From Willy to the Resolution Foundation

The Resolution Foundation has detailed the impact on the 6 million lower- and middle-income households in Britain whose average net household income is £20,300 a year and who spend disproportionally more on the goods going up fastest in price. A fifth are now materially deprived and over half have savings worth less than a month\’s wages. Only the seriously better-off are now escaping the squeeze.

This rather surprised me. It\’s a general rule of thumb that the inflation rate for higher earners is higher than the general inflation rate. This is because they both purchase more services (esp health and education) and servic es generally have a higher inflation rate and also that some of what those higher earners buy is positional goods.

These too have a higher than general inflation rate.

So, we actually get the Resolution Foundation telling us that the inflation rate being faced by low to middle earning households is higher than that being faced by those higher earners.

Bit of a puzzle really: how do we get from hte general finding to this specific one?

The answer is in this report.

In October 2008, sharp oil price inflation meant that by far the biggest
year-on-year increases in prices occurred in the domestic electricity, gas
& other fuels (+39.3 per cent), food (+10.1 per cent) and transport fuels
& lubricants (+9.2 per cent) components.

And yes, low to middle income households do spend a greater portion of their incomes on such fuels than do higher earners. So this is how we get our \”squeezed middle\”.

Hmm….but, you see, those huge rises in energy costs are not simply a result of either soaring global prices or of a falling pound. We are actually, quite deliberately, adding to them. The renewables obligation, carbon taxes, the EU cap and trade system, feed in tariffs.

It\’s our own damn government causing this higher inflation rate for that squeezed middle.

Yup, they being screwed over because we\’re going Green.

4 comments on “From Willy to the Resolution Foundation

  1. Ah, at last a glimpse (admittedly one you then discard entirely for reasons I don’t undersand) that you might be realising a falling pound isn’t good news for consumers despite its advantages for producers.

    Tim adds: Eh? Of course a falling pound is bad for consumers of imported goods. I don’t actually have to spell out such obvious points do I?

  2. Nice to see it said by you that the government, such as it is, is the leader in in the inflationary surge. Perhaps some will take a little more notice now.

  3. Tim:

    It’s a bit unfortunate that the term “inflation” (even when appearing as “price inflation”) is so widely equated with “price increases” both in the UK and the US; the practice serves to hide the origin of the phenomenon in the money-creation power.

    Except in a static economy in equilibrium, every change in data (from whatever cause) is itself the cause of further changes. Increases in the prices of some things, mutatis mutandi, will, of themselves, require diminution in those of others.

    I am not making a labored point nor one overly technical. Quite plainly, the common confusion on the point, coupled with the largely-left media conflation (for over 50 years of which I’m personally aware) permit the public ignorance to luxuriate and even, at times, encourage acceptance of government-imposed controls on prices and wages.

    It is true that various restrictive measures imposed by government on business drive up costs and, likely, prices but this, also is not inflation. True inflation, which occurs primarily through the mechanism of increasing the stock of credit available for borrowing by business and industry at what appears to be (at the time) lower-than-previous costs of borrowing, is similar in most respects (economically) to criminal counterfeiting: the first to “pass” the stuff get the major benefit but until the sham is seen further down the line, many of the earlier receivers may actually benefit thereby.

    The money-quantity has changed but not the supply of “stuff” available for purchase. The costs of many things will increase (including labor) as the relative abundance of currency is appreciated. Even large-scale projects of initial beneficiaries may be adversely affected as the costs of goods and services upon which their projects depend rise in advance of completion.
    (This is precisely the meaning of the term “malinvestment”–used by the Austrian School–
    to distinguish from mere “misinvestment” encountered continuously by entrepreneurial misadventure.)

    The essential or ‘takeaway” point is that the former, the “mal” type, is highly prone to have taken real goods and labor and “immobilized” them in an unfinished (and unfinishable) project, wholly or partially unliquidatable quite on account of its very “forward-lookingness”; it is, in every respect, a social loss, negatively impacting everyone, unlike the ordinary failure of an entrepreneur.

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