International political economy is difficult, isn’t it?

So, with real wage increases running at a negative rate of 0.9% based on this data and annual wage increases being 2.1% per annum the Bank of England is going to compound the misfortune of most people by increasing interest rates.

I don’t think this is by itself the tipping point which will make most people realise just how irrelevant they are to those who make decisions on economic policy in the UK, but it will certainly add to the sense of dis-ease that many will have on that issue.

As acts of economic folly go this one will take some beating. It is, after all, contemptuous of most people in the country.

Hmm. We’ve inflation. What’s the usual response to inflation? Raise interest rates. Get that inflation lower and nominal wage increases will translate into real wage increases.

Ah, but wait! This is not inflation in the sense of a general price rise in the UK due to capacity constraints. It is, instead, import led driven by the fall in the value of the pound. So, what does raising interest rates do? Raises the value of the pound. Thus removing, possibly even reversing, that import led inflation. And thus neatly returning us to our nominal wage rises leading to real wage rises.

Gosh, this international political economy is tough stuff, isn’t it? Quite beyond the ken of the Senior Lecturer in the subject at Islington Technical College.

6 thoughts on “International political economy is difficult, isn’t it?”

  1. A week or so ago, with reference to his stuff about closing the tax gap, I asked him how to reconcile his interest in taxing money out of the UK economy right now to close this gap with his opposition to raising interest rates. The usual wibble and insults resulted. But the impression was that he did not think that taking an additional xbillion tax would take money out of the economy

  2. Raising rates would indeed raise the value of Sterling; but that would make exports less competitive and would damage growth. You can’t have your cake and eat it.

  3. you could argue that this international political economy malarkey is also difficult for the people in charge. I mean, could any of the commenters on here for example do any worse than carney/Hammond et al really?

  4. “you could argue that this international political economy malarkey is also difficult for the people in charge. I mean, could any of the commenters on here for example do any worse than carney/Hammond et al really?”

    Easy. Take the job. Piss off for a year or two’s holiday leaving no forwarding address. It’s fucking around fiddling with the economy to justify their stratospheric salaries causes the problems. Like picking at a spot.

  5. BiS: there is a John Varley story where the Finance Minister of Pluto did exactly that, but with the twist that he occupied his cloned childhood body had his memories supressed.

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