The fact that two members of the Monetary Policy Committee thought it appropriate to vote for interest rate rises now in the UK is, to me, little short of astonishing. Their justification was noted by the Bank of England as follows:
“These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labour market created a prospect that wage growth would pick up. They noted that it was possible that wages were lagging behind developments in the labour market to some extent.
“If that were true, wages might not start to rise until spare capacity in the labour market were fully used up. Since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank rate in advance of them.”
So these members were willing to gamble the certainty of households going into insolvency, jobs being lost, recession returning and more to avoid a risk of inflation at a time when this is, in fact, declining.
Ritchie is, of course, one of those Keynesian peeps. The ones who think that government should be fine tuning the economy through some mixture of fiscal and monetary policy. Something that does require a certain amount of foresight. Monetary policy is thought to work 18 months to two years out. Fiscal, well, if it works at all it sure as hell ain’t instantaneous.
Yet here we have people being described as either insane or sado-masochist for even bringing up the idea of taking note of future possibilities while setting current policy.
Makes that Keynesian demand management shit rather hard, doesn’t it?