BOE Chief Economist Says Britons ‘Need to Accept’ They’re Worse Off
bloomberg.com
bloomberg.com
Money is only as valuable as the amount of stuff in an economy. More money with the same amount of stuff is just inflation. The Pound does not need more inflation. Money and trade are only valuable in so much as they aid exchange and efficiency.
On a real, practical-level Brexit made England materially poorer. There are a lot of export commodities they no longer have a market for. And there are a lot of markets they can no longer import from cheaply.
You can do what you want to make the distribution more equal, but it can also be true that the pie is smaller for everyone.
Exports to the EU hit a record high in the summer of 2022, which ironically, was mainly because of commodities. Who'd have thought?
https://www.ft.com/content/47fe0d2a-6e87-4f30-8212-3b37f7f09...
In total, imports from the EU, excluding precious metals, hit £82bn whilst exports to the EU were valued at £49.2bn. This represents an increase of 7.5% in imported goods and a decrease of 6.1% in exports.
The UK’s total imports of goods decreased by £3.5bn (-2.1%) in Q4 2022 compared with Q3. Goods imports from non-EU countries fell in this time period (10.4%).
Exports of goods over the same period decreased by £4.5bn (4.5%), with exports to both the EU and non-EU countries falling.
What if the number of people in the country's economy significantly changes, up or down? Nothing? Can one simply ignore this variable or should it be part of the analysis? Perhaps there is a hidden assumption here that it is held (more or less) constant.
NB. "stuff" can be natural resources, or other products not produced by human labour
Is publicly funded childcare and eldercare a Ponzi scheme?
My parents who are retired are not adding value to the economy. I am.
I’m not caring for them directly, but they are dependents.
Their investments give them paper money that only has value because my generation works.
I have one sister. So two children and two parents is perfectly sustainable.
So 2 grandparents, two kids, and one grandchild.
Definitely not a Ponzi scheme. Not a good one anyway.
Common sense says: “Having a higher proportion of the population not working reduces economic output.”
And economics is saying: “Modern economies grow so quickly and reliably, we can increase economic output while caring for an increasing number of dependent people.”
For example, we have retirement communities and nursing homes instead of each offspring caring for their own parents. This reduces the downward pull on output. But the pull is still there.
So common sense and economics say that more dependents reduces output.
I can’t imagine a system where a high number of dependents doesn’t create a downward pull on economic output.
Can you describe a system like that?
Taking the example of One brother and one sister, the sister would have to bear 2.1 children, while the brother would have to have 2.1 children with another woman, in order to merely keep the population size level.
The reason for this is obvious: two sets of parents=4 people, the same number as the 2*2.1 children (minus premature deaths, etc.).
So the sister must have 2.1 children to sustain, but the brother’s “contributions” don’t matter.
https://population-europe.eu/research/policy-briefs/welfare-...
You don’t have to waste resources educating people. Someone else does that, and you just pay them a slightly higher wages.
Much cheaper than a well-funded education system.
From my own experience, in France, both of those assumptions are heavily violated. It can vary depending of the type of immigration though, I bet the story is different for California
I was talking about O-1 visa type migration: highly qualified individuals being admitted based on their credentials.
Hiring the next generation, instead of breeding and raising it.
But being human isn’t just about economics.
Try telling people it is wrong to exploit immigrants or that immigrants are not more stupid than anyone else and won't let themselves be exploited so easily, and you're talking to deaf ears.
If you reduce the "number of people" (i.e. by reducing immigration) you are typically reduce your GDP at a much higher rate, and thus will have a lower GDP/person overall. Your eating into your economy's ability to support the division of labour, specialization and other efficiencies that can only emerge at a large scale. Intuitively, think of it this way, do you think a village of 10 people, or a city of 2 million people will produce more GDP per capita?
Going back to the example of immigration, you're basically reducing a stream of young, educated workers who are consistently net creators of jobs, especially in Western countries with a very high ratio of aging senior citizens (Boomers) to young workers.
Yes. If that's the kind of immigrants you're bringing in. But most often I hear this argument used by people who want to justify bringing in a very different type.
Migrant labour for jobs in construction, farming and others not requiring highly educated people freed up British labour to become more highly specialised. It sucked for Brits trying to live off this labour as immigrants naturally pushed salaries down (no prejudice against that, I'm an immigrant myself and do understand the motivation of accepting lower salaries for better living conditions), on the other hand it freed natives to pursue higher paying jobs.
