The root of Philips’ and Lord Wolfson’s concern is that wage inflation in the UK continues to lag general inflation. That means real earnings are still falling for consumers.
“How can you have a recovery when people are getting poorer?” asked Lord Wolfson.
The answer being if everyone was earning too much before. This is the same statement as productivity was too low. Thus we need to have a decline in real wages. Which will raise productivity, they’re the same statement.
If you’ve not got your own currency then this can be an horrendous experience, as Portugal and Spain are showing us. Fortunately, if you do have your own currency, as we do, you can depreciate it, get a bit of import led inflation going, and thus reduce real wages while nominal wages continue to rise.
Very Keynesian in fact. And also entirely planned.