Good Governance

Good Governance

Inflation

Inflation measures the change in prices of goods and services in the economy. A drop in inflation means that prices are now rising more slowly.  Combined with wage growth, this makes the cost of living more affordable, because you can buy more with the money in your pocket. This means being able to save more, buy more goods and services, and enjoy a better quality of life.

According to the Guardian,

Rishi Sunak has pledged to reduce inflation, and add to speculation that the Bank of England will cut interest rates in the summer. Conservatives said inflation had fallen “decisively” in a sign that the government’s economic plans were working. “This sets the scene for better economic conditions, which could allow further progress on our ambition to boost growth and make work pay by bringing down national insurance as we work towards abolishing the double tax on work – but only if we can do so without increasing borrowing or cutting funding for public services,” Wage rises across the hotels and restaurant sector have pushed up consumer prices, and are due to increase further when the national minimum wage goes up by nearly 10% in April. Wages have also risen by more than inflation in the business services and financial services sectors where skills shortages have put pressure on prices.

However, Labour and trade unions said many families still faced a cost of living crisis after an almost 25% increase in the cost of food since January 2022 and a doubling of gas prices since the start of the Russian invasion of Ukraine. Investors are betting that inflation will tumble further through the spring months, reflecting the sharp decline in the price of natural gas since last year and a slowdown in food price rises. Labour says “prices remained high while “the tax burden is the highest it has been in 70 years and mortgage payments are going up”.

Most economists had predicted that February’s headline figure from the Office for National Statistics (ONS) would drop but a reduction in the rate of inflation does not mean that prices are falling, just that they are rising more slowly.

Immigrants Contribution:

According to Investor’s Chronicle, In the UK, at the end of last year, record net migration levels into the country sparked political concern. Revised figures for 2022 found net migration to be 745,000 which forced the government to introduce new legislation to bring this figure down.

In response to the recent immigration “crises”, economist Paul Krugman pointed out the economic benefits of positive net migration. He cited data showing the recent growth in the US labour force has come entirely from foreign-born workers, creating a positive supply shock which simultaneously pushes down inflation and drives economic growth.

Economist Adam Smith wrote in 1776 about the concern that capital accumulation would increase wages, eat into profits and prevent further capital accumulation, which is the ultimate source of economic growth. However, he optimistically argued that increased wages would lead to further population growth. In part, because it would encourage people to have more kids, but also because extra wealth would lower infant mortality. Smith viewed people like any other important resource: “The demand for men, like that of any other commodity, necessarily regulates the production of men”. However, the basic mechanisms Smith described haven’t stopped functioning. The countries that have accumulated the most capital and subsequently pay the highest wages are still increasing their populations. The difference is it is not coming from higher birth rates and improved infant mortality, but from people wanting to immigrate. This means the virtuous cycle of population growth, subsequent capital accumulation and further economic growth now comes with a caveat: faster cultural change.

The issue for conservatives, if history is anything to go by, is that culture will change and the economy will grow. The job of politicians is to manage the transition in an ordered way. Society is always moving they just need to make sure everyone is brought along for the ride.

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