I have just posted this thread on Twitter:
Tories are arguing that wages must not rise as strongly as prices or we will get an inflationary spiral. But that's ridiculous. All price increases add to the income of the companies charging them. What the Tories are saying is business should profit, not workers. A thread……
As a simple, straightforward, fact of life money does not disappear into black holes. When one person spends it another one gets it. That's just the way it is. It is, however, astonishing how many economists and politicians do not recognise this fact.
The reaction to inflationary price increases - which are now happening on everything from energy costs to margarine - is an indication of this lack of understanding, especially on politicians' part. What they seem quite unable to understand is that someone gains from these.
This should not be very hard to work out. Let me play a game of ‘just suppose', as economists do. Just suppose there is a company that charged £100 for its product. The split of that £100 was £40 for bought-in products for resale, £40 to the company's employees and £20 to profit.
Now the company's supplier increases its prices by 10%. So it has to pay £44 for the products it buys in. It then claims this means it must increase its own prices by 10% as a result. So, it ups the price it charges to £110. That's how general inflation works.
Now the company's employees demand a pay rise. They are offered 5%, and without a union are forced to accept it. So, the cost of employing its workforce has now increased to £42.
But what has happened to profits? Of the £110 it now charges, because everyone has increased prices by 10%, £44 is going to other companies and £42 to its workers. And that leaves £24 over as profit, which is an increase of £4 in terms of profit.
But note the percentage increase in profit. It's gone up by 20%, because that's what a £4 increase in profit compared to the £20 it previously earned means.
So where has that extra profit come from? £2 has simply come the increase in the pre-existing 20% profit share resulting from the price increase. But what if the other £2? That's come from forcing workers to take a lower than inflation pay rise.
The workers in this company needed a 10% pay rise to keep up with the costs that companies in the economy were charging them. But they did not get it. They only got 5%. So they got a £2 increase, not the £4 they were owed.
But, the £2 did not disappear. The £2 went somewhere. And the only place it could go was to company profits. As a result they did not just go up, but they actually went up by double the rate of inflation.
The result is that his company has, by forcing a below inflation pay rise on its workers, but by imposing inflation level price increases on its customers, seriously increased its profits, and so the well-being of those who share them (the shareholders) at cost to its workforce.
In response you will hear all sorts of excuses. These will include things like ‘but pension funds own shares, so this benefits the workers after all' and ‘but it's not a lot' and that those complaining are ‘engaged in class warfare'. But those claims are nonsense.
Pensions funds used to own a lot of shares, but don't nearly so much these days. And who cares if ‘it's not a lot' when it means workers get 5% and shareholders get 20%? Pointing that out is not ‘class warfare': it is commenting on what's happening.
Of course, it could also be said that this is ‘just suppose' and that this is not what is happening in the real world. Except that it is exactly what is happening in the real world. Shell and Centrica, which owns British Gas, announced massive profits yesterday.
And many of the manufacturers of the data-to-day food and household goods that many people buy have announced 10% or more price increases. MacDonald's has increased the price of a cheeseburger by 20%. Amazon prime has gone up by 12.5%.
And there are, for the record, no equivalent wage increases to match these increasing prices.
And as an aside, also do not suggest that because energy costs have gone up by more than 10% this changes the story. It doesn't. It just earns that those companies have increased their profits compared to what they pay their workers by an even bigger amount.
So what Tory MPs are actually doing is justifying a big shift in the way in which the rewards in society are being shared right now.
Precisely because many employees in the private sector are getting pay awards way below the inflation rate, but 10% price increases are becoming commonplace, there is a permanent shift going on where profits are being inflated and employees are being left behind.
And let's not pretend that those profits are being used to reinvest in the businesses that are enjoying them. Shell is paying out most of its profits to shareholders: Centrica is paying extra dividends.
That not only means that not only are employees losing out, but that the better off in society (including those with serious pensions, most of whom are better off) are winning from this.
It is absolutely right that there is right now class war going on: the wealthy are taking the opportunity of this inflation to screw everyone else. That is what is happening.
And the Tory claim is that this does not cause inflation. Except that is completely wrong. The average price of a Bentley has just gone above $200,000. Why? Because the wealthy have been bidding the price up with all their extra income, that's why.
Whilst many of those who have to work for a living will have to choose between food and heat this winter, the wealthy will have so much extra money that they will be the people who can afford the new prices being charged - and have money left over to bid prices ever upwards.
The reality is that workers cannot be creating an inflationary cycle, because they do not have the means to do so. But the way in which this inflation is panning out, giving those already wealthy way above average pay rises, is feeding straight into a serious inflationary cycle.
