Brexit and the waning days of the United Kingdom

[Sheilbh]

Because rising wages fuel inflation.

It can - that's the model from the 70s. But we're not in a wage-price spiral here - and has been regularly pointed out it's trying to allow wages to keep up with prices rather than above inflation pay policies forcing inflation up. The breakdown of inflation for this bout (at least until the start of/early 2022) doesn't show that labour costs are a significant part of it. Compared with the seventies when labour costs were over 50% of what was contributing to inflation - it's now under 10% and over 50% is corporate profits (almost an exact mirror of the seventies). Non-labour costs are higher than in the seventies.

In the UK and Eurozone real wage growth has been flat for a decade - so there's been a great expansion which is now being hit by inflation. Instead people have been flatlining and are now taking a hit.

But I think one of the challenges of this period of inflation is that it is the first experienced by developed democracies without a significant and strong union/organised labour presence. I don't know what the politics or experience of that is going to look like but my instinct is that it means it will strengthen profit-taking and not see a significant growth of labour costs.

I understand expecting people to ask for wage increases. I don't know why a political party (and one always accused of being dodgy on finance) would want to take Sheilbh's stance of claiming everyone should get a wage increase to keep up with inflation.

I'm just not sure what the point of a party called "Labour" is for if it doesn't oppose real term cuts to workers' wages.

Some of this is also just following through on other policies - all parties are supporting the fact that pensions and benefits will increase in-line with inflation (although not until next year because it's annual set at April). The minimum wage is set based on advice by the Low Pay Commission - I imagine that it will be a large increase at their next reccommendation. I don't think it's sustainable to back those rises while saying public sector wages (where government does have a say) and private sector wages (above minimum wage) shouldn't go up.

And again this is in the context of multiple listed companies today announcing record profits and nice divident payments.

But yes, availability of cheap credit fueled the asset bubble on all levels, many benefited and many more did not. And no, I am not going to answer your upcoming brief questions on supporting more data to confirm this isn't the fault of a decade-long failed monetary policy designed to kick the can down the road.

But the monetary policy needed to exist and be expansionary because across the developed world the fiscal policy didn't. There was significant fiscal austerity in the US, Eurozone, UK etc.

There are unintended consequences of that monetary policy but it was necessary because states weren't playing their role. In retrospect I think the central banks maybe should have just done helicopter money.

Your "monetary policy is for the rich" is straight out of Occupy Wall Street.

Materially the section who benefited the most were at the top (of wealth inequality - limited impact on income inequality). That wasn't the intention but it was the result. The main effect was to support prices of assets which are primarily held by the wealthy who (according to the BofE) normally used that increase price to buy other assets driving prices again.

The way to mitigate that was fiscal policy but acrosss the developed west that was the path not taken.

[garbon]

Yeah after we (as in most of the world) spent over a decade fuelling an insane asset bubble with what practically amounts to money printing (except limited to institutions and not consumers), I am NOT on the side of trying to contain its eventual overboil by asking people to take it on the chin and don't ask for more money. If we are so worried about people overspending, hike interest rates, deflate the bloody bubbles.

I understand expecting people to ask for wage increases. I don't know why a political party (and one always accused of being dodgy on finance) would want to take Sheilbh's stance of claiming everyone should get a wage increase to keep up with inflation.

Same reason why the Leavers were making outrageous financial claims about the benefits of Brexit.

Ah so Labour should adopt an approach of lying/focus on winning at all costs?

While I'd agree they should perhaps focus a little more on winning seats vs ideas, I'm not sure that's what Labour voters really want.

[garbon]

I'm just not sure what the point of a party called "Labour" is for if it doesn't oppose real term cuts to workers' wages.

I think I'm on record as saying that things really should move to a post-Labour place as the current party seems ill-suited as the Opposition.

Some of this is also just following through on other policies - all parties are supporting the fact that pensions and benefits will increase in-line with inflation (although not until next year because it's annual set at April). The minimum wage is set based on advice by the Low Pay Commission - I imagine that it will be a large increase at their next reccommendation. I don't think it's sustainable to back those rises while saying public sector wages (where government does have a say) and private sector wages (above minimum wage) shouldn't go up.

If they mandated increase in one place they can (public sector), that's again looking at just a small portion of the populace - so not all that beneficial to the average voter.

And then realistically, will the private sector increase wages in line with inflation, during such periods of high inflation? I've heard of some companies still giving marginal increases / one time bonus payments but will many actually do what you think Labour should advocate for?

[Sheilbh]

I think I'm on record as saying that things really should move to a post-Labour place as the current party seems ill-suited as the Opposition.

They are but I'm not sure how much of that is Labour and how much is just issues with the left in general in this country. The factionalism, splitters, purity tests, betrayal narratives about any period in office etc have all been pretty regular features of Labour's history.

