The Times - UK (2022-05-25)

Drive like Dame Edna and

steer into the skid

Matthew Parris

Page 28

Keir Starmer has an immediate

challenge posed by the rail strike.

How tough is he willing to be? It is a

hard choice because being tough

won’t necessarily be popular, and not

just within the Labour Party. Voters

more widely may sympathise with

workers trying to protect their

incomes at a time of higher prices. Yet

at the same time, albeit inconsistently,

the public may not trust an

opposition that isn’t willing to take

difficult decisions, and which

appears to be a prisoner of interest

groups.

Labour will have to choose

between an easy opposition position

— people are hurting, something

must be done — and a difficult

reality for a would-be government:

people are hurting, something may

not be able to be done.

It will also need to decide how

redistributionist to be, given that a

Labour government would also need

businesses to invest. Starmer will

need to be bold and imaginative.

In other words, we are at the

beginning of a crisis and to avoid it

lasting for years and ending in a

crash we need Tory resolve and

Labour boldness and imagination.

I’m not too confident. Are you?

[email protected]

How to beat inflation: be bold, stand firm

To avoid repeating the mistakes of the 1970s, ministers and bosses must face down pay demands that fuel price rises

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there is a limit to such redistribution

before it undermines incentives and

investment.

There will be a challenge for Labour

as well. The low inflation achieved

by Thatcher made Tony Blair’s

government possible. It meant Labour

could pursue a relatively tough

policy towards the unions without

undue pressure from its coalition. It

wasn’t forced to consider, as previous

Labour governments had done, how

to achieve wage restraint.

Gordon Brown’s admirable and

correct policy of Bank of England

independence, a mechanism that

makes it far harder for politicians to

encourage a wage-price spiral, would

have been much more difficult to

introduce at a time of high inflation.

The party would have been far more

resistant to passing over so much

power to the Bank.

Those seeking pay rises, as teachers

did 50 years ago, often win sympathy

struggle against it, with possibly

disastrous consequences.

Anybody who thinks this is not the

way the argument will go should ask

Andrew Bailey, the Bank of England

governor. Every time he suggests

that wage restraint would be a good

idea, he comes under attack. As if he,

rather than reality and common

sense, had invented the need for

such restraint. There is a barrage of

comments about his own salary, as if

the need for wage restraint would be

changed if he earned less.

The intellectual confusion is

obvious. The governor isn’t arguing

that pay restraint is desirable; he is

arguing it is necessary, because

sometimes undesirable things are

necessary. The fact that he is

struggling to land this obvious point

— that it would be foolish and

self-defeating to chase increased

goods prices by inflating wages — is

worrying and a reminder that in the

1970s it took almost ten years and

the complete collapse of any

alternative before this basic

argument was accepted.

The politics of inflation will be

very hard for both parties. For the

Conservatives, it will require a quality

that the government has sometimes

lacked. It will require resolve. The

temptation will be for the

government to believe, and

encourage everyone else to believe,

that no one need be worse off, despite

the goods they are buying becoming

more costly. This is impossible.

The government will need to stand

by the Bank and promote a policy of

restraint that will, inevitably, hurt. It

will also need to redistribute money

to the least well-off, because they

will struggle with essentials. Yet this

will have to come from the incomes

of other people who are themselves

feeling the pinch. This too will

require resolve, as will asserting that

F

ive years ago, while helping
to clear out my parents’
house, I opened a cigar box
and became a millionaire.
The box had been my
grandfather’s and it was stuffed with
high denomination banknotes.
Unfortunately, the DM100 million
note and the others in the box were
from the pre-war Weimar Republic.
Inflation had been so rapid in
Germany that in 1923 a loaf of bread
cost DM200 billion. Searching for a
copy of my grandmother’s PhD, I
discovered it had never been printed.
The printer abandoned its
publication because every ounce of
paper, ink and press time was needed
for banknotes.
The economic hardship and
political instability contributed to the
rise of the Nazis. Not being able to
trust the state’s currency and not
being able to trust the state are
closely related. A high inflation rate
is a disaster.
In this country we are confident
that we have learnt this lesson.
Things didn’t get as bad as Weimar
in the 1970s, but it was certainly
destabilising. It required a fierce
Thatcherite refusal to accommodate
price rises and a consequent sharp
rise in unemployment to bring
inflation under control. We think we
won’t let things get that bad again.
That this time, inflation, forecast to
hit 10 per cent this year, will be
brought under control pretty quickly.
Well, it might. But I’m not so sure.
Inflation brings its own politics. As

everyone slides backwards, feeling

that strongest of all political feelings

— a loss of control — a battle begins.

All sides try to insulate themselves

from the consequences of rising

prices, at the expense of everyone

else.

Everyone feels worse off, because

they are worse off, and they feel an

entirely understandable sense of

injustice about it. When they protest,

or strike, they enjoy public sympathy,

because everyone else can see that

the protesters are indeed suffering.

So there is huge pressure to

accommodate their demands. There

is a reason why the policies of Ted

Heath and Harold Wilson —

oscillating wage policies and

governments, but constant social

unrest — persisted until the Winter

of Discontent made it impossible for

them to continue, and made way for

Mrs Thatcher.

Yet the consequence of

accommodating wage demands is

more inflation. The rail workers are

threatening a strike over wages. If

successful, inevitably the result will

be higher prices for passengers —

and the next demand for

government bailout will be from

people who travel on trains.

This won’t stop until the demands

are resisted; either by the employers

and government holding out, or by

higher interest rates and high

unemployment keeping down high

wage demands. The former is

preferable, but neither is easy. They

both involve people with not very

much money having less. And since

none of us wants that, we will all

Everyone feels a sense

of injustice about the

fact they are worse off

Strikes pose Starmer

with a challenge too.

How tough will he be?

Comment

Daniel

Finkelstein

red box

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@dannythefink

the times | Wednesday May 25 2022 27