What to do about it? Three things, I suggest. First, we need big increases in corporation tax. These need to be 30% on large companies and 25% on smaller ones, with an extra 10% on banks and energy companies who are likely to be winning heavily from this inflation.
Second, we need higher rates of income tax for the top 5% of income earners. This is essential to cancel the inflationary impact of the additional earnings they are enjoying.
And we need to equalise the taxes on income and wealth - because it is absurd that the taxes on wealth like capital gains tax are charged at much lower rates than those charged on income.
But there is also a bit more to it than that. We need government support for workers to get fair pay rises, which requires Boards to be established to check that this is the case, industry by industry. We had them until the 1990s.
And we need legislation that makes it easier for people to be members of trade unions in the private sector.
Alternatively, we can ignore all this and watch people suffer, as a result of which some will undoubtedly die this winter through a lack of money to pay for the essentials of life.
That's the choice we have got. But the process begins by calling out the total Tory lie that workers must not be paid inflation-matching pay rises because with will create an inflationary cycle. It can't, and it won't.
But what is happening is that there is a disguised really big inflationary pay boom going on as a result of the booming profits of the companies that are upping prices and not sharing the gains with their employees. The profits they're making are fuelling inflation.
And the people who are gaining are those who are already best off. It's time to call them out because it is true that they are engaged in class warfare against most people in this country, and it's time for the country to fight back.
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There is a report published by the TUC which I cant find at the moment that points out that
1. The percentage of GDP going to wages has dropped since the 1970’s, and
2. The percentage of wages going to the top 10% or so has risen significantly
With the result that most of us are about £3000 (?) pa worse off
BUT its the sort of thing that can ultimately result in unrest, you cant get rising profits, rising prices and wages failing to keep up forever without trouble
This is also Mick Lynch’s central message, and I think it is the one with the widest resonance.
The Government cannot lie its way out of this one. Widespread strikes and a general election. Probably this year.
Just as an aside – both conservative candidates want to reduce taxes. Will that not be just as inflationary as pay rises?
Yes
Inflationary, unless you’re living in Truss/Minford land.
Does it depend on whose taxes they cut? If they rolled back the NI increase, or increased income tax allowances (I’m dreaming I know!) would that increase inflation? Would it be better or worse, in terms of inflation alone, than say cutting corporation tax?
It does matter which taxes are cut, but spending is overall much more important right now
Do we also need a universal basic income?
I forgot to say, I think everybody in the country should read this thread. It explains things so simply.
I have never understood why everybody thinks that a % pay rise should be given, as those at the top so obviously get more, when it’s those at the bottom who suffer more. Same for pensions.
Richard,
Your numbers aren’t very realistic.
For a start, average profit margins are around 10%, according to the ONS.
So lets say 45 input prices, 45 wages, 10 profit, to keep the initial 100 sale price, but now with 10% profit margin.
Then lets say RPI is 10%, as you have, so now the sale price is 110.
But PPI is 24%, so the input prices are now going to be 56 (rounded) and wages have increased 6.2% from the last data, getting you to 48, so the total costs are now 56+48 = 104.
So profit is now 110-106 = 6.
Which is lower than before, not higher.
If you are going to make a point like this, you can’t just pull numbers out of a hat. You’ve got to use the real world data.
You are not using real world data
PPI is not consistently 24% for a start
Politely, you’re making the data up
I am just offering an example
Your example does not explain the increased profits by energy companies,banks &c
Probably unnecessary, but that reply was to Mustafa, not to Professor Murphy
I wrote on social media that the spending of the public, is the income of business. Inflation is 10%+ and the government are talking about 4-5% pay increases, which is a reduction in real spending power and if it is down, then the real income of business will fall and we will be heading for recession. This seemed to surprise a number of people, which is the point you make in the second paragraph. Ordinary people on Facebook may be excused perhaps but it is hard to do so for people who are supposed to know these things and are in positions of power.
Over the last hundred years the bankers have always gone for unemployment polices ‘to bring inflation under control.’ Sunak and Truss ignore the money being made by profiteering but speak of ‘irresponsible’ trade unions. I think what we are seeing IS ‘traditional conservatism’.
Inflation or recession? Not much of a choice but recession is the worse option. Your suggestions would reduce the inflation.
The other point I would make is that Larry Elliot, a few days ago, wrote that the public sector wage bill was £230 billion. A 10% increase £23 billion is small percentage of GDP. The OBR says Brexit costs us £40 billion in revenue. I don’t imagine Sunak and Truss will want to mention this.
