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Dec 2021
8:24pm, 15 Dec 2021
7,983 posts
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Dooogs
There's a Venn diagram of politics and economics, I suspect - with a very large overlap and a relatively small non-overlap for economic-agnostic policies and amoral economic dealing purely with theory.
Most of the good stuff is in the overlap but as a very junior Sir Humprey (more of a behind-the-fruitbowl tangerine than a mandarin) with a politics degree, I would say that. 
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Dec 2021
8:31pm, 15 Dec 2021
7,984 posts
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Dooogs
Anyway, on raising interest rates, I don't think the government / BoE has much choice without ripping up their 2% long-term inflation target. The veering-into-politics argument is that the governments of the last 11 years have finally no more low-interest runway left, having failed to stimulate increases in productivity that would enable wage rises without corresponding inflation, which might have precluded an immediate rise (although given international commodity price increases, it probably would have delayed the inevitable).
My pet finger-pointing theory is that a lot of the lack of productivity gains in the last decade or so is due to private equity declining to invest in the businesses they've bought and using labour (small 'l' disorganisation) to reduce the proportion of company revenues paid out as wages and salaries over time.
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Dec 2021
8:41pm, 15 Dec 2021
1,182 posts
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Fields & fountain, moor & mountain
Interesting Doogs.
Now we’re done with the semantical foreplay…
So in layman’s terms - is your pet theory that low wages have hindered productivity as it’s cheaper to hire more monkeys paid peanuts than it is to innovate properly and pay the monkeys better. If that’s right, Isn’t capitalism wonderful
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Dec 2021
8:48pm, 15 Dec 2021
7,986 posts
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Dooogs
Slightly different but to be fair, that's my fault - I've elided two different points there. I think the lack of productivity gains (which would in theory allow for non-inflationary wage increases - and therefore less need for interest rates (but see my point about commodity-driven inflation above)) is partially driven by PE-led lack of capital investment and short-termism in business.
A separate point is that the the proportion of revenues / profits paid out as wages has steadily dropped in most Western economies. That's probably helped governments to keep interest rates low for most of the last decade, but the shrinkage of the labour market in the last year or two is driving some wages - mainly in seasonal, insecure work where there are lower barriers to shifting jobs quickly - upwards.
The Lexit approach would be to see this as an unalloyed benefit of Brexit. My take would be that it is good for workers at least in the short-term, but that I would have taken a different route to get there.
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Dec 2021
8:50pm, 15 Dec 2021
7,987 posts
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Dooogs
(and I suspect I've misused 'elide' above - I meant incorrectly cut'n'shut two different points together )
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Dec 2021
8:58pm, 15 Dec 2021
60,497 posts
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GlennR
Some observations:
We don't have a long term inflation problem, but a short term one. Prices will rise in the short terms but the rate of increase will then flatten out.
The proportion of turnover paid out as wages will always decline as economies develop and become more capital intensive.
I'm not convinced of the relevance of productivity within the context of the kind of economy we now have in the UK; our serious manufacturing industries are among the most productive in the world in many cases.
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Dec 2021
9:00pm, 15 Dec 2021
1,183 posts
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Fields & fountain, moor & mountain
I’ll try and keep this political with a small p now and contend that private equity, and probably any business accountable to shareholders will do their utmost to extract as little as possible revenue to wages if that could be diverted to profits, dividends etc.
I can’t see a corporate entity willingly do anything beyond a bare minimum to improve matters for their workers when they could boost their own profits instead. This is why I feel capitalism is fundamentally flawed for all but the 1%.
Are there any exceptions to the declining proportion of wages in western economies? I recall that Germany has strong worker power such as works councils and has a reputation for being more productive - but are the too that closely related?
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Dec 2021
9:01pm, 15 Dec 2021
1,184 posts
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Fields & fountain, moor & mountain
I wonder if you knew the bloke I went to school with Doogs who was apparently a govt economist during the coalition - in the treasury I think.
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Dec 2021
9:20pm, 15 Dec 2021
3 posts
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Lost in Mud
With another lockdown possible, and no indication that any sort of furlough scheme will return, raising rates so slow the economy may not be necessary.
We will eventually be forced to follow the USD, so watch what the Fed do first, but they are confusing the issue by congress voting on a ~$2tn stimulus package whilst the Fed is talking about raising rates. Crazy.
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Dec 2021
9:21pm, 15 Dec 2021
2,745 posts
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JRitchie
Doogs why do you think private equity has declined to invest in the businesses they have bought? Interested if you have some reading / evidence that’s helped you form that view.
I’ve seen many instances of PE support businesses through challenging economic cycles when banks would have pulled the plug and where they’ve invested to support growth because they’re prepared to take more risk (and long term risk) than banks. PE is often in for the longer term now and industry specialist venture capital funds are key for pharma, tech and new business start ups.
Long term ultra low interest rates is not good and sadly the population has got used to it and it’s now the norm so I doubt many factor in future interest rate rises in thinking about affordability. It’s had a detrimental impact on pensions and keeps asset values (property) artificially high which is a future risk for younger generations getting into home ownership.
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