Statutory caps were brought in under Heath, this time the government wants a voluntary store scheme to meet Sunak’s pledge to halve inflation
Graham Watson's insight:
Larry Elliott seeks to draw out both the similarities and the differences between the price controls of the Heath government in the 1970s, and the attempt by the Sunak government to encourage supermarkets to reach a voluntary agreement to do the same in the present climate.
Of course, a voluntary rather than statutory cap is clearly very different but many of the same problems still remain, not least the distortionary effect on the allocation of resources and the associated welfare loss.
Some at the Bank of England suggest less competition from EU firms is part of the picture.
Graham Watson's insight:
Is UK inflation stickier than elsewhere? Faisal Islam investigates, suggesting that mobile phone contracts and food prices are higher than in Europe, and has the temerity to suggest that some markets in the UK are less competitive than the equivalent markets in the EU because of a lack of cross-border competition.
I can't quite put my finger on what it might be that's causing this, however...
Editorial: The government must act to protect those on limited incomes from unaffordable price rises
Graham Watson's insight:
Tomorrow's Guardian editorial is going to focus on the implications of rising fuel prices for the poorest in society, and argue that there's a need for government intervention to protect the most vulnerable.
What appears to be obvious is that the next few months are going to see a rise in fuel poverty, and the government really needs to decide how to plot a way forward and reset the market. With so many suppliers having left, there is limited to no competition at present, and in the longer-term that is likely to be damaging to consumer interests.
The government can’t ensure we get the basic necessities of life, says Guardian columnist Jonathan Freedland
Graham Watson's insight:
Steady on, Mr.Freedland, you don't want to give the game away...
The funny thing with markets is that once you alter the operation of one, there are all sorts of unintended consequences for others.
It's almost as if having orientated our economy towards free trade with our nearest neighbours for nearly fifty years, then pivoting in another direction couldn't reasonably have been expected to have these effects - especially not since a reasonably large influx of migrant workers from some of the more recent joiners of the EU.
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Lobby group urges action on visas for foreign workers such as drivers, welders, butchers and bricklayers
Graham Watson's insight:
The CBI have joined the fun, arguing that the government needs to take action and grant visas across a range of trades, so as to overcome the current supply chain issues.
Of course, pre-Brexit, all this would have been easily solvable, but, now of course, it's far harder. Lots to think about not least Britain's productive capacity, derived demand, and the relatively inelastic supply of labour in many sectors, in large part because of the need for training.
The other issue to consider is why it's taking time for wages to rise: are markets as efficient as we model, and what forces might be discouraging firms from raising wages?
The supermarket is the latest to offer incentives for drivers after disruption to supply chains.
Graham Watson's insight:
More lovely basic economics, showing how markets react to changing market conditions. In this case, a shortage of HGV drivers has seen supermarkets raise wages to attract more workers into the profession.
Of course, factor in Brexit, and the pandemic and it might, in the long term, require more than a £1,000 bonus - which, if I were a lorry driver, I'd find insulting in the light of the extent of executive bonuses - to attract and retain workers.
Analysis: As the UK’s post-lockdown hospitality sector struggles to find staff, one obvious solution presents itself
Graham Watson's insight:
Larry Elliott states a simple economic principle: if there's a shortage of workers, you'll have to raise wages.
Best example of it I've ever come across? At an Economics event run by an examination board, when the Principal Examiner admitted that they were short of examiners, only to be greeted by the same suggestion. Indeed, it's entertaining that, as far as I'm aware, examiners are all paid a standard rate, irrespective of market conditions.
How America’s low-welfare standards could wreck the UK’s farming and food industry
Graham Watson's insight:
Food critic, Jay Rayner argues that the adverse effects of accepting lower food standards in any US-UK trade deal are about more than chlorinated chicken and have much wider impact on British farming, both in terms of food standards but also in terms of driving many farmers out of business if they are unable to reduce their costs.
This then poses an interesting question about how markets function - and whether they can deliver undesirable outcomes, or whether arguments such as this are predicated upon 'bad economics'.
Some instant access accounts as low as 0.1% despite Bank of England’s 4.5% base interest rate
Graham Watson's insight:
I'm not sure whether this should go here or in the Microeconomic section; either way, it's a nice reminder that for all the talk about interest rates, they are determined in a number of different markets, and the base rate need not be representative of wider interest rates.
In this case, Which? magazine notes that despite base rates now being 4.5%, some savings accounts are still only paying 0.1% interest, which seems remarkably low. Of course, from the bank's perspective, the difference between the two rates is effectively their profit margin.