Very good point in your first sentence particularly.
To my mind it is highly interesting and significant that this crisis is fundamentally the latest crisis of capitalism, perhaps even greater than 2008. Culture wars and dividing up the poor is not going to baffle a public that is all on the same terrified side. And only big corporations and the super rich are on the other side.
A recession may well ensue in any case, because profits will not voluntarily be reduced to support the workforce, but the big problem that capitalists have this time is the fact there is no hiding place once they take their money. The Conservatives’ last resort will be to call an election to prove that public sentiment is not on the side of the unions. And this time it probably won’t work.
Finally, this year, we might see the colour of Starmer’s money.
Ian
when I was at teacher training college, I met a chap whose dad was a fan of Oswald Mosley, of whom I knew nothing. I was give his autobiography and though I didn’t finish it , one part remained with me.
Mosley had become a Labour minister, despite his rich background. When the economic crisis of 1931 hit, the Prime Minister, MacDonald, thought he had no choice but to accept the advise of the economic experts at the Bank, and the City. They demanded that the government cut spending-including the dole. The Labour members of the cabinet , or some of them, refused so MacDonald decided he hd to resign and went to the King ,who proposed a National Govt. who would do the cuts. The Conservatives formed the greater part, aided by some of the Liberals -National Liberals as they were to be called-and a few labour MPs.
There were two dissenters who proposed a system of public works . A sort of Keynesian stimulus. One was David Lloyd George. The other was Oswald Mosley. He was not able to put his plan to the party and he left it.
Some Labour people had long forecast the end of the capitalist system and, to some, in 1931, it looked like it had arrived. But Labour ducked the challenge in favour of orthodox economics. What remains is this quote.
He likened Labour to a “group of Salvationists who, at the Second Coming, turned tail and fled.”
I see an uneasy equivalence with today. Could be just me. You decide.
Do you know – and I am perhaps the only person who thinks this in the entire country – but I think Starmer would stay exactly where he was and not turn tail and flee.
I also think that, if he hadn’t become so peculiarly unfashionable, Lloyd George would have brought in the welfare state in much the way Attlee eventually did.
You have much rich and thoughtful insights and you have fingered very precisely a view I have been harbouring for some time. Amongst the populists, even amongst the UKIP horrors, there are people who would indeed have acted in the interests of the people and not of powerful corporations or of landholders. If Farage were prime minister he would be appeasing the Russians, of course – but he would also be dealing with the cost of living crisis. Mosley was a much more interesting man but seriously deluded of course. He thought into his seventies the country would eventually turn to him. Johnson, famously, thinks he comes over like a Churchill, but in his grubbiness and venality he always seems to me to be more like Mosley. I interviewed Deborah Devonshire once about Mosley and she said what she always remembered about him was his threadbare collars and grubbiness. Could there be a more overwhelming whiff of the past in a wrecker who is in our present?
But these observations have a very limited shelf life. Johnson is finished, and the Conservatives very nearly so.
It’s not just you, Ian. Thanks for the reminder. The US had FDR who faced an attempted coup a few years after he first took office. The argument of the rich and their lackeys was that he was going to destroy capitalism. I.e., their profit system. Only the upcoming war saved features of his program. I have simplified somewhat here.
And the rich who could adjust to a war economy made out like bandits.
Richard, I sit in the 97th percentile, according to the 2019-2020 for before tax income, according to
https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax, but the 96th after tax. The real jumps come in the 99th and 100th percentiles (and that last is a pretty broad church).
So yes, not poor, but not really wealthy either. Since I drive a 16-year old car, which I will only replace when it is no longer sensible to repair, I also doubt that I am driving inflation in the price of Bentleys.
All my income comes from employment, so any options of capital gains, etc. is not on the menu.
I’m totally on your side regarding excess profits available to exploitative private monopolies extracting as much as they can (and using various accounting tricks to minimise tax), but I’m damned if I can understand how increasing tax for your average decently-paid professional (not that I am, professional that is) is going to fix inflation (and for the avoidance of doubt, my marginal rate is 61%).
For sure, I am fortunate to work in a line of business where being paid above the norm is par for the course.
That said, this is because, and you talk about productivity as being a factor, I do a thing once, and we can sell it multiple times to multiple customers, many of whom are in the S&P 100 and Fortune 500.
Am I exploited? Yes, compared to the people who make serious big bucks from my work.
I simply make the most from a relatively rare set of skills that they are keen to exploit. I think that every employee should get rewarded commensurate to the value that they add to whatever they contribute. This is not currently the case.
