A generationIn the 25 years since the Bank of England became independent, politicians have embraced the idea that they have no place in money management.However, with inflation 9% now – Last seen at the level of 40 years ago – this camouflage has been broken.
Instead, senior Conservative MPs scold the bank Let prices soar, suggesting the Covid stimulus has been allowed to go on for too long. In the case of Bank of England Governor Andrew Bailey, he has also dropped his neutral stance. repeat call Make workers exercise “restraint” and sacrifice higher wage demands.
While transparency is refreshing, the focus on headline inflation is a red herring. In an economy as unequal as Britain’s, the central bank’s blunt policy tools could exacerbate many of the economy’s underlying weaknesses.
No matter what congressmen and governors suggest, it is neither borrowing nor workers who are driving up prices. Instead, the hit to consumers has come from rising energy costs, the impact of China’s coronavirus lockdown on supply chains, and the choice of some big companies to charge windfall profits. So much so that, according to Keir Starmer, a windfall tax was imposed on energy companies – who made windfall profits of billions of pounds – It is inevitable.
These factors are beyond the Bank’s direct control. However, it has responded to political pressure with one of the main tools it has, raise interest rates Four times in the past six months, with the promise of more to come.
Higher borrowing costs will not affect wholesale energy prices, nor supply chains, nor price increases for energy companies. Rather, their intended effect is to slow household spending and ease labor demand, thereby neutralizing the possibility of wage increases.This is despite banking research Shows that wages have not been a significant factor in recent inflation.
Compared to any clear technical reason, the Bank’s reasoning, like Bailey’s warning, seems performative.Faced with the first inflationary crisis of the century, banks are powerless to do much more than blame workers for major crises decline In Actual Compensation, the broader difficulties it faces in managing the public interest are revealed.
In its own words, the bank’s official purpose is “to advance the interests of the British people by maintaining price and financial stability”.Sounds simple, but its benefits which one people and stability what Price is not so simple. Of course, carrying out its mandate seems to have only reinforced Britain’s distorted economic outcomes since the 2008 financial crisis.
Extraordinary monetary policy, such as extremely low interest rates and asset-purchase quantitative easing programs after the crisis, was critical to balancing fiscal austerity. However, the main role of cheap credit is to support the wealthy who borrow to acquire assets. By 2015, house prices and stock prices rose, but GDP, productivity, and wages grew slowly.
Then, when Covid-19 threatened to upend financial markets and offset the returns accumulated by asset owners in March 2020, banks stepped in again, taking action to increase the wealth of asset owners in order to protect the “stability” of everyone else.In just two weeks, it double the size The asset purchase scheme is close to £1 trillion. On top of that, interest rates were pulled down and big companies received direct financial support.
The period proved that central banks were very effective in protecting asset prices, with significantly fewer members of Congress complaining about their behavior. Yet its multi-billion-pound intervention has not touched on the economy’s underlying problems.
Today, as the Bank tries to reverse the policies of the past decade, “stability” risks falling on the poor again. While rising interest rates have the potential to break the cycle of cheap debt and rising asset prices, that is not the goal. Without aggressive support elsewhere, rising interest rates will instead hit the working poor who borrow money to buy basic necessities.
Another path is to revisit empowerment and truly govern for the public good. This will mean intervening to support areas where financial markets are often undervalued and governments are often under-resourced.
Proper investment in public care, for example, can reduce costs for those receiving care while increasing the wages of those who provide it. Likewise, investing in home insulation and improving social security will both help address the economic crisis that many people are facing right now. These are measures that ambitious governments need central bank support to implement. Common purpose and coordination seen occasionally during a pandemic.
At the same time, banks must be more courageous about who makes sacrifices. In times of stagnation, no growth can resolve the struggle for distribution. It is capital, not labor, that must correct this balance.