It was just after midnight on MPC-Meeting-Eve in the upmarket-suburban houses of Bank of England Governor Andrew Bailey, and Chief Economist Huw Pill. They were woken from fitful, fretful, dozing slumber by three ghostly, shadowy figures.
The first announced himself as The Ghost of MPC-Eve Past. He took them to 1942, when there were desperate shortages of everything people needed or wanted. There was the potential for runaway price-inflation. But there was none, because rather than raising Bank Rate, the government imposed strict price controls, so that manufacturers and suppliers were unable to rake in great profits by raising what they charged for all these goods and services .
The second, the Ghost of MPC-Eve Present, took them on a lightning tour of small business proprietors, crippled by steeply-rising finance costs and unaffordable business costs. And ordinary families, terrified by £400 per month increases in their mortgage payments, on top of inflated food and energy costs. Elswhere, holders of major financial assets were receiving gratifyingly substantial extra income.
The third, the Ghost of MPC-Eve Yet to Come, showed them the future PhD theses and history books, which were less than complimentary about the actions of the leaders of the UK Central Bank, influenced by the UK Finance Ministry (The Treasury), which demanded successive interest rate rises to protect the asset-owners and rentiers of Britain against inflation. https://economicsfromthetopdown.com/2023/04/16/how-interest-rates-redistribute-income/
The next morning, chastened and contrite, they met for coffee, and composed the following letter to the Prime Minister and Permanent Secretary to the Treasury:
“Dear Prime Minster and Permanent Secretary,
In Confidence (for now).
Sorry, gentlemen, but we’re not prepared to go on doing your dirty work for you. You’ll just have to carry on screwing the economy and the population by yourselves.
We’ve given out all that crap about wage-rises being inflationary, and the mainstream media have faithfully regurgitated it, but too many people are reading the alternative-macroeconomics reports on social media, substacks, etc, which point out that the “wage-price-spiral “ is, to put it bluntly, a load of old cobblers. Even the IMF published a study last November looking at several economies over six decades, and couldn’t find any significant evidence for it. In fact, when price-inflation rises steeply, wages struggle to keep up. https://thenextrecession.files.wordpress.com/2022/11/wpiea2022221-print-pdf.pdf
And as for that nonsense about rate rises “damping down demand” to control inflation- well, that’s fooling very few when it’s obvious that most people are struggling to afford the basic essentials, when their wages are steadily falling in real terms. The average price of fish and chips at the chip shop has gone from about seven quid to nine/ten quid in about 12 months, but that ain’t because people are feeling flush and treating themselves more often.
And what happens when more people cotton-on to the fact that Spain has far lower inflation than the UK, through fiscal measures rather than forcing up Bank Rate? https://medium.com/@monetarypolicyinstitute/fiscal-policy-is-superior-to-monetary-policy-in-reducing-inflation-without-harming-growth-a3b5ccd4d932 Or more generally, that the UK inflation rate is far higher than in the other European and other countries?
What are we supposed to do, when even mainstream outlet Sky News included utterly damning comments by Prof Danny Blanchflower (late of this parish) in their report on the last MPC rate rise? https://news.sky.com/video/interest-rates-this-is-terrible-incompetence-and-this-lot-should-just-quit-says-former-bank-of-england-policy-maker-as-interest-rates-rise-12878553
Talking of “late-of-this-parish”, Andy Haldane had this piece published in the Guardian last month, pointing out that inflation is more-or-less guaranteed to fall rapidly this year, so rate rises are just causing misery. https://www.theguardian.com/business/2022/jul/16/andy-haldane-cost-of-living-crisis-inflation-can-be-tackled
Hell, even Paul Krugman in the US has been warning the Fed against further rate rises, and he’s supposed to be on our side! And, as well as the usual suspects such as Richard Murphy who has been roasting us for some time, even The Times carried a piece last week by Isabella M Weber of the University of Massachusetts Amherst, pointing out the folly of rate rises as a tool for taming inflation. https://www.project-syndicate.org/magazine/inflation-targeted-price-controls-alternative-to-interest-rate-hikes-by-isabella-m-weber-2023-03?barrier=accesspaylog
The BBC, with the un-challenging Faisal Islam, and ITN, with the blathering Joel Hills, may not be rocking the boat, but even the Express’s report the morning after the last rate rise was furious. (Despite their geriatric readership fondly imagining that higher Bank Rate might translate into more interest being paid on their retirement savings, haha).
We might be able to get away with it a bit by admitting that a high Bank Rate helps to keep the Sterling exchange rate up when we are importing most essentials from abroad, but you haven’t let us say that, have you? And in any case, that’s not your priority, is it?
We’ve had enough, gentlemen. The rate-hike game is more-or-less up. You can sack us, but you will need to find people who understand how to run a Central Bank, so good luck with that. And it wouldn’t play well in the media, however much you spin it.
Very sincerely, Andrew and Huw.”
And they set off to hand-deliver their missives, remorsefully delivering gifts to foodbanks along the way.