Any (post 2008) Economists in the house? - Inflation.

[Terrytpot]

Sheesh,you guys are all “a bit deep” in here…my only thought to add is had a chat with my “Independent financial (pension bloke) advisor “ a few weeks ago and slipped into the conversation that only certain things in life are inevitable…like interest rate rises (they could hardly drop when they’re about as low as they can possibly drop) to which he was most adamant that it not only wasn’t but also that they couldn’t rise..guess what my eyebrows did earlier today when I saw this:
UK interest rates

Add to myFT
Market expectations for Bank of England rate rise shift to early 2022
Policymakers’ rising inflation concerns lift sterling and pressure UK bonds

 

[Jacob]

......

Also interesting to note that the forever wars only exist to control inflation and aid international trade: they really should explain this to exploded Afghan wedding parties, who apparently died for the benefit of the international financial system. But then we already knew that, didn't we.

Wars are hugely profitable - to the arms trade primarily.
Following the final withdrawal of US troops, President Joe Biden quoted two figures for the total cost of the war.
He said: "After more than $2 trillion spent in Afghanistan... [or] you could take the number of $1tn, as many say."
A trillion is a million million - or $2,617 per head of USA population or $26,315 per head of Afghan population.
For a mere $half trillion they could have given every single Afghani $13,150 and told them to stop messing about.
But there'd be no profit in this for arms industry and the American tax payer wouldn't be happy to hand out cash to Afghanis even though it would have saved 2000 odd USA military deaths and 20000 odd casualties, not to mention collateral damage to the Afghan population of 41000 innocent civilian deaths.
But it kept the wheels of industry turning and many thousands of Americans earning a good wage and getting a return on their investments.
If they'd mobilised a similar size $1trillion op to do something like digging an enormous hole in the ground the size of texas and then filling it in again, the financial benefit would be the same, but you could have a problem persuading people that it was a good idea.

 

[Trainee neophyte]

Free markets are not an efficient way to deal with this.

Free markets create businesses whose purpose is to maximise profits for the shareholders not the customers.

Oops - should have replied to this earlier - sorry.

Free markets are far more efficient, because they include innovation, and creative destruction. Monopolies of whatever flavour stifle innovation on purpose in order to continue as they are. Rather the point of a monopoly, in fact - fear of competition. A government monopoly will never admit to being wrong, and will wrongheadedly grind on for no reason, while the hangers on fleece the system and profit mightily. Jacob's comment on the Afghanistan war is a fine example of monopoly behaviour - hardly cutting edge and innovative to blow up goatherders for the umpty third time, just because.

 

[Jacob]

Oops - should have replied to this earlier - sorry.

Free markets are far more efficient, because they include innovation, and creative destruction.

Some are efficient, some not, some incredibly wasteful, some go bankrupt leaving debt and destruction behind them (recent gas companies going bust), non of them provide goods or services where there is no profit to be made, e.g. public health and education.

Monopolies of whatever flavour stifle innovation on purpose in order to continue as they are.

Not if they choose to innovate. Major innovations on many fronts originate with state aid or from state research institutions such as Universities

Rather the point of a monopoly, in fact - fear of competition.

Monopolies don't have competition, by definition

A government monopoly will never admit to being wrong, and will wrongheadedly grind on for no reason, while the hangers on fleece the system and profit mightily.

Complete nonsense - some of the biggest state monopolies are incredibly cost effective and efficient, NHS being prime example.

 

[Terry - Somerset]

Money is simply a means of exchange, a store of future fulfillment and a means of allocating scarce resources to different activities.

AFAIK, no complex society has operated without it. Possible exception are small remote communities who have at most very limited contact with others.

A few digital blips only have value if the holder believes they can be exchanged for goods and services. Its accumulation is called wealth (in a purely economic sense). It is not a measure of decency, integrity, love, fairness etc etc.

In regimes which embrace socialist agendas, those with power are able to be materially fulfilled where most of their compatriots are bereft. It is not money that corrupts, but power!

Creation of money by central banks (or other banks in an unregulated economy) does not of itsself create additional wealth, just more digital blips.

Additional wealth is created by more efficient and effective use of resources (labour, materials, land etc) and can be influenced by tax policies, legislative frameworks, investment, etc.

Simply printing more money only creates inflation, but may change some behaviours. It will however redistribute wealth - debt becomes easier to repay in times of higher inflation, and the purchasing power of financial assets is eroded.

This may be why the government is moderately relaxed about some modest inflationary pressure - the borrowing forced by covid will be repaid in devalued ££. This alone is a reason to invest in assets rather than holding liquid funds - property may be a major draw!

 

[Jacob]

..

AFAIK, no complex society has operated without it. Possible exception are small remote communities who have at most very limited contact with others.

......

David Graeber goes to into detail about this being quite untrue, verging on myth. It's readable, very interesting but long. A book to dip into after you've read intro and conclusions.
Debt: The First 5000 Years - Wikipedia

 

[RobinBHM]

Oops - should have replied to this earlier - sorry.

Free markets are far more efficient, because they include innovation, and creative destruction. Monopolies of whatever flavour stifle innovation on purpose in order to continue as they are. Rather the point of a monopoly, in fact - fear of competition. A government monopoly will never admit to being wrong, and will wrongheadedly grind on for no reason, while the hangers on fleece the system and profit mightily. Jacob's comment on the Afghanistan war is a fine example of monopoly behaviour - hardly cutting edge and innovative to blow up goatherders for the umpty third time, just because.

Afghanistan war is a good example of how capitalism and politics interact.

NATO provides a great opportunity for the powerful American Defense industry.

people pay taxes to American govt, American govt gets lobbied by defence industry, American govt don’t mind encouraging wars because the govt gets loads of lobby money.