And, lastly, how does tax (which removes income from workers) make things fairer when the real problem is that workers are being shafted when supply side inflation requires more income just to maintain a balanced life?
Don’t get me wrong, I thing that this is a fantastic post; just thinking aloud about the stuff that I personally have to think about, with all the caveats above.
If you can’t see just how exceptional your situation is I really can’t help you
Try asking your doctor for a dose of humanity
“Just suppose there is a company that charged £100 for its product. The split of that £100 was £40 for bought-in products for resale, £40 to the company’s employees and £20 to profit.
Now the company’s supplier increases its prices by 10%. So it has to pay £44 for the products it buys in. It then claims this means it must increase its own prices by 10% as a result.”
That’s where you fall over. The cost of production hasn’t gone up, only one component of it. The cost of production has gone up from £100 to £104, not to £110, the end price will go up 4%, not 10%. The end price will only go up 10% if *all* the costs go up 10% (actually, the net of all of them).
We covered this in basic business accountancy at the chamber of commerce 30 years ago, with case studies of business that went to the wall because they misunderstood this fundamental bit of maths.
You may argue “ah, greedy capitalists! they’ll go to £110 anyway”. Yes, but there are other greedy capitalists who’ll put their prices up to £105 and steal all the £110 capitalist’s trade. Result: either dead capitalist (yay!) or lower prices (yay!).
I am staggered by someone who thinks reality is what they learned at the Chamber of C9mmerce 30 years ago
Sorry – but try living in the real world
If you’ve ever worked in retail, you should understand that the retail price is directly proportional to the wholesale price. +50% on non-perishables, +100% on perishables are common mark-ups.
For your assertion to hold true, organisations would have to have arbitrary mark-ups for each and every product line. They’d have to compare the new wholesale price, with the old, on every shipment. That just does not happen, because it’s far easier to deal with standard mark-ups.
It’s not necessarily intentional greed, it’s simply standard practice.
Drew Anderson,
Small, competitive, high street retailers are copping it by way of lower turnover and cost-price squeezes, yes:
https://www.theguardian.com/business/2022/jul/12/uk-retailers-hit-by-sharp-drop-in-spending-as-inflation-soars
But for the supermarket oligoply its a whole different story:
https://www.thegrocer.co.uk/supermarkets/charities-question-supermarket-profits-after-calls-for-windfall-tax/667416.article
Paragraph 18. Third sentence. Change earns to means.
Thanks
‘Earns’ is still there.
Sorry – bit sometimes I have a life
How much extra would HMRC take if the NI rate was changed for those earning over £50,000? Why should they pay less NI than those earning less?
The figure is hard to estimate – but would be considerable
The wage price spiral boffins seem to say that wage increases will come back into COGS again and the whole process repeats itself and we enter a high inflation loop. But this ignores the tools of monetary policy and the ability to slow the economy using interest rates so why the absolute panic amongst these people? Technically any annual increase in wages could be called a wage price spiral, it just usually occurs at lower rates of inflation
C’mon, man. There is no ‘spiral,’ no significant wage growth, just price rises.
I’ve been advocating for a while for a steeply progressive consumption tax to replace income taxes. Essentially you are taxed on what you spend each year, but scaled heavily at the top end (at the bottom end, it would look much the same as now). It would have two effects – 1. Directly addresses the primary problem of wealth inequality, which is spend inequality and 2. Ties tax paid to consumption in the real economy rather than indirectly. It would probably require a wealth tax or more progressive inheritance tax to help prevent dynasties.
I advocated this in The Joy of Tax
Pure Education Richard , Excellent explanation , if only the masses would engage into to this narrative , Thankyou.
To paraphrase (in 46 characters): Modern Taxation Theory + a 21st Century incomes policy.
To elaborate: If we don’t get serious about developing and applying Modern Taxation Theory, in which the potential cancellation and withdrawal function of taxation is fully set out and considered, enabling targeted forms of cancellation and withdrawal to be fully designed in practice, we will miss and fail to use one of the biggest levers at our disposal for tackling and reducing runaway, spiralling inequality and for transforming the economy away from fossil fuels towards net zero and ecologically enhancing activities and technologies. Without harnessing the potential of Modern Taxation Theory in this way civilizational collapse brought about social dislocation and displacement on a scale unprecedented in human history becomes markedly more likely. Someone needs to write a book: Modern Taxation Theory. It could become one of the most important books of the 21st Century.
I agree
I know a man to write this with 🙂
(To everyone else: there is a private joke in here, amongst the truths)
Adam Smith noted this tendency to blame workers for price rises:
“Our merchant and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of their own gains. They complain only of those of other people.” The Wealth of Nations, Vol 1 book 1, Ch IX
As Borat would say – ‘verry nice’.