It's a trade-off for society, with pros and cons, very unfortunate cons that affect the lower strata of society but that allowed others to develop technologies.
If you don't like the "very different type" of immigrants then you gotta accept that a lot of jobs that are fundamental to society will have shortages, push prices of basic needs up, etc. because just a few people in a developed economy are looking forward to go work in the fields, or in a pig farm, or building houses.
Sure we can trade a bit more, but when the whole economy is financialised to a massive degree, then any benefits of that trade (if that trade outweighs the negative effects) are funnelled through a long standing system of extracting profit and concentrating wealth.
there's pretty much nothing you can do in your private or public life that doesn't result in a net transfer or wealth from the household, the local economy or from public funds, through a highly complex system of extraction.
So not only has people's purchasing power gone down, because purchasing power is relative to the money you have vs the money others have, but also basic services have just gone away from being free at the point of use. And what is free at the point of use is both low quality (so you are incentivised to pay to get a better service), and is again a black hole of public money being funnelled away thus reducing your purchasing power.
This worship of free trade we had was completely unrestricted. A lot of trade was completely decoupled from any real benefit or political or social project or any environmental concerns. If KPIs from trade and financial services are the main thing that are measured, then you will always end up with trade for trade's sake.
“Your scientists were so preoccupied with whether they could, they didn't stop to think if they should.”
Brexit has delivered an opportunity to assess and understand what we are trading and why.
First one is childcare. Nurseries and preschools were full of nice, dedicated people from Europe working for modest wages - for one reason or another they were happy with it. They have mostly gone home, or return soon after coming. I see this first-hand. I had to take my daughter from an increasingly understaffed nursery, with a staff turnover of, dunno, 100-200%, to a much more expensive one, staffed by very nice and very good English people, but costing 50% more. Other parents at the original nursery are told to take their kids away or accept a 30% day rate increase effective immediately. Schools are short-staffed for similar reasons. Schools are on strike for the 5th time this year, I believe, exacerbated by low staffing and overworked teachers. The parents of the grounded children won't make it to work today. Some of these people not coming to work will cause other people to not make it to work - there are train cancellations near me due to parents taking time off work to cover school strikes.
The other is the NHS. Again, this was largely running on highly qualified staff from the EU. They are, also, mostly gone. And NHS complaint #1 in my area isn't actually pay, it's the insane working conditions caused by understaffing.
NHS and schooling are among the top problems in the UK right now. Add social care for the elderly and agriculture, both running off immigrant workforce, and I'll say with confidence Brexit made it all much worse.
A friend of mine who just moved to the UK, went to a migrant GP who barely spoke English and was googling his symptoms to give him a diagnostic lol. No idea how he was allowed to practice medicine in the UK but it's terrifying.
It's not a dig at people from Africa and Asia in any way, but the selection bias is obvious.
but free trade / free movement just papered over the actual issue. You can temporarily use a form of economic imperialism to bring in people to run key services in your country for lower wages, but if won't solve the real issue and won't last forever, because it only 'works' between countries with relative unequal economies. It also does not compensate the donar country for the large issues it creates there.
Key workers are not being paid anywhere near enough to compensate for their importance to the country and to the economy, we are not valuing them no matter where they come from, and we are not training and recruiting enough people locally. Until this changes, then people are not going to come here to work in the NHS, child care etc. Free movement or not.
This issue was coming sooner or later, in some sectors Brexit has highlighted it.
If you want more people to come work here, then support the strikes.
EDIT. in addition, good quality child care should be provided free by the state, it is a massive benefit to the economy and to society. That's another core issue that was never addressed while we were inside the EU, nor is it (yet) being addressed outside it.
On the one hand you say that because we paid relatively more than poorer countries, this attracted a lot of people to work here. This is apparently "economic imperialism".
Then you say that if we want more people to come and work here, we should pay even better than we were?
And it's not even clear what the balance of benefits is, precisely. Expats often return eventually and boost the local economy with money saved while away. Certainly what's happening with Poland - yes there is a pinch from people leaving, but also a cash stream going back.
Saying that cutting ourselves off from our main trading partners is "an opportunity to assess what we are trading and why" is like saying that cutting off your legs is an opportunity to assess where we were walking and why.
