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Oh, Rilly?

The government says it’s unfair to taxpayers to pay now. But the simple fact is if prices rise by 10% and pay rises by 10% then on average profits will rise by 10% and so taxes will rise by 10%. That’s not rocket science, but it means inflation-matching pay rises fund themselves.

That’s another Nobel on the way to Ely then.

Then there’s this:

The government says paying people will create ‘inflationary expectations’ and more pay demands but the only thing that will do that is not paying now. People who settle for less than inflation will of course be back for more pay in the future. Paying in full now will prevent that.

OK, so more inflation is bad.

There are three consequences of that failure to pay in full. First, the wealthy save their extra money, and there is little or no economic stimulus to the economy as a result, which there would be if a pay rise was given instead.

But we should pay the pay rises to provide stimulus to the economy and therefore more inflation.


Also, this:

Andrew says:
February 1 2023 at 11:17 am
Can someone please give a plausible explanation of how increasing the pay of teachers, nurses, doctors, firemen, and other public sector workers, leads to inflation? Which prices are going to rise as a result, which would not otherwise have risen anyway?

Richard Murphy says:
February 1 2023 at 12:27 pm
As we both know, none will

Your comment now adapted into a tweet….


Tax is a price, right?

11 thoughts on “Oh, Rilly?”

  1. “First, the wealthy save their extra money, and there is little or no economic stimulus to the economy as a result”

    A bit like having your wealth tied up in a mortgage free house and your pension held as cash….

  2. Did he actually work for Robert Mugabe back in his heyday of the early 2000s? Was he prominent in the COINTELPRO Program back in the 80s advising various banana republics in Latin America?

    The guy is an utter moron – bereft of any economic understanding

  3. How many fucking times is he going to trot out his shibboleth that increased public spending pays for itself through increased taxes without once giving an example where this has happened ?I know that there are a lot of stupid people in this country but who can believe this whilst Govt debt rises inexorably ?

  4. So say revenue increases from 100 to 110,
    Wages increase from 50 to 55,
    And profits rise from 50 to 55.
    Corporation tax at 19% rises from 9.5 to 10.45, or income tax at 20% rises from 10 to 11. How does the extra tax fund the pay rise? And anyway, by what rule of thumb does increasing wages lead always to increasing profits? Has he never heard of diminishing returns of scale?

  5. Dio: That’s exactly what I was running through my head as I was reading the Spud’s screed. Even basic sums is beyond him.

  6. If Prices rise by 10% and wages rise by 10% … what about non-wage costs? Such as electricity and gas?
    Businesses have differing mixes of non-wage to wage, and differing ability to raise prices in the marketplace, so different price outcomes will ensue … the assumption Murphy makes doesn’t stand any comparison with even the most basic of realities. This is just overly-simplistic nonsense.

  7. There’s also the real life example of Turkey, who cut interest rates when inflation started to bite…

    “Besides the upping of the minimum wage, the government has been on a public spree to compensate workers and pensioners for their deteriorating purchasing. Earlier this month, civil servants and pensioners received a 30 percent pay rise.

    Nonetheless, these increases remain a seeming drop in the bucket as the pay rises remain under the inflation rate. ( Bianet )”

    Inflation keeps increasing faster than the government can raise wages. Don’t tell the Fat Controller

  8. Douglas Adams nailed this!

    ““If,” [“the management consultant”] said tersely, “we could for a moment move on to the subject of fiscal policy. . .”
    “Fiscal policy!” whooped Ford Prefect. “Fiscal policy!”
    The management consultant gave him a look that only a lungfish could have copied.
    “Fiscal policy. . .” he repeated, “that is what I said.”
    “How can you have money,” demanded Ford, “if none of you actually produces anything? It doesn’t grow on trees you know.”
    “If you would allow me to continue.. .”
    Ford nodded dejectedly.
    “Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich.”
    Ford stared in disbelief at the crowd who were murmuring appreciatively at this and greedily fingering the wads of leaves with which their track suits were stuffed.
    “But we have also,” continued the management consultant, “run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship’s peanut.”
    Murmurs of alarm came from the crowd. The management consultant waved them down.
    “So in order to obviate this problem,” he continued, “and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and. . .er, burn down all the forests. I think you’ll all agree that’s a sensible move under the circumstances.””

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