I’ll be using that one.
Spot on. Having run a small business myself I believe that raising corporation tax will not discourage companies from operating or investing in the uk (the argument that is commonly trotted out by those who oppose any increase in corporation tax). On the contrary it forces companies to focus on reinvesting cash surpluses because the alternative is to give it to the government.
Agreed
Richard says: ” the wealthy are taking the opportunity of this inflation to screw everyone else. That is what is happening.”
Damn right, but why now? What is different about this outburst of inflation and the long period of near zero inflation that preceded it for years?
There have been supply chain issues that we know about, but wages are stagnant so how can the consumers afford to buy these overpriced goods at quantities that make would make it so profitable for the exploiters? Where is the prerequisite demand for this profitable scenario suddenly coming from? I’ll tell you:
1.Households having been saving money at remarkably high levels since Covid hit – and corporate oligopolies are using their market power to take a big fat bite out of that pool of savings.
The consolation of sorts there is that (at the risk of oversimplifying it) the inflation can only last as long as the savings. The big downside is an implicit revelation about the shockingly LOW LEVEL OF COMPETITION in the consumer markets of the western world.
Prior to Covid, the monopolies, oligopolies and their ever rising share of national income were partially concealed by a low rate of inflation that was matched by stagnant wage growth. Add some sudden new spending power and bam! Look what happens.
In a widely competitive economy that excessive producer surplus would soon be competed away but that’s NOT what is happening now.
2. Beyond the wage-earners and consumers it should also be noted that many competitive businesses (what’s left of them) and those that are selling discretionary items are faced with cost-price squeeze problems that add those businesses to the list of the exploited.
Moreover, the main lesson coming out of this is a preview of what the oligopoly world will do if wages rise and workers start to receive a larger share of national income. Big business will use its excessive market power to claw that additional wage income back by way of arbitrary price rises.
May that also be a lesson to Modern Monetary Theory devotees who say that a rise in demand won’t be inflationary so long as the economy is operating below full capacity.
At this point some might say that supply chain problems are reducing capacity. That may be partially true. But if supply issues accounted for all of the price increases we wouldn’t be seeing so much of that increase being directly converted into windfall profits.
Some might also say that low unemployment and labour shortages are reducing spare capacity. Well maybe so in some specific cases but, overall, the most basic laws of supply and demand tell us that lower unemployment always results in higher wages, right? So where are those wage rises?
MMT advocates beware that platitudes about demand and “capacity” only apply to competitive markets and economies. We don’t have those. And don’t get me wrong I’m generally supportive of MMT ideas but they remain critically incomplete if they don’t include solutions to the problem of excess market power and the lack of competition.
https://www.forbes.com/sites/errolschweizer/2022/05/10/how-windfall-profits-have-supercharged-food-inflation/?sh=4783e6f06672
https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicmodellingofforcedsavingduringthecoronaviruscovid19pandemic/2022-06-06
This one only applies to smaller, competitive, high street retailers:
https://www.theguardian.com/business/2022/jul/12/uk-retailers-hit-by-sharp-drop-in-spending-as-inflation-soars
Meanwhile in big retail:
https://www.sustainweb.org/news/may22-millions-facing-food-poverty-as-supermarkets-announce-record-profits/
https://www.thegrocer.co.uk/supermarkets/charities-question-supermarket-profits-after-calls-for-windfall-tax/667416.article
You are right in savings
Wrong on the Phillips Curve – there is no such thing and the relationships don’t hold – Danny Blanchflower has a new paper on this over the long term
But you are right we face market failure
Thanks Richard,
Interesting reply. I hadn’t even thought about the the Phillips Curve in this context. As I recall the conventional, and largely theoretical old literature about the Curve was centered around capacity, around the idea that fiscal and monetary policy should be tightened when demand threatens to exceed capacity. As far as I know there is nothing, or nothing much, said about competition in that literature.
That being the case I am quite content to reject the Phillips Curve idea because “full capacity” has largely become a thing of the past in this world of oligopoly, excess capacity and stagnation, the world that has emerged out of the neo-liberal era. In the distant past, ideas about oligopoly and secular stagnation were considered to be academic and Marxist. Now the reality is such that they have openly become the subject of articles in the financial press and quality media.
Anyhow, I digress, a little. What I am saying in reply is that my point – about the threat of higher wages being captured by oligopolies, by means of uncompetitive, prices, has little or nothing to do with the Phillips Curve. Its about excessive producer surplus (and deadweight loss etc.). Its about a microeconomic problem gone macro.