Hence you have trade agreements and tariffs, tax, environmental regulations etc.
And trade isn't always good. If you are exporting then you are using your own resources (human, minerals, environment) etc to do work for others. This may work for you at an individual level, but it may not work for the country.
Four examples from the UK
1) Welsh Lamb. It is produced at great cost to the hill environment, including habitats and the knock on effects of flooding downstream. It was exported to the EU, while we were importing lamb from New Zealand to eat.
2) Fishing. Many of the fish caught in UK waters were exported because we were not used to eating them, while we were importing fish that we were used to eating. Individual fishermen probably did 'ok' out of this system, the companies above them doing much better. But coastal communities were not thriving, they were categorised as some of the poorest areas in the EU. Fishing didn't contribute to a sustainable environment for coastal communities. Then there is the environment, fishing stocks, discarded fishing gear etc.
3) Cars. This is a bit more difficult to solve, but we seem to spend endless resources in the EU and UK producing as many cars as possible. Despite them barely being used (a car sits idle 97% of the time) other than to financially cripple the owners. A car is very inefficient way to travel in the most populated places in the UK. Yet we have built our services around it, and continue to over produce millions of the things every year. Who is benefiting from this approach, rather than proper investment in a first class public transport system and associated planning system?
4) The drug trade. This is a trade full of highly skilled and resourceful people, it generates billions in complex imports and exports and logistics. This is good trade? No of course not.
It doesn't seem like a particularly good way to ensure trade works well for everyone though!
I suspect the drug trade will not be massively affected either way by Brexit.
It's a very narrow view of wealth flows, looking at the bigger picture then more flows back the other way.
e.g. See the example of Strathclyde Police Training and Recruitment Centre here:
https://www.taxresearch.org.uk/Blog/2019/08/16/the-burden-of...
Right and wrong. We are maybe obsessed with finding money to transfer instead of decreasing standards of living of the average person. The key is in your last sentence:
> You can do what you want to make the distribution more equal, but it can also be true that the pie is smaller for everyone.
Exactly! If you have 9/10th of the original pie and the rest of us are sharing 1/10th, then when the pie gets smaller it makes sense to keep our meager share numerically the same by giving us some of your share of the reduced pie. That is not equal distribution, but it needn't be!
In the economic sense this would mean taxing richer people more to fund social safety nets, while increasing interest rates to cool inflation. Lord Fotheringay will just have to make do with one less Bentley.
I see the whole thing as intergenerational conflict. Pre-genX'ers went through a period of high inflation, which was also one of historically low inequality, followed by a period of very low inflation and very high inequality. This enabled them to accumulate and maintain vast wealth. Now post-genX'ers think it is their turn.
https://www.researchgate.net/profile/Yonatan-Berman/publicat...
But while money is zero-sum, velocity of money is not. It takes trust to spend on investments or services. Less "stuff" happening means everyone loses.
Food for thought for all those decrying immigration in a country with less than 5% unemployment (and especially in an industry where the people in the US commonly tout how software devs in the US are paid higher than devs anywhere else in the world).
Odd little disparity there.
> someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through on to customers.
Coupled with prior remarks from the BoE governor:
> In the sense of saying, we do need to see a moderation of wage rises, now that's painful. I don't want to in any sense sugar that, it is painful
And add to that politicians using that (amongst other things) to deny pay rises for healthcare workers who've had a real-terms cut to wages of 25%+ over the past decade (when inflation was supposedly under control yet easy money was pumping risk assets like stocks).
Together, it all paints a picture of: hey we can't control prices for food and energy, and because of inflation we have to increase taxes, and also we can't pay you more, oh and because we're going to support energy prices we will also have to tax you more.
In totality, one should understand the frustration felt here is a culmination of the inequity that's been slowly building over a long time.
I'm lucky, I'm relatively well off but I don't want to live in a system that screws (or at least appears to screw) the least-well off at every turn.
The parent then said it is in effect calling for price controls on labor, which is true.
Pill is then recorded as saying wages do contribute to inflation:
> "He said that firms and workers are in a “pass the parcel game” that’s causing more persistent price pressures, contributing to the UK’s main inflation rate remaining stuck in double digits."
The final parent comment captures a very common line in corporate media messaging: which is that wages always need to be suppressed lest inflation rear its head, but corporate profits never should because that is market distortion and not related to inflation.
