Wednesday, 29 June 2011

On inflation

 Just thought I'd do a brief outline of a few, less than orthodox, methods of controlling inflation. (Sorry, it's not very funny, I wanted to make it funny but I could not for the life of me think of anything funny about prevention of the year on year increase in prices from being too high).

When it comes to inflation, the left has always, it seems, treated it as a secondary priority compared to the primary priority of keeping unemployment low. However, as a recent IFS report shows ( inflation disproportionately affects the poor, and if the left wishes to continue to see itself as the "champion of the poor" then it should really start seeing inflation as more of a priority. There are a number of ways in which inflation can be tackled, ignoring the frankly laughable suggestion of simply  "giving independence to the Bank of England", the idea that you can simply partition the economy saying "monetary policy and inflation here" and "everything else over here" is childish at best and dangerous at worst.

1. Price rise controls
Explanation: A legal limit on the rate at which prices can rise. This is the most direct approach to controlling inflation.
Advantage(s): This is inherent in its directness. Inflation literally cannot exceed whatever limit the government places on it.
Disadvantage(s): The problem with this however, is that it can only work to combat "demand pull" inflation, that is inflation caused by people being more willing and/or able to pay higher prices. A prices policy would run into serious problems in tackling inflation caused by increases in raw materials prices as it could reach a stage where firms cannot increase prices to avoid selling at a loss.

2. Government mediation.
Explanation: Here I refer to a policy, similar to the one pursued by the Callaghan government, whereby the government is given a role in mediating between the unions and employers to keep both wage and price rises at a low level, although preferably with the former being slightly higher than the latter.
Advantage(s): Like the previous policy it is rather a direct one, tackling inflation by directly trying to limit wage and price rises. However, unlike the previous one it is more flexible and exceptions can be made for special cases. Also if applied on a national level, the government could promote an element of standardisation so that employees doing the same work for different firms get the same pay and conditions.
Disadvantage(s): A problem with this is that the government element would be subject to a problem caused by our political system, namely that every decade or so the party, and hence objectives and philosophy, of the government element in this system would change, thereby removing stability from this method as well as potentially turning inflation into a "political football".

3. Leave CAP
Explanation: Agricultural prices are kept artificially high through the CAP, removing it would lower them.
Advantage(s): In addition to lowering the price of agricultural goods, the removal of the CAP from Britain's agricultural sector could hopefully remove the ludditism that is prevalent in the CAP with its fondness for "organic" foods and hostility to GM crops. Also the removal of the CAPs protectionist elements could lead to increased agricultural trade with the third world, many of whom's economies are far more dependent on agriculture than ours, providing these countries with an export market is arguably better for all parties than foreign aid.
Disadvantage(s): On its own, not a solution. As a method of reducing inflation on a long term basis, this would not be an ideal one due to Britain's agricultural sector being somewhat minuscule, less than a single percent of GDP. Also the removal of protectionism would likely impact upon Britain's farmers, resulting in a number of farms being unable to compete. For these farms I would suggest either the government help them diversify, specifically into products where western technology allows them to be competitive or into other, non agricultural, uses of the land or to help the farmers seek employment elsewhere. While many people probably don't like the idea of anything that impacts upon farmers, who for some reason seem to be strangely popular, this as an ethical point fails to stand up when there are countries trapped in poverty as they can't sell their crops.
(Note, the leaving of the CAP by Britain is a much wider policy consideration than simply inflation)

4. Green tech
Explanation: Investing in methods of production, fuel and transport where oil plays a minimal as possible role.
Advantage(s): The cost of living in Britain is very much linked to the price of oil in the long term. This is because the cost of production is linked very much to it, what with many goods using oil in fueling the production, some in the actual production and many in the packaging of the product. Furthermore transport costs are also linked to the price of oil due to petrol (duh!). Due to the closeness of the cost of living with the price of oil, and with oil prices likely to considerably rise as demand from India and China continues to grow and the world rushes ever closer to the "oil apocalypse" when the oil runs out, leading to supply steadily falling until it reaches zero, there can be no doubt that the rising cost of oil will be a main driver of "cost push inflation", inflation caused by an increase in the cost of production.
Disadvantage(s): Cost, simply the fact that the government will need to spend a lot of money to make these technologies viable, but ideally through cooperation with the private sector and the fact it will cost less than the "oil apocalypse" means this isn't a major issue.

5. Lead by example
Explanation: Rather simply the government could set a standard pay rise for the whole public sector that is the same each year.
Advantage(s): Would hopefully lead to the private sector aiming for a similar rate of wage rise, and at the very least this would control demand pull inflation to an extent. Furthermore it prevents problems caused by having to continually renegotiate wages.
Disadvantage(s): The private sector could simply ignore it.

And there you go, something or a long boring blog on inflation and stuff. Granted if you thought economics and politics in general were all fun and games, you were wrong.

Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. - Ronald Reagan.

Monday, 27 June 2011

A Monetarist limerick wrote in a single minute.

I have absolutely no idea why I felt the need to do this.

There once was a man called Keynes
Who thought we should spend above our means
He would bring inflation
Down on the nation
And it would be £9 for beans.

But its good to see I've still got my somewhat decent ability to write limericks.

Sunday, 19 June 2011

On inequality

A rather short blog today, as there isn't really much you can say about inequality. Well there is, but a lot of it is just listing figures and that kind of thing won't really help with what I'm going to be saying today. Plus I have a bit of a headache so there may be But anyway to the matter at hand.