Maybe I’m missing something but if oligopolies can use their market power to take a big fat bite out of the consumers’ lockdown savings I can’t see why they wouldn’t do the same to our thus far elusive rise in wages.
In any case I’m not trying to be hostile or contrarian for the sake of it. I make this point in good faith. I think that you will recognise that and I hope that others do so as well.
https://www.fnlondon.com/articles/the-world-economy-is-becoming-a-stagnant-oligopoly-time-to-break-it-up-20200212
https://phys.org/news/2021-07-analysis-oligopoly-problem-reaffirms-antitrust.html
https://theconversation.com/secular-stagnation-its-time-to-admit-that-larry-summers-was-right-about-this-global-economic-growth-trap-112977
https://www.journals.uchicago.edu/doi/abs/10.1086/255420
https://monthlyreview.org/product/monopoly_capital/
https://monthlyreview.org/2012/07/01/a-missing-chapter-of-monopoly-capital/
Those are interesting points you raise. There’s an additional complicating factor in all this which I think is factoring in in the area I’m familiar with which is electronics – that of speculators getting in on the action and forcing a panic-speculation spiral. Essentially various entities are taking advantage of the very low stock levels to buy up any manufacturing surplus, which they sell back to the users, that are buying as much as they can to protect their production requirements against shortages. It’s ultimately unsustainable as companies can’t hold infinite stock, but it’s causing huge damage in the meantime.
I understand there’s been lots of speculation in food commodities like grain, and I suspect other areas like oil.
This is most of the cause of the current inflation
Having just come back from holiday on the Scottish West Coast – inner Hebrides, on the Isle of Isle of Seil – I’m in a somewhat reflective mood.
Firstly, these isles reflect the full range of what might be termed as wealth and the rest of us – they are in themselves a microcosm of the UK mainland . There are some superb properties – some new, many refurbished to a very high level plus all the bling – Porsche SUVs, automatic gates, yachts, barbecues – the whole lot. And right alongside are those of more moderate means, plus those who have lost out – there seems to be plenty of derelict fishing vessels around with the odd decrepit traditional home here and there. The roads BTW are atrocious in places and the common infrastructure looks as thought it could do with an overhaul. But the scenery and wildlife and the people were all really great.
We have spent a week here by virtue of two things – by saving up and sharing with another family. Before 2010 we did not have to share and we took two week holidays and could take holiday expenditure out of monthly income. Many will not even be able to even do that I grant you. But for 3-4 years after 2010 and savage cuts my job employment was on the endangered list. I got through those times by taking on new challenges and somehow made it. But is could all end tomorrow and especially if Liz Truss becomes Tory leader (because with tax cuts always come budget cutting).
Another thing occurs to me though and it is this: let’s not be static in our thinking about the economy and savings and whatnot. To be static is to be Neo-liberal as Steve Keen no less has highlighted. Let’s always remember as true heterodox thinkers that the reality is more dynamic. Truth is truth: but it is seldom static. Truth changes.
To be clear, people are saving to spend. In many ways this is just deferred spending – money temporarily removed from the economy – does this stupid Government even realise this? We are also saving for the house – to spend on roof repairs; we are saving to get our kids through university; to have some new radiators put in the living room etc., etc. And to have future holidays (maybe – this might have been our last truly family holiday for sometime). And of course, our consumption has to go down of food, heating etc.
I managed to finish off Isabella M. Weber’s ‘How China Escaped Shock Therapy’ (2021, Routledge). The arseholes who pass for our government should read it:
‘Instead of experiencing severe economic decline and deindustrialisation, as did Russia and several other transition economies, China’s dual track reforms (where some commodities had their price set by the state, whilst others were allowed to be set by markets on an as and when required basis through the monitoring of prices by the state – my explanation) laid the institutional and structural foundations for its economic ascent under tight political control by the party and the state’ (p.264).
‘ The state maintained its control over the ‘commanding heights’ of China’s economy as it switched from direct planning to indirect regulation through the states participation in the market. China grew into global capitalism without losing control over its domestic economy’ (p. 269).
In terms of the COLC, only France seems to be doing anything for it’s people (maybe it’s revolutionary history did teach it a lesson as much as the Chinese communists feared revolutionary zeal being turned upon them for not making the lives of its people easier?). Germany seems to be having go (cheap travel on its railways). But everywhere else seems to be about orthodoxy and the markets having their way. Because its inevitable of course isn’t it?
