Haircuts and potatoes fuel inflation, not wage rises – public-sector or otherwise

[Anarcho-Socialist]

I thought I'd post this letter to the editor here from Matt Smith at UNISON. It illustrates the nonsense of "public sector pay restraint."

Unnamed "experts" say wage rises fuel inflation do they (your report and analysis, 13 August)? Well actually, no they don't, and it is significant that your reporter couldn't find one to put their name to this myth. In particular, Bill Jamieson's concentration on "public- sector wages" is even more divorced from reality. Warwick University economics professor Andrew Oswald in the Financial Times has said that "an undergraduate who wrote in an essay that inflation was caused by public-sector wage rises would receive a 'fail'." And this message was repeated in the paper's editorial columns, where Nuffield College's Stephen Nickell stated that public-sector pay rises "have nothing to do with inflation".

Inflation is a measure of how much people pay for what they buy, not the wages of those who provide public services. Or, as Professor Nickell says: "It is the things that are produced by the private sector that go to the calculation of inflation – haircuts, potatoes." In the same report, other economists, from universities and the City backed that view. Martin Weale of the National Institute of Economic and Social Research commented: "What I really can't believe is that when private-sector pay rises are 4 per cent, a pay rise of 2.5 per cent for the public sector is inflationary."

Elsewhere, other respected commentators – such as Iain MacWhirter – have also exposed this myth, pointing out that "despite average wages and salaries declining in Britain in real terms, inflation is gaining momentum. The assumption that price increases simply follow wage pressure is not justified."

Workers in Scotland's local government are the victims of inflation, not the cause. They deserve a fair wage to provide us with the essential services we all use, and they are fighting in the Unison union to get one.

MATT SMITH
Scottish Secretary, Unison
West Campbell Street
Glasgow

Source: http://news.scotsman.com/letters?articleid=4388569

[LeftishBrit]

1. Excellent points!

[muriel_volestrangler]

2. Makes a lot of sense - public sector pay just affects the total government spending a little

(because not all of that goes on pay anyway), so all it could be said to affect is taxes, at most. They are trying to limit public sector pay because they have to pay for the electioneering tax cut Brown forced in, and the bodged attempt to correct the 10% tax rate fiasco.

[fedsron2us]

3. A prices and incomes policy - how quaint

It is not likely to work now anymore than it did in the 1970s or at any time in history going back to the earliest attempts by the Roman emperor Diocletian in the 3rd Century AD. In reality inflation is a reflection of the amount of money (particularly dollars) sloshing around in the world economy in relation to the supply of goods and services. At the moment there is in fact a titanic struggle going on between the forces of inflation and deflation globally. The credit crunch is destroying money at a rate of knots as it consumes one company and financial institution after another. At the same time governments and Central Banks in the US and Europe are pumping in liquidity as fast as they can to try and bail out the sinking ship. The jury is really out as to which force is likely to win. One thing is for certain the pay of UK civil servants and other public employees has almost no impact on this process apart from determining the amount of money that the British government has to either raise in taxes, borrow or print to meet its own bills. Strangely enough while governments seem keen on strict fiscal discipline for their workers there seems to be no shortage of cash for pointless foreign military adventures or to bail out the politicians chums in the City. After all now that Bear Sterns, Lehman Brothers and a host of other investment banks seem bound for palookaville where is an out of work minister going to find a cosy job once they have been ousted from power after the next election.

[Anarcho-Socialist]

4. You're right of course

It didn't take any great difficulty in finding £10 billion for the war, and £100 billion to bail out the banks did it? It's funny how just raising public sector pay in line with the official inflation of 4% (never mind the real-world inflation rate of 10%+) makes the politicos in the Treasury yelp in pain.