But Polly, this is a good strategy

Inflation is predicted to stay obstinately high while wages lag, shrinking demand in households with ever less to spend.

Imagine that you were a country worried that the amount that must be paid locally for labour made the production of that country uncompetitive on the world markets. No, go on, really, imagine it: you\’re Germany circa 2000.

So, what do you do? Quite, you deliberately plan to have wages grow less quickly than either (or even both) inflation and productivity growth.

The outcome of which is? Quite, look at Germany today.

So, UK today: our trade deficit does show that the place ain\’t competitive in many things. So, what should we do? Yup, let\’s have a little burst of inflation to lower real wage costs.

And won\’t Will Hutton be pleased that we\’re finally following Germany?

6 thoughts on “But Polly, this is a good strategy”

  1. We had a huge sterling devaluation in 2008, yet our trade deficit remains at more or less at the same level it was before the crash. As long as other countries are also looking to trash their currencies, it’s hard to steal a competitive advantage. Unless you really go out all guns blazing, “QE to infinity” style – but then you risk serious inflation, a run on the pound, etc. The “cure” can end up being a hell of a lot worse than the disease.

  2. Ah, yes. BUT: in Germany a little inflation was accompanied by economically literate Trades Unions helping to hold down wages. The country thus became more competitive.
    Can you imagine our economically literate TUC doing the same??
    They’d be out on the streets burning pictures of Maggie before you could say…

  3. But at the same time I lose some of my cash savings and I can’t afford to buy as many nice things. So I’m not happy, but I should be cheering anyway? What am I missing? Are you saying I will be richer in the long run anyway?

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