Yes China still has problems – it’s amazing though how some of the worst working conditions the Chinese people endure is for Western manufacturers? Funny that isn’t it? Or is it? No! Of course it’s not.
I think the over all lesson for MMT though is that the pure laziness of monetarism is just laid bare isn’t it? Because if greed is inevitable it can be stopped from hurting people. That’s what the early Chinese observed in their markets and that’s what we can see in our markets today. There is a role for the state in dealing with the greed of producers – not the the perceived greed of workers. MMTers should take heart that a more proactive interventionist stance in markets is essential to stop the economy from becoming unstable and also hostile to the wealth, health and well-being of the many.
MMT and state intervention based on observation – not ideology – are essential partners going forward and like the Chinese have done – trying things, experimenting even – until you get desired effect.
But at the heart of this was something else about state craft that maybe the West has forgotten or never even come close to? The Chinese were genuinely interested in prices because they were worried that people would become angry and domestic unrest would emerge if prices got out of hand. And domestic unrest was something they did not want given that there was always threat from surrounding countries and also that it would have to rely on unhappy people to defend its borders (this aspect very much seems to resonate with Michael Hudson’s history of debt jubilees used as a means to free people to fight or take part in national causes or defence).
What do most Western governments concern themselves with on these issues? Do they fear us in the same way? Do they worry about our anger? Are they even aware of it? Do they under estimate public anger? Do they discount it? Can they rely on the machinery of state to supress anger? Or the support of big money? I feel that this area remains untested in the UK at the moment and maybe many other countries. It seems to me that since Thatcher, our state enjoys kicking the shit out of its people – to be frank.
If MMTers are to change this, then what is the objective? What is the moral objective? This is where the notion of the courageous state comes in. But to describe such a state as courageous only describes one aspect in comparison to the present alternative were it is missing. And that is not BTW to dismiss being courageous – not at all. But what are the external benefits to the people of a state being ‘courageous’? How can we sell that to the people, I wonder?
I’d love to ask the leaders of each political party what they actually stand for in relation to people’s lives? I think the answers would be uniformly dire. With MMT – and the courageous state – that needn’t be the same at all. We need to re-orientate our state back to the many – not to individuals.
Agreed
@ Pilgrim
Cost of Living: “only France seems to be doing anything for it’s people (maybe it’s revolutionary history did teach it a lesson”. This is not the whole story.
1. French Revolution a success – either “too early to say” or Yes in the terms of Thomas Paine at the time (before the Terror). But either way, it is now used unhistorically to justify whatever a politician wants.
2. The “lesson” was taught to Micron by the Gilet Jaunes, whom he suppressed as bloodily and vindictively as possible, to terrify them (including me) away from demonstrating. He is not going to risk a recurrence, given he has only limited control of the Assemblée with support from variously the National Front/ Rassemblement and / or the right wing Républicans or even among his own Renaissance!! grouping..
3. The Loi Pouvoir d’achat is a combinations of breadcrumbs for the poor and caviar for the rich (not to mention egregiously climaticide).a) The ristourne” on fuel mostly benefits the rich – a targeted tax rebate would have been socially more just. b) the Prime Macron is only paid by some companies and never in full, its workings are arcane and often distorted to benefit the better off among the workers, and is no substitute for a general rise in wages – and it detracts, like many other Micron acts, from the money to support social security c) Pensions have only gone up by 4%. d) No super profits tax. e) That’s enough for now
Thank you Pilgrim – once again. HOWEVER! I wish people would cease referring to governments needing to ‘Learn’, or to ‘Laziness’, or to Monetarism or Neolibertarianism as being somehow incomplete or uncomprehending, etc …
They know what they are doing. Richard has said so often enough. They are ensuring that the levers of the economy are aiding the wealthy to gather more wealth and to facilitate movement and manipulation of that wealth in the best way possible. So often via government sanctioned systems of tax and foreign treaties assissting movement, etc.
Their beachware belies their innate financialisation of life.
Eye 1568 p 9
Ramfoanmcleared a miserly 55% profit margin on PPE making so many millionaires while even Apple only managed a margin of 26%
https://www.theguardian.com/commentisfree/2022/jul/31/us-inflation-corporate-greed
@ John Boxall
Thank you, should have thought of it myself. Professor Reich’s piece gets almost everything right and makes a very strong case – one knows this, but well worth reading. So, again:
https://www.theguardian.com/commentisfree/2022/jul/31/us-inflation-corporate-greed
He is usually worth reading
ardj
Interesting.
Is this an insider’s view? Are you French?
