Tuesday, 13 October 2009

Blanchflower shows his true colours

Meet Professor Blanchflower, one of the architects of our current economic situation...

Prof Blanchflower: Seagull economist

Blanchflower was a member the BoE's MPC for three years between 2007 and 2009. As such he helped set the UK's base interest rate. He has joint British-American nationality and is a full time resident of the USA where he teaches at Dartmouth College, New Hampshire.

During his time on the MPC he pioneered "seagull" economics which is the practice of flying in for the monthly meeting, making a loud squawking sound, crapping on everyone and then flying out again. Later he improved on this by not turning up at all - just participating by telephone.

Blanchflower persistently voted for lower interest rates at a time when public and private debt levels were soaring in the UK. He wanted to pour petrol on the fire to put it out. He was often out of line with the other MPC members.

MPC-watchers were baffled by his position, but today all becomes clear. The MPC was aiming to keep inflation under 2 percent, but in a Guardian article Professor Blanchflower has now announced he thinks the target should be five percent. He thinks a nice dose of inflation would wipe out people's debt and one can't help but wonder if, during his tenure on the MPC, he wasn't actually trying to get inflation up while the others were trying to get it down.

Of course, he's right. Inflation does wipe out debt. Well, WAGE-inflation wipes out debt, price inflation by itself doesn't. Traditionally the two inflations go hand in hand: wages go up, prices go up, debt is in relative terms reduced.

On the downside savers lose their savings; pensioners on fixed incomes are reduced to penury; people with no debt effectively subsidise the indebted.

Inflation is just government theft; a tax in all but name.

Inflation typically transfers wealth from the poor who don't own inflation-proof assets (houses, gold, foreign currency) to the rich who do - and who probably purchased those assets using debt.

And in our current economic predicament it's worth bearing in mind that WAGE-inflation and PRICE-inflation may not be as linked as old-school economists think. These days a lot of wages are set on the international markets; jobs move abroad if workers get too expensive. If the government relaxes the fight against inflation we could easily get price inflation without wage inflation.


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