By Michael Burke
The chief economist for the Bank of England has let the cat out of the bag. Huw Pill (estimated salary £190,000) has told us that we should all accept we are poorer and stop trying to fight for wages that at least match inflation.
This is the official policy, from the government and the central bank — workers and the poor should pay the price for getting the economy out of its crisis. This is their strategy.
In Pill’s words, “What we’re facing now is that reluctance to accept that, yes, we’re all worse off and we all have to take our share; to try and pass that cost onto one of our compatriots and saying: ‘We’ll be all right, but they will have to take our share too’.”
But this is completely misleading, as shown by his additional remarks: “Someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether through higher wages or passing energy costs on to customers etc.”
This is the notion that inflation is somehow comparable to a natural disaster, like an earthquake or tsunami, and that we are all equally affected. This is nonsense and he knows it.
Recent data from the Office for National Statistics (ONS) demonstrate that this is self-serving rubbish. Over the 12 months to March this year, electricity prices rose 67 per cent and gas prices more than doubled, rising a whopping 129 per cent. At the same time, average earnings growth was just under 6 per cent for all workers.
The suggestion that in some way we are all equally affected by surging inflation is false. Workers’ pay in both the private and public sectors is falling in real terms; failing to match the rate of inflation.
But the incomes of energy firms and their executives and shareholders are growing at a hugely faster rate than the rate of inflation, where the CPI currently stands at 10 per cent. Their real earnings are soaring, as are profits.
All of this has nothing to do with underlying energy prices on global markets or the Ukraine war. Both gas and oil prices are now significantly below where they were when the war began in February 2022. Energy companies are not “passing on energy costs,” which are falling; they are profiteering, pure and simple.
The same applies in many other sectors, such as banking, food, and even rent, which of course have nothing to do with the war.
Even mainstream economists now point out that the Bank of England is covering up its own role in the global inflationary surge. At the end of the pandemic-related lockdown in the spring of 2020, the governments and central banks of the G7 economies embarked on a co-ordinated effort to stimulate their economies by ramping up government consumption and by increasing the supply of money (sometimes called printing money).
This effort was not at all secretive; there were numerous press releases, reports and publications announcing and analysing it. It was led by the US, where the central bank the US Federal Reserve created money at a rate never before seen in history.
At the same time, the federal government was spending on consumption at the fastest-ever rate in US peacetime. It was done in two rounds, one from the Trump and the other from the Biden administration.
Much of this was in the form of direct support to businesses, which was always their priority during the pandemic. Rishi Sunak’s disastrous “eat out to help out” scheme was in this vein; research by De Montfort University suggests it was responsible for a spike in deaths.
In the US, one clear indication of the failings of this policy came in the housing sector. As part of an enormous $1.9 trillion Covid relief package, Biden sent $30 billion in cheques directly to households to help pay the rent.
On the face of it, this seems like a good policy. But the result was that landlords simply put up the rents and evictions actually rose.
This is because the policy of hugely boosting demand by spending government money and increasing the money supply is bound to backfire unless investment is also increased. To lower rents, investment in new housing is required. Without that, more money going into housing just leads to higher property prices or rents. And without regulation, evictions rise.
This enormous error sparked the global inflationary wave. It is being used to drive down the real incomes of workers and the poor in the G7 and beyond. It has also proved to be disastrous in the global South, leading to even greater economic difficulties and even widespread hunger as the price of necessities has soared.
This is even admitted by the central bankers themselves, although, for obvious reasons, their research findings have not been given a wide airing.
One branch of the US central bank wrote: “By stimulating demand without boosting supply, our results suggest that fiscal support contributed to increased excess demand pressures in goods markets.”
In plainer language, boosting demand without investment in the means of production caused inflation. Notably, the central bank researchers are only criticising government spending policy. There is no self-criticism about the role of monetary policy, but the same logic should apply.
There is one final and important fallacy in official thinking that is vital for the labour movement to grasp, and to understand its own power. Workers and the poor are under a ferocious attack. Banks, energy, food and other companies as well as landlords are laughing all the way to the bank. Arguments for wage restraint are blatantly biased by class interest.
Facts speak otherwise. The wide gap between public and private sector wage growth has narrowed considerably. This is largely due to the fightback by hundreds of thousands of public-sector workers.
In March and April last year, the gap between the annual growth in public and private-sector wages was an enormous 6.4 per cent. That pay growth gap has now narrowed to just 0.8 per cent, driven mainly by better pay settlements in the public sector.
The government has attempted to use its position as by far the largest employer in the country to set a going rate below inflation across the board. The fightback by workers, mainly in the public sector (or overseen by ministers, like rail and the Royal Mail), has resisted those efforts.
Strikes work, despite what central bank economists might say. The more determined that workers have been, the less they have been made to pay for the crisis. But they are still burdened by falling living standards. Only an even greater determination can push the burden back where it belongs, on huge multinationals and banks —and the politicians who represent them.
The above article was initially published here by the Morning Star.