When July’s inflation figures were released last week, all the headlines focused on inflation hitting double digits for the first time since the early 1980s. Less noticed was the fact that this meant that average earnings had fallen below the level of 2008 in real terms. A decade of stagnation is bad enough, but it is turning into a fifteen year slump. 

The energy price crisis explains much of our current financial woes, but it does not explain why the economy has been doing so badly for so long. Since 2008, the economic strategy of the UK, EU and USA has relied on ultra-low interest rates and unprecedented money printing. As I argued in The Times on Monday, we need to ask whether these are the cause of our problems, rather than the solutions.

The UK’s thirteen year experiment with easy money and quantitative easing has patently not stimulated growth. As Edward Chancellor argues in his splendid new book, The Price of Time, they have given us nothing but a massive housing bubble, high inflation and colossal public debt while discouraging prudent saving and encouraging risky investments. Inefficient zombie businesses have survived on a drip of cheap credit, sapping productivity and growth. 

When inflation was low, we were told there was no need to raise interest rates. Now that inflation is high, we are told that we cannot raise interest rates. It seems that there is never a good time to get interest rates back to normal levels. And so the zombie economy staggers on while people see their savings eaten away by inflation. 

Barring a miracle, we are in for a very tough winter. The government will be under pressure to borrow its way out of a crisis yet again. As Andrew Lilico argues in The Spectator, that would be a mistake. A recession is now almost certain. But to avoid another fifteen years of stagnation, we must come out of that recession with historically normal interest rates and sound money.

Christopher Snowdon
IEA Head of Lifestyle Economics

THE PRICE OF POWER



Bullseye... Christopher Snowdon appeared on BBC's Sunday Morning Live to discuss the government's response to rising energy bills. Christopher questioned why blanket payments are being handed out across the board and encouraged the government to facilitate more gas production domestically. 

He commented: "What the government needs to be doing is targeting these payments towards those on low incomes, rather than giving everybody a certain amount of money."  You can watch highlights here.



The price of power... With inflation predicted by Citi Bank to reach 18.6 per cent by January, IEA Energy Analyst Andy Mayer spoke to Julia Hartley-Brewer on Talk TV about the impact of rising energy costs.

Andy reminded viewers that it is difficult to predict how high costs will go: "We're looking at gas prices and nobody's entirely sure where they're going to land and they are reacting to headlines every day...people will want to capture the next headline by putting out an even more outrageous forecast!"

Andy also appeared on Times Radio and GB News.

iN THE MEDIA



Back to the future... On Channel 5 News, IEA Editorial and Research Fellow Professor Len Shackleton discussed recent strike action and warned the government against making too many concessions to the unions, many of which do not represent the lowest paid workers.

Len reminded viewers that the economy has taken a massive hit due to the pandemic, lockdown policies and Russia's invasion of Ukraine. It is, therefore, a harsh reality that many people will suffer a drop in their living standards. Watch the full debate here.



Work and let work... Len wrote for The Express on CEO pay, following calls from the High Pay Centre and the TUC to impose restrictions on executive remuneration.

Len commented: “Imposing restrictions on CEO pay, or imposing trade union representatives on remuneration committees (as the HPC wishes) or on company boards (as the TUC wishes) would make working, investing and company listing in the UK far less attractive."



Come fly with me... IEA Head of Political Economy Dr Kristian Niemietz wrote for CapX on the trend of Brits moving abroad to avoid rising living costs.

Kristian notes that Britain’s high cost of living is considered a fact of life but is a result of political choices. As demonstrated in the IEA paper, Cutting Through: How to address the cost of living crisis, it would be entirely feasible to turn Britain into a place where the basics of life are easily affordable through supply-side reforms (although admittedly, there are no quick fixes). 



Crying wolf... Also writing for CapX, IEA Head of Public Policy Matthew Lesh interrogated left-wing policy proposals for easing the impact of the cost of living crisis. Matthew pointed out that measures such as price controls and industry expropriation have been trialled in countries such as Venezuela, and failed miserably.

Matthew wrote: "The central goal of disaster socialists is not unobjectionable. The next few months are going to be extremely difficult. Everyone wants higher living standards. But their diagnosis of the problem and policy prescriptions are entirely wrong. We need policies, from planning reform and capital allowances to public sector reform, that boost productivity."



Work hard, play hard... Matthew appeared on LBC to discuss productivity, following a heated debate over Tory leadership hopeful Liz Truss' leaked comments about how workers should "graft" more.

Matthew posited: "British workers are relatively unproductive, the average Brit is about 1/5 poorer than the average German. To put it differently, if Britain were a US state, we would be the second poorest just behind Mississippi!"



Hot take... And, in his first fortnightly column for City AM, Matthew discussed how a university education may not be the best use of time and money for many young people.

He noted that the benefits of a degree should be balanced against the associated debt and lost earning potential, and more emphasis should be placed on on-the-job learning, vocational education and apprenticeships. Read here.

CALLING ALL STUDENTS!

The IEA's Oxbridge Training Day is fast approaching. The event will be held at the IEA office in Westminster and will take place on 21 September 2022 from 1.30–4pm. The event is free to attend and participants may join virtually or in-person. For more details on the event, and how to attend, click here.



The November Teacher Seminar is also being hosted at the IEA office. The event will include presentations from IEA researchers on issues related to the academic syllabus. The focus will be on the history of economic thought, whether forecasting makes sense, and the history of the government debt crisis.

The event will take place on 2 November 2022 from 10am–3.30pm. You can find more information on how to sign up here.