Are we heading back to the inflationary 1970s?


Too much money chasing too few goods – that is the classic explanation for inflation.

But for some reason we tend always to worry about the ‘too few goods’ element. We increasingly forget that the same idea also points towards too much money.

It has been thanks to too much money chasing property in England for the last four decades – something that will always be comparatively too few – we have watched deeply damaging house price inflation take hold.

Now suddenly, in their usual back-to-the-1970s style, policy-makers are focusing their attention again on too few goods and tackling inflation.

No doubt we will go back to a prices-and-incomes policy shortly too.

So let’s not forget that the jury remains out on exactly what is causing inflation now, or ever (prices are up 10.1 per cent over the last year at the last count).

Clearly the invasion of Ukraine has had its effects, mainly by reducing the gas supply and the surplus agricultural production for western Europe.

And yet, prices were rising already at the time Putin was deciding to invade – so it can’t all be that.

The classical case is that it was restarting the Quantitative Easing printers which caused inflation.

That must also have had an effect. But before we deny ourselves too much, let’s run through some of the other explanation candidates.

  • Too much money to too few. That is one way of looking at QE, which benefited the already rich and failed to help anyone without property.
  • Greed – the psychic roots of inflation according to modern monetary theory (MMT) pioneer Michael Rowbotham.
  • Debt. The MMT idea is that, because the proportion of money issued free of interest – rather than as loans for commercial banks (most money has to be paid back to someone, plus a bit) – has shrunk to just 3 per cent of the money supply, inflation is baked into the monetary system.
  • Monopolies. This one strikes me as definitely true, that – as fewer and fewer companies come to dominate the world’s food systems – then they are bound to try and increase their profits by producing too little of what we all need.
  • Centralisation. This is more of an explanation about why costs rise so much in public services – because Whitehall is too distant from the front line to see what needs to be done and solutions tend to be dull, technocratic and tickboxed (see my book Tickbox on this). So why do the costs of the NHS run so much higher than, for example, the private sector? Could it be because it is one of the biggest and most centralised organisations in Europe?
  • Inequality. (See (1)): of course, in an unequal society, the wealthy will raise prices for themselves and others – especially for the poor old squeezed middle classes (see my book Broke on this).

It is fascinating to look back at the way we were anticipating inflation last summer. What you find is our obsession back then with energy bills – that was the main factor that was to sink the Liz Truss premiership – whereas, now, it is the increases in the cost of food that seem to matter most.

That and the inevitable public sector strikes.

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Radix is the radical centre think tank. We welcome all contributions which promote system change, challenge established notions and re-imagine our societies. The views expressed here are those of the individual contributor and not necessarily shared by Radix.

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