The government is poised to help the struggling steelmaker secure thousands of jobs.
Graham Watson's insight:
The decision to grant British Steel another £300 million in rescue funding demonstrates the dangers of subsidising failing businesses. Having already intervened, if the government withdraw funding, they will be held responsible for the collapse of the firm and the job losses.
And yet for all the reassurances being offered from the parent company, Jingye, if the business isn't viable in the long-term, then this represents another significant opportunity cost to what end? In cases such as these, where the government is trying to prevent structural unemployment, does such intervention help or hinder? If the government doesn't intervene and the firm goes under, then workers will have to reskill, or move, in search of jobs, which it looks like they are going to have to do at some point anyway.
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Rising prices and lack of goods are what happens when just-in-time economy collides with skin-of-the-pants government
Graham Watson's insight:
Personally, I think that Larry Elliott's got this spot on - and the headline encapsulates exactly why we are where we are.
Scroll back to 2016. The Brexit campaign has had no coherent plan for Britain's post-Brexit future, nor did it ever intend to. It was populism of the very worst kind, supported by a fairly unpleasant coalition. Had it had any coherence, it would have been emphasising the need for retraining and upskilling workers and would have been investing in the requisite infrastructure. It did neither.
And, as he concludes, there's an awful lot more transitioning to occur - not least as regards climate change and whilst the market will get us there, it won't be straightforward, and, I suspect, won't generate the outcomes that many who voted for Brexit thought they were getting.
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Cut soaring energy costs by paying energy levies through taxes, E.On UK boss Micheal Lewis says.
Graham Watson's insight:
This BBC article looks at two issues relating to the electricity sector: initially, it details the objection of the boss of E.On to existing green levies that artificially inflate electricity prices so as to fund investment in renewable energy.
However, that he has spoken out now is interesting, given the suggestion that market conditions have changed so as to dramatically increase the price of electricity in recent weeks. In the first place, there's a shortage of gas to generate electricity and this week has seen a fire at an Interconnexion France-Angleterre (IFA) site, the largest capacity interconnector.
So do we face the real prospect of an energy crisis? And what are the implications for the macroeconomy? And can you draw this using AD-AS analysis?
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For those who are part of Britain’s casualised workforce Brexit isn’t flawed – quite the opposite
Graham Watson's insight:
Another fantastic article in today's Observer, with Larry Elliot highlighting why the current labour shortages might be a good thing.
In essence, he looks at the distributional effects of higher wages in previously low-paid sectors of the economy and argues that anything that makes them better off is a good thing. He's also adroit in looking at why - politically - it's ties in with the government's position on both Brexit and levelling up. Well worth a read.
Richard Harpin says it should be made easier for EU bathroom fitters and kitchen installers to come to the UK.
Graham Watson's insight:
Another example of a labour market shortage, this time among skilled trades, with the boss of Checkatrade suggesting that there's a shortage of bathroom and kitchen fitters, bricklayers and carpenters.
The cause is all too self-evident: Brexit, and a large number of EU workers returning home. This could be Micro - in looking at how markets operate, or Macro - relating, as it does, to Britain's supply-side and productive capacity.
Research suggests the number of shop vacancies has risen again, with the North of England worse hit.
Graham Watson's insight:
Another sector that's sruggling to recover is retail - with the British Retail Consortium Reporting that one in seven shops lie currently empty, with the problem worst in the North of England.
So much for recovery, so much for levelling up, although does this reflect a lack of consumer spending or a change in its composition? And if that's the case how will the market adjust.
One final thought - I suspect that a number of financial services and insurance companies will have invested in property - what are the implications of this?
Food producers urge ministers to rethink immigration bill and coronavirus curbs
Graham Watson's insight:
And in the middle of all of this, the government has introduced its immigration bill, designed to restrict the flow of migrant workers into the UK, at a time when current quarantine laws are already adversely affecting the ability of farmers to hire fruit pickers to harvest the nation's fruit and vegetables.
It is embarrassing to hear politicians who are free market advocates asking for 'volunteers' in this scenario - a shortage is best resolved via markets, and higher wages, and that is going to mean that food prices are likely to rise. But to ask for 'volunteers' - is this the best we can do?
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Larry Elliott seeks to draw out both the similarities and the differences between the price controls of the Heath government in the 1970s, and the attempt by the Sunak government to encourage supermarkets to reach a voluntary agreement to do the same in the present climate.
Of course, a voluntary rather than statutory cap is clearly very different but many of the same problems still remain, not least the distortionary effect on the allocation of resources and the associated welfare loss.