They're not unique to the left in this country - I feel like there are similar pathologies on the left elsewhere, but not everywhere - it just seems particularly bad here. I think the biggest flaw for a party that spends a lot of time in opposition is that as soon as they lose power, Labour tend to have a massive fight over how to interpret their last time in power. There is always a significant faction saying that the last Labour government was too moderate, timid, cautious, possibly even "right-wing" and it was a betrayal of the party/movement - it happened in the 50s, 70s, 80s and 2010s.

But it's a huge issue for one of the two main parties because if you spend half your time having a fight over how awful it was the last time you were in power, you can forgive voters for being reluctant to put you back in office.

If they mandated increase in one place they can (public sector), that's again looking at just a small portion of the populace - so not all that beneficial to the average voter.

A small but pretty significant part of the population. Obviously it's not all within the control the central government but public sector workers are about 15-20%, if the government also uses the levers it has in contracts with outsourced services it's even more significant (although I think generally they should be trying to bring outsourced services back into the state).

And then realistically, will the private sector increase wages in line with inflation, during such periods of high inflation? I've heard of some companies still giving marginal increases / one time bonus payments but will many actually do what you think Labour should advocate for?

It's mixed. I think there will be a big increase for minimum wage workers - which is another 7% - plus the companies that are very prooud of their Living Wage status will have a large increase. So it adds up - areas where government has some ability to influence directly is probably around a quarter to a third of the workforce.

The other point which I think this summer will make is that unionised workforces in the private sector will do better but may take industrial action to get there. The railways, Royal Mail and BT are all facing industrial action, I think other sectors will too. I think industrial action by call centre workers is particularly interesting because it's a not insignificant part of our economy. But also they've been seen as an example of what the modern working class looks like - so far it's been really difficult to unionise or take action in that sector because it tends to be a pretty precarious and transient workforce, if it works that might shift. So I think that's the wider point is that Labour should rhetorically support higher wages for all workers and back unionisation (I'd look at rebalancing the union laws in this country as a big thing Labour should promise in government). It's the point that should be made every time TV news interviewers complain about how cushy things are for RMT members (which they're not) - but that's because they're in a union, if other workers want that then they should join a union.

Where I work has a pretty strong union presence and it was before the latest spikes in inflation but we all knew it was coming. It is still not at inflation but there's basically a sliding scale of rises from aboutt 3-4% for the highest paid to about 8% for the most junior and lowest paid - which I think is good (and significantly above what rail workers have been offered).

[Sheilbh]

Part of my general moans about how sclerotic Britain is - there might need to be a ten year moratorium on new house building in three west London boroughs because there's no more capacity in the electricity grid.

These three boroughs have about 10% of London's population (and housing target), but this obviously also causes issues for, for example, EV chargers in the area or heat pumps as well as commercial projects like data centres (common in West London/that area).

Upgrading the grid might take up to 10 years so in the meanwhile the GLA are looking at a development moratorium. Again I would be astonished if no-one was aware this issue was coming and just nothing was done to fix it. As I say it reminds me of other issues like dithering for twenty years on nuclear, while systematically shutting down existing power plants, gas storage etc and then discovering there might be an energy crisis because there's no flexibility or redundancy in the system; or the fact that England is (given population growth) on course to run out of drinking water because while governments since 1991 have been trying to identify a location for a new reservoir, none of them have managed to actually choose a site, far less build it.

In both energy and water it'll all be fine as long as absolutely nothing goes wrong - but if there is the slightest risk we will end up with a real crisis (possibly requiring rationing) Part of the wider issue of just not building the infrastructure we need and not building in general

[Josquius]

My post oddly vanished before.

With the trains things seem iffy. There's a big, semi justified, belief train drivers already earn enough and so the strikes are invalid.
Other lower paid jobs aren't known or comprehensible enough for people to care.

With the nhs and to a lesser extent other emergency services... if there was to be a push there for a decent pay rise I could see people being very much behind it.

[Sheilbh]

Just to point out most train drivers aren't in the RMT (they're in ASLEF who I think are going on strike). RMT are more the Network Rail workers, train staff, station staff, cleaners etc.

And again the reason train drivers have good pay and conditions is because they're in a union - I think they're always a really good argument for it

[Richard Hakluyt]

Re the London boroughs and the National Grid. The government intends to stop the sale of new ICE cars by 2030...yet it can take ten years to significantly upgrade the grid. So we should be seeing massive upgrades in the Grid right now ready for the millions of electric car chargers that will need to be installed in the next 20 years.

Nothing of the sort is happening of course.

