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Chris Dillow: Stumbling and Mumbling

Stumbling and Mumbling is a personal blog of Chris Dillow, an economist who spent eight years with one of Japan’s largest banks. He blogs about British politics and provides thoughtful analyses on the British economy and sports.

Fiscal policy with a flat Phillips curve

It’s widely agreed that the Phillips curve is flat, that low unemployment is not stoking up wage inflation – though perhaps this has been true for longer than thought. This poses the question: what are the policy implications of this? Simon says there’s a danger of the Bank raising interest rates too soon – because looking at unemployment and the output gap points to a risk of inflation which isn’t in fact there. But I suspect it also has implications for fiscal policy. I’m thinking here...

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Tories vs the 21st century

It’s become a cliché that the Tories want to return to the 1950s, before the age of mass migration and our entanglement with the EU. These, however, are not the only examples of Tories discomfort with the modern world. Tom Welsh says the Tory party is threatened by the large number of university graduates, and Amber Rudd seems befuddled by the internet. This poses the question: why are the Tories so unhappy with the 21st century? It hasn’t always been so. Cameron and Osborne, despite...

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Reinventing the wheel

In both the UK and US, wage inflation has stayed low despite apparently low unemployment – to the puzzlement of believers in the Philips curve. Felix Martin in the FT says there's a reason for this. The “dirty secret of economics,” he says, is “the central importance of power.” Inflation, he says, is “society’s default method of reconciling, at least for a while, irreconcilable demands.” And because workers don't have the power to make big demands, we haven’t got serious inflation. What's...

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Brexit: an interminable debate?

David Aaronovitch has a nice piece in the Times on the stories that Trumpites and Brexiters can tell themselves to avoid admitting being wrong*. I’d add another problem – that the ratio of noise to signal is so high that firm evidence is hard to find. Let’s take GDP per head. Remainers claim that this will be lower under Brexit. NIESR estimates that Brexit will cut GDP by up to 7.8% by 2030, and CEP economists (pdf) by up to 9.5 per cent. But trend growth is noisy, even over longish...

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Trade deal? Yawn.

One of the most elementary distinctions in economics (and in life) is that between instruments and objectives. Interest rates, for example, are only an instrument whereas the objectives are price and output stability. I fear, though, that this distinction is being overlooked by those Brexiters aroused by what Trump calls a “big and exciting” trade deal between the UK and US. Trade deals are only a means of achieving what really matters – prosperity. And they might be a weak one at that....

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Marriage & wages

Actor Tom Chambers has caused a row by claiming that “many men's salaries aren't just for them, it's for their wife and children, too." As a justification for the gender pay gap, this is lousy. But there’s a core of truth in what he says. It’s a lousy justification because if employers paid higher wages to people with dependents we’d expect to see women with children earn more than childless ones. But the opposite is the case. TUC research (pdf) has found that full-time working mothers...

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In defence of the state pension

“Should we pension off the state pension?” asks Robert Colville. The answer is: emphatically no. Quite the opposite. There’s a case for increasing it. Robert is right that the cost of the state pension will rise over time. The OBR expects it to rise from 5.3% of GDP now to 7.3% in 2060 if the triple lock continues. But this is irrelevant. Unless we euthanize people in their 60s, we’ll have to pay pensioners an income. The question is whether this comes from taxes in the case of a state...

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The ideology of “the market”

One curiosity of the row over top BBC pay has been the attempts of past and present BBC bosses to defend high pay by invoking “the market”. “There is a market for Jeremy Vines, there is a market for John Humphrys” says James Purnell. “We operate in a market place.” Pay is based on a “market-based calculation” say Mark Damazer (9” in). “The BBC does not exist in a market on its own where it can set the market rates.If we are to give the public what they want, then we have to pay for those...

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Cronyism, & the demand for redistribution

Is actually-existing capitalism a fair or a rigged game? The answer matters a lot for attitudes towards redistribution, as some recent experiments by Matthias Sutter and colleagues show. They got people to choose between a safe investment and a risky one. After the pay-off to the risky investment was seen, they asked third parties whether they wanted to redistribute. When the pay-off to the risky asset was determined fairly – by the toss of a coin – few people were complete egalitarians....

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