> So somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through on to customers. And what we’re facing now is that reluctance to accept that, yes, we’re all worse off, and we all have to take our share, to try and pass that cost on to one of our compatriots.
> That pass-the-parcel game is generating inflation and that part of inflation can persist. How much bargaining power and pricing power exists for different actors in the value chain in the corporate side and in the labor market?
He is literally saying that corporations passing on energy costs is also causing inflation. Absolutely nowhere does he even advocate for policy intervention. Not only is everyone putting words in his mouth, it goes against his larger point that interventions on individual actors are meaningless.
edit: There is a source for this, and quote by Janet Yellen, in a New York Times article discussing the modern theory on central bank governance if I can be bothered to find it
When economists talk about market distortions, they are talking about free markets. One where there are many competing producers/consumers all of whom are trying to maximize profits, minimize costs, and compete against one another if someone is underpaying/overpaying. Pill's comments here seem to be directed at government workers, many of whom are also unionized. Wages for such workers are driven as much by politics as by free markets
They should look into taxing the various British Overseas Territories which usually top lists of tax havens across the world [1].
I am not sure if the regular British public is just ignorant of the existence of these, or prefers to run with the limited set of facts that their Conservative government (now in its 13th year) is presenting to them. The Brexit shitshow seems to suggest the former.
----------------------------------------
[1] https://www.theguardian.com/business/2021/mar/09/uk-overseas...
Who is this 'we'?
Only the poor and the middle class are worse off and being squeezed by the CoL. The big industry players, ruling, upper and asset owning class are all making bank. Do they think people like Tony Blair or Lord McMansion are affected that food, electricity and gas are all up?
There is no 'we' here.
"Non-dom" is short for "non-domiciled individual". It's a term used for a UK resident whose permanent home, or domicile, is outside the UK. "Non-dom" is a description of tax status.
----------------------------------------
[1] https://en.wikipedia.org/wiki/British_passport_(Cayman_Islan...
"The British Virgin Islands were ranked as the “greatest enabler of corporate tax abuse”"
Ahh yes, leveling the playing field is now "spurious taxes" on wealthy individuals and corps...
Why not? To cite just one obvious effect, it can help fund social services that will inevitably be utilized more when the Government tightens monetary policy to combat inflation.
Considering Pill's boss Andrew Bailey was excoriated for making the exact same point last year, Pill can't claim he had no idea he would be misinterpreted. Or perhaps he is just as stupid as his boss (an incompetent buffoon who failed at the FCA but failed upwards because he was the only Brexiteer the Tories could find for the job). This wouldn't be out of character for the upper reaches of the British establishment.
Authers' loyalty to his classmate is admirable, unlike the Cambridge alums who turned a blind eye to the Cambridge Five, but the incestuousness is a good part of why the UK is so badly misgoverned.
As for how ordinary people can take action beyond striking for higher wages, one example is how they are switching to hard discounters Aldi and Lidl for their groceries (food inflation is at 17%). Luxury retailers like Waitrose or midrange ones like Tesco and Sainsbury thought, incorrectly, they were above the fray and tried to preserve their margins. The customers they have lost to Aldi and Lidl will not be coming back, even after inflation subsides.
The problems fall squarely on the British themselves, as it always does in democracies. They elected representatives who then made choices reflecting the collective will. Scape goat all you want but the answer is actually producing things of value that people around the world want to buy. Other than that it’s shell games.
I don’t buy the “media and rich elites brainwashed society” myth. It’s a modern take on “the Jewish money men caused all the problems” that was a frequent trope in the past.
British voted and got what they deserved, period. Now they need to elect new leaders with new ideas.
People sell themselves for as little as $500 in corruption money. Elites haven't reached their spot just by themselves, they rely on massive tree-like corruption networks, where the leader of each branch gets to benefit more the more people they have under them. In a given society you have a small percentage of people completely morally corrupted, a large majority who are just ignorant in every regard, and a handful of people who actually gives a damn - about anything.
Maybe it's better to curb the strong corporate pricing power instead?
That pass-the-parcel game is generating inflation and that part of inflation can persist. How much bargaining power and pricing power exists for different actors in the value chain in the corporate side and in the labor market?
That's the actual quote
https://www.bloomberg.com/opinion/articles/2023-04-26/uk-inf...