Inequality as bad thing in itself is often seen as dogma in socialist circles, but I find this to be rather a simplistic approach. While before I have made points about how reducing income inequality is a good thing for the economy, this doesn't necessarily translate into an absolute. I feel inequality should exist in some form or another, it acts as a reward and incentive for hard work and intelligence. It is right that if a man works hard and uses his brain, he should profit from this, and I say we let him live the luxury that his work enables him to do.

But at the same time I feel that it is wrong that a man can have so much money that he can't wear all the clothes, can't live in all the houses, can't ride all the yachts and can't drive all the cars. When someone is earning that kind of money its more than fair that they contribute a lot of their excess income to Her Majesty's treasury. This isn't because its morally wrong to be rich, it's because Her Majesty's government has things it needs to spend money on, things we all like regardless of how rich or poor we are, things like hospitals, street cleaners, firefighters, traffic lights (except red ones), libraries, parks, pensions and police, and when it comes time to ask someone to pay for all these wonderful things, its preferable that we ask Mr Usmanov, Mr Mittal, His Grace The Duke of Westminster, Mr Blavatnik etc to pay a bit more, because they won't miss it, consumer spending won't miss it and if we didn't tell them they wouldn't notice it was gone.

In summary, inequality isn't bad, those who work hard, study hard and hence earn more should be able to enjoy the fruits of their labour and enterprise, but when it comes time to fund the business of government, they should be more than willing to help foot the bill for government to make it so they can keep living in such a lovely country, as God knows if they didn't think it was lovely they'd leave on their private jets.

How many men ever went to a barbecue and would let one man take off the table what's intended for 9/10th of the people to eat? The only way to be able to feed the balance of the people is to make that man come back and bring back some of that grub that he ain't got no business with! - Huey Long

Friday, 10 June 2011

A few economic policies and the arguments for them

Just thought I'd do a blog on various economic policies and their merits. Probably not that interesting unless you like that sort of thing, but wahey if you don't like that sort of thing you may have picked the wrong blog. If you have picked the wrong blog why not try one of these?

But if you've not picked the wrong blog, enjoy this magical mystery tour of economics

1. Redistributive tax changes
This is a rather simple concept, reducing the direct taxes on those on lower income bands and financing this via increasing the taxes on higher bands. While the political arguments for this are obvious, redistribution of income, fairness, alleviating the problems of the working class at the cost of those who can afford it without much change to their standard of living, etc, I am more interested in the economic argument for it. This is based around the idea that people with lower income are likely to spend more of any money they recieve. For example a poor person who recieved £300 would be more likely to spend it than a millionaire. This principle also works in reverse, as a loss of £300 would have a far greater impact on the spending of the poor man than the rich. Therefore, if we take £300 from this rich man via increased taxes and take away £300 less from the poor man in taxes, the amount spent by them collectively on goods and services will increase. Increased spending on goods and services leads to increased employment and higher growth etc. Although it must be noted that this policy must be done in moderation due to the fact that the rich find it much easier to leave if they are overtaxed, although the extent to which they do this is often exaggerated.

2. Inactive asset tax
This is slightly more complicated policy, it is a tax levied per square foot on all land zoned for commercial or industrial use that is left unused. Actually it wasn't that complicated, but I digress, there is currently over 75,000 hectares of unused industrial land in United Kingdom. ( When one considers why this may be there are two plausible reasons, either the owner of the land is unable to put it to use, or they don't want to. If its the first case then they should sell the land to someone who can. It could however be the latter, for example supermarkets are known to buy up land so that their competitors cannot open stores, and there are countless examples of companies shutting down some of their production facilities in order to benefit from the price rises caused by a fall in supply. This tax helps solve these problems as if a person/firm cannot use the land effectively they will sell it to avoid paying the tax and if the firm can but refuses to use the land productively then the tax will disincentivise such behaviour, hopefully negating the extra profit earned through lower production levels and hence forcing the firm to use the land again. Even if this latter one fails, it will however still raise revenue for government spending, which is good.

3. 6 month unemployment guarantee
This is another rather simple one, well they all are really although I suppose thats as economics is the art of explaining the really complicated things behind doing something simple, basically it means that if a person is on unemployment benefit for a cumulative 6 months, they would then be provided with a job on minimum wage by the government which they would do for 6 months, after which they would be elligible for unemployment benefit again. These jobs could be doing a wide range of things from helping public services, to cleaning the streets, to helping the police patrol etc. In doing this we combat both the perception that the unemployed are unwilling to work, as well as hopefully instilling some work ethic into the minority of unemployed who are lazy and would rather live on benefits than do an honest days work. Finally this would benefit those who cannot find work due to lack of "experience" or past employers as references, this would provide a chance for them to show they are capable of working hard and are not unemployed due to being unfit for, or unwilling to, work. In summary it will raise both the percieved average productivity of labour, as well as to an extent the actual average productivity of labour, increasing employment through the desire by firms for profit maximisation.

While of course these are generally quite vague policies with pros and cons, this isn't exactly a party manifesto, its a blog, granted if my blog was a political party it would have three more policies than does the Labour party (seriously guys, please try to at least have one policy by the time I join in September), but this is irelevant and I shall simply summarise by saying: Behold my economic ideas, judge as you will and remember at the same time that nothing is more dangerous than economic policies driven by political ideology, rather than by economic analysis.

Economics is a complex and complicated world about all the simple things we see everyday. - Justin Val R. Virtudazo