Inflation hurts everyone. Most obviously, it hurts people who have done the right thing by seeking to provide for themselves rather than relying on the state. As a new IFS survey reports, pensioners are far more adversely affected than the headline rate suggests: gas and electricity bills have outpaced the CPI; and retired people are unlikely to have the offsetting compensation of lower mortgage payments.For my part, I made several comments explaining that the government shouldn't be in control of interest rates. These should be determined by the free market.
The only people whom inflation arguably benefits are those with colossal debts. Yet even they must function within the wider British economy, whose competitiveness is being undermined by the disincentivisation of work, the loss of productivity and the cheapening of the currency. It ought to give us pause for thought when – in defiance of the teachings of every free-market economist, every ancient philosopher and all the main monotheistic religions – we run our economy on the basis of penalising thrift and rewarding fecklessness.
For the better part of two years, this blog has been urging the Bank of England to stop printing money and start raising interest rates. Neither my imprecations nor anyone else’s have made the slightest difference: despite having got its inflation predictions utterly and spectacularly wrong, the Monetary Policy Committee has now kept interest rates at their unprecedentedly low rate for 28 months. A quango created for the narrow and explicit purpose of keeping inflation below two per cent has given up on that goal, and is instead conniving at a scheme to erode the government’s debt by debauching the currency rather than cutting spending.
But I was struck by this comment by drc:
It's shocking.I encourage you to read the letter. There's not even a hint of admonition.
So what does George Osborne have to say about it?
He must be livid that the MPC has fallen down so badly on the job.
Eh, no, apparently not: here's his reply to the Mervyn King's latest open letter of explanation and self-exculpation:
and he doesn't seem even slightly bothered.
Could it be ... perish the thought ... that Osborne is content to see inflation eroding the value of the government's debts, and potentially increasing tax revenues through "fiscal drag"?