maybe the wife will stop work, or go part-time, you can expect to have a better house, with a mortgage you can afford on one, rather better, income – and even then, as the children get older, you can expect INFLATION to make your income more comfortable as the mortgage payments shrink in comparison to your salary.
While a very high rate of inflation isn’t something anyone wants, a middling sort of rate, maybe 7 -12% worked very well indeed for the new middle-class of the sixties and seventies – and they haven’t forgotten it. While for the working-class it meant an endless fight to get their wages to keep up with their costs, for the middle-class it was how they financed their lifestyle. So when you see articles talking about how dreadful inflation is, remember that that is not what the middle-class policy makers really think! Inflation is something they miss!
You are so right
You describe large parts of my lived experience
It is worth pointing out that one of the major changes in life for the ‘aspirational’ over the last forty years, is that no longer do they expect to make their wealth out of their work or profession. Rather, they expect their work to pay no more than their everyday living expenses and mortgage, or at least cover expenses ‘more or less’; and rely on their progress “up the property ladder” to generate their personal wealth, and fund substantial parts of their pension. Downsizing on retirement perhaps provides any required release of free (to invest more widely or spend) funds.
We have thus turned older expectations of future wealth creation based on work, effort and contribution, on its head; and into an unearned, contingent but naturally inevitable enhancement of property value; based on the limited supply of land, expanding population, planning regulations, politics and nimbyism: which helps ensure there is an eternal shortage of valued housing stock and property asset inflation, to keep the whole rickety show on the road, generation after generation.
This isn’t an accident.
This is all well and good, and has made far too many very comfortable middle class people rather lazy at understanding what is happening in the wider world and very resistant in my experience at exploring new ideas on how to create a better society.
But the other side of the coin is those who become middle class from working class routes like myself.
This route could very well be cut off (social mobility). Indeed I wonder how my teenagers are going to get to middle class nirvana at all looking at the continuing death of income. In order to benefit from inflation you need enough money and assets which can be built up from good incomes and wealth transfer etc.
I just don’t see that happening as much as it did and I think – like many others – that the middle class will continue to shrink – it too will begin to see it’s jobs handed over to automation invested in by the real problem – the really rich – and inequality will of course get much worse with a smaller middle class to patch up the disparities.
BTW – the only way I have ‘got rich’ over the years is the value of my house – an ex council house no less, which has
continued to go up in value in the most surprising way.
But my wages as a white collar middle class worker in the public sector have reduced some 25% since 2010 to the point that very soon I will have worked essentially for 1 year for free (this is after tax, NI and my pension contributions).
So not all middle class have been doing well. To live in this country comfortably now I think you need to be on something like £50K+ a year. And that has never been my household BTW.