Education Information

Controlling inflation through a recession is not something that those who make policy, or those who own resources and property, are easily willing to contemplate. There are significant dangers and costs that a recession would also mean for them. What is happening, then, is a deliberate effort to create a political and economic environment that would frighten workers into accepting real wage reductions. Governor Bailey’s insistence that workers use “wage restraint” – that is, do not ask for wage rises that beat inflation – aims at the same thing. The Bank of England’s bloodcurdling forecasts of prolonged recession and unemployment contribute to the same message. As the Financial Times put it, the Bank of England “wants us to feel poorer, spend less and be more fearful about demanding pay increases.” And, of course, the Tory Treasury, insisting that 33 public sector workers cannot have inflation-matching pay rises, pushes in the same direction. If the strategy works, it might eventually have an impact on inflation, but profits would certainly be protected. It is more likely though that it will fail, and we will end with a recession together with still high inflation, what economists call “stagflation”. For, cutting the real wages of teachers or call-centre workers or delivery riders in Britain does not make the gas we import from Qatar any cheaper. Not a single extra silicon chip will be produced. Similar arguments apply to raising interest rates. There is no interest rate in London so high that it will end the war in Ukraine. Aggregate supply weakness and worldwide supply disruption is ultimately behind inflation. Destroying aggregate demand and clobbering the living standards of working people is an incredibly inefficient way of dealing with the problem, and it is driven by the determination to protect profits. The proper answer is to protect the income of working people, shift the burden onto profits, and intervene to deal with the profound weakness of the supply side. Government packages to help with winter fuel bills and the like, however welcome and in many cases making a difference between life and death, will not address the systemic and power relationships that we have highlighted here and will not stop the Board rooms from their corporate greed.

Giles, Chris, 2022, “The Bank of England Should Make it Clear when It Gives Us a Kicking”, Financial 33 Times (11 May)

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