[Gups]

Just to point out most train drivers aren't in the RMT (they're in ASLEF who I think are going on strike). RMT are more the Network Rail workers, train staff, station staff, cleaners etc.

And again the reason train drivers have good pay and conditions is because they're in a union - I think they're always a really good argument for it

Union partly but mainly because they are in a monopoly

[Admiral Yi]

It can - that's the model from the 70s. But we're not in a wage-price spiral here - and has been regularly pointed out it's trying to allow wages to keep up with prices rather than above inflation pay policies forcing inflation up. The breakdown of inflation for this bout (at least until the start of/early 2022) doesn't show that labour costs are a significant part of it. Compared with the seventies when labour costs were over 50% of what was contributing to inflation - it's now under 10% and over 50% is corporate profits (almost an exact mirror of the seventies). Non-labour costs are higher than in the seventies.

In the UK and Eurozone real wage growth has been flat for a decade - so there's been a great expansion which is now being hit by inflation. Instead people have been flatlining and are now taking a hit.

You're attempting to rebut my statement that wage hikes will fuel inflation (please note the future tense) by saying that the up to now wage hikes have not been the driver of inflation, which I agree with.  But that doesn't change the fact that wage hikes, just like any other rise in input prices, will add to inflation.

[Admiral Yi]

Materially the section who benefited the most were at the top (of wealth inequality - limited impact on income inequality). That wasn't the intention but it was the result. The main effect was to support prices of assets which are primarily held by the wealthy who (according to the BofE) normally used that increase price to buy other assets driving prices again.

The way to mitigate that was fiscal policy but acrosss the developed west that was the path not taken.

How do you compare the increase in asset prices with the prevention of massive unemployment?

[Sheilbh]

You're attempting to rebut my statement that wage hikes will fuel inflation (please note the future tense) by saying that the up to now wage hikes have not been the driver of inflation, which I agree with.  But that doesn't change the fact that wage hikes, just like any other rise in input prices, will add to inflation.

But doesn't that assume the 50% input from corporate profits and firms announcing record profits now is fixed?

Surely that's a choice for companies to make - and more broadly a choice about distribution which, given the weakness of organised labour (unlike the seventies), is tilted one way? It certainly seems odd to me to hear the Governor of the Bank of England saying workers need to be restrained in their pay demands but not commenting on record profits and big dividends being announced.

How do you compare the increase in asset prices with the prevention of massive unemployment?

You're mistaking me for someone who thinks QE was wrong. It wasn't - but it leads to asset price inflation and the other bit that was missing across the west was a sustained fiscal response.

Of course maybe, politically, you don't get a fiscal response unless there's massive unemployment or a real threat for it - so QE in preventing the worst also reduced the incentive for politics to mitigate its impact.

[crazy canuck]

Re the London boroughs and the National Grid. The government intends to stop the sale of new ICE cars by 2030...yet it can take ten years to significantly upgrade the grid. So we should be seeing massive upgrades in the Grid right now ready for the millions of electric car chargers that will need to be installed in the next 20 years.

Nothing of the sort is happening of course.

That is problem is ubiquitous.  The political class like making the climate friendly declarations - but very little is being done to actually make it so.

[Admiral Yi]

But doesn't that assume the 50% input from corporate profits and firms announcing record profits now is fixed?

Surely that's a choice for companies to make - and more broadly a choice about distribution which, given the weakness of organised labour (unlike the seventies), is tilted one way? It certainly seems odd to me to hear the Governor of the Bank of England saying workers need to be restrained in their pay demands but not commenting on record profits and big dividends being announced.

I don't know what you mean by "the 50% input from corporate profits..."

You're mistaking me for someone who thinks QE was wrong. It wasn't - but it leads to asset price inflation and the other bit that was missing across the west was a sustained fiscal response.

Of course maybe, politically, you don't get a fiscal response unless there's massive unemployment or a real threat for it - so QE in preventing the worst also reduced the incentive for politics to mitigate its impact.

Yes.  I still don't know how you came to the conclusion that "the main effect" of QE was a rise in asset prices.  How do you compare the various effects of QE?

[Sheilbh]

I don't know what you mean by "the 50% input from corporate profits..."

The same point as wages currently constituting 10% of inflation - the same analysis found that over 50% of the input is from profit-taking (and non-labour costs are obviously high). But those proportions are basically the reverse of the seventies.

Yes.  I still don't know how you came to the conclusion that "the main effect" of QE was a rise in asset prices.  How do you compare the various effects of QE?

This paper tried it (including taking into account impact on employment and wages etc) - as I say the income effect doesn't seem that bad, but the effect on wealth and assets is huge:
https://www.resolutionfoundation.org/app/uploads/2019/09/Quantitative-displeasing-FINAL-VERSION.pdf