David Cox, writing in the Guardian, says:
… “Urging workers to restrain their pay demands is the wrong way to tackle inflation. It’s time to bring back monetarism”
Respondent as “BritishAirman”
A DEMAND for increase in wages has come about because of soaring prices – in fuel, in the price of commodities and in the general prices of what we pay for food. The logical solution, therefore, seems to increase wages and salaries in keeping apace with the current cost of living. However, the situation is not that easy because if wages are increased, more money will be spent and prices are directly related to the underlying rate of inflation. Economically, more money that is spent can only cause inflation to rise. Curbing and managing inflation comes about through interest rate control through the Bank of England. If wages were to increase, it is quite likely that the Bank of England would need to raise interest rates, affecting many homeowners who are currently struggling in keeping up with present mortgage commitments. A rise in interest rates, at the current moment, is hardly needed given the expensive value of money at the present moment.
For those who need to be protected, however, such as the less well-off, I believe that controls should be in place – such as increases in the minimum wage – to protect those against the steady rising levels in prices. Protecting such people will hardly affect things on such a wide scale. Macro-economics is an important factor; a check is needed, generally, on how much companies can be allowed in increasing wages. The knock-on-effect for everyone could be adverse if companies start awarding their staff above-inflation increases in salaries.
In his article, David Cox, makes mention of moving towards ‘monetarism’. Essentially, the monetarists view is one of ‘good housekeeping’ purporting the principles of living within budget and within means. An element of that is certainly needed but, in acquiring such a state of play, some Keynesian methods are still required because the government’s position on dealing with poverty is relative in nature. Moving towards an outright monetarist’s model would take us back decades which inflicted so much pain and misery on so many desperate people.
Reference:
David Cox: “Let wages rip”
http://www.guardian.co.uk/commentisfree/2008/jun/25/inflation?commentpage=1&commentposted=1
Filed under: Economic | Tagged: inflation, interest rates, keynesian economics, minimum wage, monetarism, pay demands, prices