1. If the central problem is the price of imports (i.e. natural gas) outpacing exports (service sector), is this problem a downstream effect of Brexit closing off valuable markets? This seems obvious to me, but I don't see any mention of Brexit as a causal factor in the BOE Chief Economists comments (perhaps I missed it), and so am wondering if I'm overestimating Brexit's impact on the UK economy.
2. If Brexit is a relevant, and significant factor, in theory, can post-Brexit trade negotiations increase the export sector to offset this?
3. Assuming the natural gas is primarily used for building energy, is it easy for the UK to transition to alternative thermal energy sources (i.e. switch to electric generated from non-gas sources, heat pumps)? I've always thought of the UK as a very efficient user of energy, like most European countries, due to it's high density and stricter efficiency standards relative to the US and Canada, and am surprised the natural gas price increase seems to be framed as a relatively permanent problem that the UK is powerless to stop.
To be fair, I suppose a huge challenge is the older building stock can't easily use lower capacity electric heating, or heat pumps due to the historical reliance of thermal mass over insulation, but there are established ways to fix this, and shouldn't be an issue for modern buildings.
There are systemic issues that no main stream political project seems capable of addressing, it's pointless to simply remove some trade barriers again to paper things over, and then pat ourselves on the back and pretend they are being solved.
Brexit has exposed some of those issues, and made it clear where the responsibility lies. by exposing them and focusing attention on them it has created a real opportunity to address them, although I imagine that opportunity will be missed.
I’m gonna go with nationalists who don’t want foreigners moving to the uk to take our jobs.
Globalization, technology, loose monetary policy all affect different socioeconomic strata differently.
I think the fundamental issue is that not everyone in society is making the same progress.
Then, cut all MP salaries.
Then, cut government employee salaries.
Then, tax the wealth of the rich (and not just income).
When these noble people "accept" poverty themselves, that ought to bring inflation down.
Why do you think everyone would be better off after following your suggestions?
When inequality is lower, economy booms.
Government employee salaries are also generally lower than the private sector do again, if you want to attract the best and brightest then pay more
Nowadays we’ve all embraced democracy (oligarchy run by demagogues) and it’s a lot harder to hold anyone accountable. Everyone knows the British monarch is “powerless”, so they quibble amongst one another over whos political party is to blame.
But I am curious about how the accountability structure of a feudal system rolling up to a monarch compares to modern democracy. To some extent isn't each level still accountable to the levels below it - a peasant uprising will be the downfall of a noble, and an aristocrat uprising will be the downfall of a king. It's not immediately clear either that this would be worse than whatever system we live under, which in most places has no accountability and where democracy (voting) is mostly a theatrical exercise that changes nothing.
My neighbors and I just want someone competent in charge of local zoning policy. I'll take my theatrical vote over someone explicitly above the law theatrically pretending to give a shit.
I think the non representative democracy the US initially was worked well (as history can attest to). Fully representative leaves you with demagogues (as the current day can attest to).
> history
There have been plenty of good kings who saw it their duty to see to their people. This is more or less the default for how humans operate (families, tribes, businesses, etc.).
> present day monarchies
There are not any left in western society that I'm aware of, so there's a bit of a sampling bias.
The reality is that if you're looking for government to solve all your problems then you're going to always end up disappointed. You agree that history attests to the success of the US, but let's not kid ourselves. It's still the most successful country the world has ever seen on multiple metrics. That's not because its non-representative (aka flawed) democracy happened to put the right people in charge, but because the power of the government was deliberately limited by the rule of law.
I agree we should be worried about demagoguery. At the very least, though, I'm grateful that there isn't just one absolutely powerful person, explicitly above the law, that can fall under the influence of a Rasputin or their favorite concubine.
This happened to roughly one British monarch, Lady Jane Grey and Mary Queen of Scots make it "roughly." Do you think there was only one monarch who failed to enrich the British populace?
"the British people need to accept they are poorer instead of seeking to claw back a historic drop in living standards after a jump in inflation."
The main issue is that an every increasing proportion of money spent on services ends up in profits for private companies, and in the administration of that profit and contracts. If money went directly to public sector workers, then the economy would boom.
There was a British economy before the NHS.
It's not relevant for 2023.
How economics works hasn't changed. And Britain turned to the welfare state before WW1.