by Jerome a Paris
Wed May 28th, 2008 at 11:59:41 AM EST
This was from his column on inflation last Monday, but it's worth flagging:
As the central banks remain complacent, inflation will continue to go up. (...) The main difference between the situation in the 1970s and now is today’s absence of wage inflation, which explains why absolute inflation rates are a little more moderate. I guess this is probably because of some combination of deregulated labour markets and globalisation. But the lack of wage-push inflation is not necessarily good news. Falling real wages mean falling disposable income and tighter credit conditions mean less borrowing for consumption. Both factors coincided in Germany in the early part of this decade and I recall well what a depressing period that was. It is now happening elsewhere, and it could be a lot worse, given the precarious state of the global financial system. When purchasing power and credit lines fall, less will be purchased. As private sector consumption is the biggest component of gross domestic product, a long buyers’ strike will be the biggest coolant of world economic growth for several years to come.
Remember that the main failure of neoliberalism is, ultimately, that by denying the middle classes the income need to keep on buying, it kills off growth and makes things worse even for the rich. That was short-circuited in recent times by boosting debt, which allows the middle class to go on consuming without income growth. Now that the debt bubble is unravelling, this "solution" is no longer available, and the lack of actual revenue for the middle classes to spend becomes noticeable again.
What matters here is that stagnant revenues are explicitly noticed as a problem. What remains to be written by the FT's "common wisdom creating editors" (some outside commenters have already done so) is that the debt bubble was created on purpose to hide that inconvenient fact. Soon...
An opus in the Anglo Disease irregular series