Believe it or not we English – and Americans for that matter (because I have heard them say it) – have the view that we are scared of our government but that the French government are scared of the people.
Right?
Wrong?
You tell me.
But I wish we had our own version of the Gilets Jaunes – even better if they were a political party.
[…] Cross-posted from Tax Research UK […]
@ Pilgrim
Scared of gov / people ? I suspect that, on its own, that is too simple a characterisation. Of course one is scared of the government if one is in a weak position, e.g. liable to be evicted &c. Classically, country people, in the US particularly, are described as “agin’ the guvmint’, and there is some truth in that, but ‘scared‘ ?
Republicans have picked up the Q-Anon nonsense about the deep state, which used of course to be a left-wing trope (justified to the extent that the secret police were always out to get you in the US, USSR, or wherever). And their seeming disregard for the rule of law (ok to kill those even thinking of an abortion, march on the Capitol, Supreme Court disregard for precedent…) bodes ill for any government that does not suit them. But I don’t think that you could describe them as generally ‘scared’ : more idiotically rebellious.
Expatriate, I have no particular insights into England today, but again, from what I read and what people tell me, one is scared of what the crazies in government might do, and many have suffered, are suffering, and will suffer: but neither the FT nor The Grauniad suggest a people cowed as Putin’s or Pol Pot’s unfortunate subjects might be. (And even Myanmar or Palestine still has those who will fight back). So I don’t see the value of your characterisation.
Certainly in France the problem for too long (*60’s to present day) was that the governments ignored the people, leading to the rise of entre-soi, and the decay of the Socialist Party. Nupes for all its faults is an unfocused attempt to get things right (they have not prioritized, which may be one reason why they did not do better, but it is an uneasy coalition). But again, government not ‘scared’ of the people,:tho’ in Micron’s case understandably wary of what they they might do, which is why he has the little protofascist Darmanan to run interior security for him. But for the most part he thinks he can continue to ignore them with the usual illusory economic tricks to pacify them. With luck it won’t work this time round, but I have no great hopes.
P.S. For me, not French, merely expatriate British, and as a result a (non-existentialist) outsider everywhere.
Arjd and Pilgrim – very useful discussion here, thank you! As someone who has lived an expatriate in both the US and now likewise – thankfully – in France interspersed with long stretches in developing countries, I am painfully aware of how easy it is to project experience from one country onto others and only see through that lens.
An informed, contextualised US-French comparison is I think extremely pertinent to the situation the UK is finding itself in – culturally, politically, and structurally. Brexit was a conscious decision by the UK to turn West instead of East, regarding which there are many underdiscussed but critical hardcore issues, particularly those relating to data.
During Covid I wrestled with the French attitude to vaccinations. Surely, I reasoned, the socialist French see their government as a protector in the event of a national emergency? The vehement resistance of the older generation drove me nuts until I started reading about … Vichy. And the way that the Commune system, unlike that of local Councils in the UK after the connection was severed by Thatcher, is intimately woven into everyday life, both for good and for ill. Any comments, Arjd? I’d be fascinated.
@ Joanna – & Pilgrim
You suggest a range of inquiry which may be beyond the scope of Professor Murphy’s generous provision of space.
Your proposal of a US-France comparison as a lens for viewing the UK (maybe pre- and post-… ?) Brexit is interesting, and I would welcome an elaboration of what data you think are relevant.
Equally I think the vaccination difficulties in France stretch well beyond the aged,, indeed almost the inverse, including for instance nurses and doctors, the sudden drop in vaccination acceptance between summer and December in 2020, the appalling influence of mass-media such as BFM plus social media, lunatics like that Marseilles professor whose name deserves to be forgotten … but there is also the fairly recent history of medical scandals such as Mediator, Dépakine. But there is no ‘risk zero’ and there have always been anti-vax – it is a topic for articles and books – though a search for “Scandales médicales en France” will bring up a range of interesting povs
No sociologist (tho’ with some background in social research), I hesitate to look beyond the commune of my own small village, let alone the complex relationships with communauté des communes, department,, region …
If you know of a site open to such discussions, it could be very interesting – particularly if others with real information and analysis were enticed.
I know this is not what you asked for, but I wonder if you have looked at The People’s Covid Inquiry. I watched all the sessions, and read all the evidence. Then I caught covid myself and ended up on oxygen on a covid ward for three weeks, which explains why I follow this.
https://36085122-5b58-481e-afa4-a0eb0aaf80ca.usrfiles.com/ugd/360851_62aeecaeb6944934b6c55d41708d7eeb.pdf
They have actually sent a letter to the Met accusing the government of misconduct in public office.