Great Expectations


In Britain there has been a steady stream of economic good news stories over the past couple of weeks:

  •  Unemployment is reported around 7% (which was the Bank of England’s supposed target for an interest rate correction)
  • The rate of inflation is calculated to be around 2% (which is the Bank of England’s long term target)
  • Chancellor of the Exchequer George Osborne is reported to be backing an 11% raise in the minimum wage to £7!

Like 1984 the viewscreeen is constantly telling us that everything is great and getting better;

‘Chocolate ration up by 10% comrades!’

‘15% increase in the production of utility household furniture!’

So are things actually getting better; and if they are, what’s not to like?

Those familiar with ‘1984’ will know that Winston Smith had direct knowledge that the chocolate ration was actually reduced in the weeks before it was increased by 10%. Orwell’s joke is that since even this previous ‘reduction’ was based on fabricated figures, the reduction was no more ‘true’ or ‘untrue’ than the supposed increase!

‘Who controls the past controls the present

Who controls the present controls the future

The future is really about expectation.

Controlling the future is all about managing expectations. Managing expectations is explicitly what MONETARISM is all about. The stated purpose of MONETARIST policy is to manage expectations with regards to inflation and in particular wage inflation.

The past is really about the terms of the debate.

Controlling the past is all about controlling the terms of the debate. Controlling the terms of the debate is explicitly what MONETARISM is all about. There is no official opposition allowed in Monetarist politics.

Lets look at the good news in terms of managed expectations and managing the terms of the debate.

Inflation is Down

 Only a minority of the public believe that the official inflation figures reflect the real changes in the standard of living in Britain and other developed economies. Everybody accepts that the inflation calculation is skewed-but how exactly? Controversy most often centres round the process of averaging the price change in of a basket of goods whose rising or falling prices are deemed as representing the rate of inflation. Deciding what does or does not go into this basket determines the rate of inflation. This part is in fact, uncontroversial. I expect that a majority of statisticians will readily concede that the choice of what goes into an average basket of goods is inevitably somewhat subjective.

What is more controversial is the argument that the choice is driven by a systematic desire to skew the result of the inflation calculation and in particular what this systematic desire might be. Is it to allow surreptitious inflation and confiscate wealth by stealth? Is it to mask increasing inequality?

This is to miss the bigger point

Crackernomics argues that Monetarism broke the post war consensus in that it was unwilling and unable to support a political and economic opposition in the Anglo Saxon world. Since there could be no opposition there could be no need for an impartial civil service to service two or more opposing conceptions and methods for running society and the economy.  As a consequence ‘independence’ in the context of civil administration has come to mean something else than independence from any particular party political influence.

Independence now means independent of anti- Monetarist establishment forces.

This is what I mean by changing the terms of the debate. Changing the terms of the debate means that the change is never debated

Once the new definition of ‘independence’ is established, the next step is inevitable. In Britain inflation was running way above the supposed independent target of 2% in the four years since the Credit Crunch. But since the ‘independent’ Bank of England was supposedly committed to bringing the rate down (without raising interest rates of course!), it was possible to have ‘good inflation’. Because the independent Bank of England said it good and necessary was and no one is allowed to question the Bank of England’s independence.

When inflation actually started to fall, both the Federal reserve and the Bank of England miraculously discovered that employment rates were the real metric by which to judge whether interest rates should rise or not. And now that employment has reached the nominal rate which might trigger a rise in Britiain, it turns out that it wasn’t employment that mattered after all- in fact it was something else! (Tune in to regular Bank of England bulletins to find out what that something else might turn out to be..)

The point to take away is not whether this period of inflation or that period of deflation is bad in principle.

The point to understand is that the independent Bank of England will allow inflation or not according to the strategic needs of the Monetarist project. You have conceded the point of ‘independence’.

That is to say independence from your needs as expressed through the political system.

And your expectations have been modified accordingly.

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