Strikes: will wage increases boost inflation? This may be a definitive answer
Wage increases for striking public workers won’t increase inflation, no matter what Tory MPs say, because the government won’t add them to the cost of any products.
That’s the claim below, anyway – and it seems a good one.
The government creates money (well, orders it from the Bank of England, which then lends it to the government… it’s an over-complicated process, really) and uses taxation to keep the supply of cash within the economy at a reasonable level, thereby controlling inflation (as much as it can; the current situation is a special case, mostly caused by Brexit and foreign influences).
So it should be possible for the government to pay striking nurses (for example) as much as they want.
For commercial enterprises, matters may be different – but that’s only a possibility too:
To anyone arguing that taxes will necessarily have to increase to “pay for” public sector increases, that’s not where the government gets its spending money from…
— MMT Podcast (Christian Reilly) (@MMTpodcast) February 22, 2023
h/t to Dr @PhilArmstrong58 for the insight in this conversation: https://t.co/SGGViNX3BO
— MMT Podcast (Christian Reilly) (@MMTpodcast) February 22, 2023
Some have taken issue with this:
or as little as it wishes, but in doing so, it (maybe without realising it) is setting the price level. If it spent 10% more each year on the same quantity of goods and services it IS going to cause inflation to be around 10%, unless it can force down the prices of everything
— Robert Pearson (@robert19pearson) February 23, 2023
I had a similar thought – at least some of the increased wages would be spent in the economy. But, some might also be saved or used to pay off debt, plus it will all (eventually) be taxed back anyway without necessarily increasing tax rates.
— Simon O'Neill (@sioneill) February 23, 2023
But this depends on greedy private enterprises deciding to raise their prices because they know people have more money to spend, which is poor business; taking people’s spare cash away the instant they get it means they won’t be able to support as many different parts of the economy as they would otherwise and ultimately the lot would overbalance (which is what it’s doing now, in fact).
Also, I didn’t notice prices falling when the government was stamping on everybody else’s wages.
Finally, I notice the International Monetary Fund is saying wage-price spirals are historically rare:
And wage price spirals are very rare in the historical record, say those looney lefties at the IMF. https://t.co/THfX8jAxzO
— Jeff Lucas (@Jeff_A_Lucas) February 23, 2023
So what’s my verdict on the Tory claim that paying back to public sector workers the wages that have been taken away from them over the past 13 years will cause another inflation spike?
Scaremongering.