Blog
Two heavyweights on the UK economy
19th June 2008
Gavyn Davies (former Chief Economist at Goldman Sachs) and Anatole Kaletsky (Contrarian Extraordinaire) put their minds to the surge in inflation and the consequences of the transfer of wealth from UK consumers to oil and food producing nations.
The heart of the argument seems to be whether British workers and families are prepared to accept that the current economic climate and the global inflationary shocks must lead, at least in the short run, to a reduction in real wages and real living standards. The dip in our real purchasing power is likely to be minor relative to the gains we have experienced in the last fifteen years, and all economic cycles come to an end eventually. But already there are fears of a surge in wage demands and signs that the resolve of the Brown government to keep pay in check might not be as robust as Brown and Darling would have us believe.
Kaletsky writes:
“If we lose control of inflation, by contrast, all Britain’s economic achievements of the past two decades will turn to dust….the accelerating increase in prices does represent a genuine reduction in all our living standards. That this burst of inflation has been caused mainly by rising oil and commodity bills should make it clear that a transfer of wealth is happening on a global scale…...Britain should, of course, try as hard as possible to reverse some of the recent increase in commodity prices, especially by taking tougher measures to reduce oil demand. Beyond that, however, the best thing for Britain to do is to grin and bear it, accepting a small sacrifice in the standard of living.”
Gavyn Davies writes:
“Oil consumers will have to accept that they are much worse off. The chancellor can choose to redistribute these losses between rich and poor, or between current and future generations, but he cannot eliminate them in the long term. Calls to drop energy taxes or subsidise energy bills are based on a fallacy. Higher energy bills must inevitably be paid either by consumers or taxpayers now, or by government borrowing, in which case taxpayers tomorrow will be worse off.”
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.