Isnt capitalism great

 

[RobinBHM]

Oops - should have replied to this earlier - sorry.

Free markets are far more efficient, because they include innovation, and creative destruction. Monopolies of whatever flavour stifle innovation on purpose in order to continue as they are. Rather the point of a monopoly, in fact - fear of competition. A government monopoly will never admit to being wrong, and will wrongheadedly grind on for no reason, while the hangers on fleece the system and profit mightily. Jacob's comment on the Afghanistan war is a fine example of monopoly behaviour - hardly cutting edge and innovative to blow up goatherders for the umpty third time, just because.

In theory free markets are more efficient….but they aren’t because capitalism is driven by greed.

oh and have a think about moral hazard

1) UK train operators: massively inefficient, massively expensive….almost none of them run by British companies.

2) how’s carillion doing…..oh it went bust

3) local councils are bringing contracted out services back in house - because customer care goes up and costs go down.

 

[RobinBHM]

Some are efficient, some not, some incredibly wasteful, some go bankrupt leaving debt and destruction behind them (recent gas companies going bust), non of them provide goods or services where there is no profit to be made, e.g. public health and education.Not if they choose to innovate. Major innovations on many fronts originate with state aid or from state research institutions such as UniversitiesMonopolies don't have competition, by definitionComplete nonsense - some of the biggest state monopolies are incredibly cost effective and efficient, NHS being prime example.

I think there is much support for re nationalising the railway - I don’t know how or if, but the current model doesn’t work.

 

[RobinBHM]

Free markets are far more efficient, because they include innovation

The current energy crisisin the U.K. rather disproves that

 

[Terry - Somerset]

Interesting - but I am not sure that going back 5000 years is meaningful.

• Trade between communities was very limited and mainly supported high value goods used (I assume) by those with power
• A large part of the population were slaves (ancient Egypt, Greece, Rome) who would anyway have had limited or no rights.
• Even those not formally classified as slaves may have effectively been tied - as many were in the UK until only a few centuries ago.

I can believe the status quo in times past was maintained through force wielded where necessary by those in power, and that a form of personal indebtedness was the norm. In the absence of money, debt would have been repaid through service (building pyramids, providing food, serving in the army etc).

We now live in a global society where knowledge, goods, people, ideas can move with rapidity. The origins of money and debt are interesting but of limited relevance in thinking about what works today and for the next few decades.

 

[Jacob]

...

We now live in a global society where knowledge, goods, people, ideas can move with rapidity. The origins of money and debt are interesting but of limited relevance in thinking about what works today and for the next few decades.

Highly relevant not least because many "third world" countries have been paying back historic debts in exchange for being free of colonialism. The "Jubilee" idea is alive and well Jubilee - Wikipedia

 

[Flynnwood]

Simply printing more money only creates inflation {snip....}

Hello Terry, sorry to snip the above.
The reason I (OP) asked the question, was that I didn't recall much inflation post 2008 after UK QE Part 1.

I've just checked Bank of England figures and the average per year:
2007 2.7%
2008 2.6%
2009 2.9%
2010 2.7%
2011 2.5%
2012 2.4%
2013 2.3%
2014 2.3%
2015 2.5%
2016 2.7%
2017 2.5%
2018 2.0%
2019 1.5%
Which confirms my recollection.

Though in the last year or so, I have seen some raw materials go up 240%.

i.e Builders having to add £8,000 to previous quotes that were under 3 months old. Metal workers sheet alloy going from £100 a sheet to £240 a sheet. MRMDF, Hardwoods etc.

This thread has caused some interesting debate/comments. Thanks to all.

 

[Phil Pascoe]

The current energy crisisin the U.K. rather disproves that

Yes, if our energy companies were state owned, Russia wouldn't have put the price of gas up, would it?

 

[Jacob]

Yes, if our energy companies were state owned, Russia wouldn't have put the price of gas up, would it?

I don't suppose it would have made any difference.
The whole privatisation thing about public utilities is a sham and everybody knows they are state controlled when push comes to shove. Otherwise there'd be a few million people without gas supplies now.
What a nationalised monopoly might have done is to plan ahead and have storage facilities, which apparently were closed down by the private companies. They'd also have more bargaining power by virtue of sheer size. False "privatising" never made any sense at all - just playing silly politics and lining a few pockets.

 

[Phil Pascoe]

What a nationalised monopoly might have done is to plan ahead ........

Might.

Incidentally - if any of our governments were prone to forward thinking they'd have built nuclear power plants decades ago.

 

[Jacob]

What a nationalised monopoly might have done is to plan ahead ........

Might.

It was foretold Closure of UK’s largest gas storage site ‘could mean volatile prices’
Private companies are responsible to their shareholders and not to their clients.

 

[RobinBHM]

Yes, if our energy companies were state owned, Russia wouldn't have put the price of gas up, would it?

Your smug comment ignores key factors.

1 moral hazard - privatised companies don’t care about national security. Privatise the profits socialise the risk

2 the so called market competition model has clearly failed - look at how many energy suppliers are going bust.

 

[RobinBHM]

What a nationalised monopoly might have done is to plan ahead ........

Might.

Incidentally - if any of our governments were prone to forward thinking they'd have built nuclear power plants decades ago.

moral hazard…..remember carillion? Oh and train operators.



“Various UK governments have trusted market mechanisms to deliver UK gas security, assuming that sufficient and affordable gas would always be there by default. Now UK consumers are having to pay the cost of such an approach, and this winter promises to be particularly challenging”

 

[RobinBHM]

They'd also have more bargaining power by virtue of sheer size

NHS gets amongst the cheapest medicine prices in the world