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Reprinted with permission Mises Institute J.R. MacLeod
Speaking on a Columbia University Law School podcast, the chief economist of the Bank of England, Huw Pill, said Britons “need to accept” that they have been made poorer by the inflation perpetrated by the central bank. Price inflation today is a result of the record money creation by central banks, especially in the West, from 2020 onward. This was rationalized and justified by the mainstream narrative on covid.
The following are choice comments from the podcast.
If the cost of what you’re buying has gone up compared to what you’re selling, you’re going to be worse off.
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.
Instead, [people] try and pass that cost on to one of our compatriots, saying “we’ll be all right, but they will have to take our share too.”
That pass the parcel game that’s going on here . . . that game is generating inflation, and that part of inflation can persist.
These are similar to comments made last year by Bank of England governor Andrew Bailey, who said that workers should not request significant pay rises, as he believes that these requests are the main cause of rising prices.
Speaking on the podcast, Pill repeatedly castigated Russia, saying that a large amount of recent price inflation was caused by Russia cutting off natural gas supplies for enemy states, with the resultant diminished supply pushing up prices in relation to largely unchanged levels of demand. While this assessment is correct in economic terms with respect to energy prices, with the main source of energy for the United Kingdom being natural gas, Pill’s perspective is an example of the ruling class trying to unfairly shift blame onto Vladimir Putin. Why would Putin continue to supply gas in markets controlled by governments who have explicitly declared that they want regime change in Russia?
And research has demonstrated that the Ukraine war was largely caused by the neoconservative foreign policy elite. The costs of opposing Russia were predictable. Ordinary people in the West have no tangible interest, and gain no direct benefit, in opposing Russia. Meanwhile, they bear all the costs, and the neocons who are the true interested party in the conflict are hardly struggling to pay their bills.
Most people wouldn’t choose struggling to pay essential bills even if the seemingly impossible goal of overthrowing Putin could be achieved. Or at least they wouldn’t without copious amounts of propaganda from a closed media network lying to them about the inevitable trade-offs required.
Pill’s “pass the parcel” nonsense exists in a similar vein of attempting to blame the masses for the negative effects of ruling-class policy. On top of that, it is an attempt to make the effects of inflation even worse than they must be.
There is no economic benefit to artificially creating money. An increase in wealth is an increase in real goods and services available. This is unrelated to an increase in paper or digital money.
Inflation can never be neutral because the first people to receive the new money do so at the old purchasing power, and it is their spending of the new money which drives up prices and reduces the purchasing power per unit as the increased supply of money works its way throughout the economy.
Inflation inevitably distorts the capital structure, as the increased supply of money means projects that previously couldn’t secure loans can now do so. Because the businesses that obtain the new money have bad fundamentals, they will inevitably fail when conditions change, having absorbed scarce productive capacity in the meantime.
Any inflation-induced boom will be followed by a bust caused by the same initial inflation. It would be too inexact to say, “One step forward, two steps back.” But short of finding an exact ratio, we can say that inflation must leave an economy worse off in the creation of real wealth than if it had never taken place. This whole fiasco is essentially England’s top economist admitting that inflation makes nearly everyone worse off, though apparently, they’re just supposed to accept it.
However, a bout of inflation does eventually work its way throughout the economy, since money touches every sector as it circulates. Assuming the creation of new money ceases, we should end up with a situation where we have a similar amount of goods and services available, and a similar level of purchasing power for the average wage, but just with everything denominated higher. This would still be bad economic policy because the financial elite would still have gained additional purchasing power at everyone else’s expense, and the business cycle effects of inflation always occur.
But Pill and Bailey are attempting to use misplaced appeals to guilt and patriotism to make inflation even worse for ordinary people than it must be. We are not all worse off; those who received the new money first gained purchasing power, which was promptly converted out of cash into hard assets. Preventing a general rise in prices won’t stop inflation, which already happened when the new money was created.
Wherever this new money was spent (chiefly property) will see a rise in prices. Everyone still must spend more money on these goods, but without a general rise in prices most people don’t have more money coming in. Without a general rise in prices more of the new money also stays in the hands of those who obtained it first, and it retains more of its purchasing power for them. So, what Pill and Bailey want is for the elite to get money for nothing, yet not have to spend more on wages, suppliers, and business costs.
Whoever creates and obtains the new money first wins; inflation is a negative-sum game, and you have to try to keep up as best you can. Nobody likes paying higher prices, but if the ruling class cared about that, along with fairness, rules of the game, the average standard of living, and a healthy national economy, they wouldn’t have inflated in the first place.
By trying to prevent the general rise in prices, Bailey and Pill are trying to trick people into helping those who don’t need any help. Whether it’s related to Ukraine or central banking, blame for price inflation lies squarely with the Western ruling class.
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