We are lurching from crisis to crisis

The cost-of-living crisis is not just a question of increasing prices. The reason the current inflation can be considered such a crisis is that the UK has not been creating enough wealth for people to afford these higher prices. And while the recent dislocations and disruptions caused by the lockdown reopenings and the Russian invasion of Ukraine have had a huge impact on prices, the British government still seems incapable of acknowledging that things were not going well economically both before the war and before the pandemic.

Even when the current rapid pace of inflation eventually slows, many households will still be struggling to meet those higher prices of essentials like food and energy. And even if those particular costs began to subside, many people would continue to live on the edge, until the next shock sends them deeper into privation. These scenarios reveal that today’s cost-of-living crisis is not just a product of price increases.

Why have the increased costs become so unbearable for so many households? Why is there so little capacity at an individual, business or societal level to cope with these price spikes? Without addressing these historical issues underlying the current hardship, we are likely to see a continuation of crisis management rather than a durable fix.

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The cost-of-living crisis has been decades in the making

The soaring cost of living, aggravated now by the fallout from the war in Ukraine, is bringing dreadful difficulties and hardship for huge numbers of people. This is the latest in a long series of economic crises which successive governments have been unable to manage effectively. How can Britain stop stumbling from one crisis to the next? By escaping from the sustained underinvestment and rising borrowing that have left Britain trapped in the Long Depression and that have robbed governments of the slack they should have to help people get through such challenges.

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The fatalism of the inflation debate

When it comes to the misery of falling living standards, we don’t need a fevered and fatalist debate around rising prices and some short-term counter-inflationary devices, but a proper plan for economic growth. The wealth from rising productivity is the only reliable source of durable prosperity. Moreover, it would allow society to deal better with material disruptions of the sort we have had to endure over the past two years of restrictions and lockdowns.

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Inflation: another symptom of the zombie economy

In both the UK and the US, the monthly inflation figures released this week came in well above the forecasts. These announcements have added to fears from many economists that we could be seeing a return to inflation rates not seen for 40 years.

Led by Jay Powell, chair of the US Federal Reserve, most central bankers believe that the current high levels of inflation are ‘transitory’, and will fade away once the lockdowns have been fully lifted. Meanwhile, critics say any delay in monetary tightening will simply force the central banks to slam on the policy brakes harder at a later point, resulting in even greater economic disorder and perhaps an even harsher recession.

So who is right? The inflation hawks or the apparently dovish central bankers?

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