Darling's stupid pay restraint call

This annoys me:

Chancellor Alistair Darling today called for restraint over wage rises…The Chancellor told the BBC's Today programme: “Inflationary pay rises would be disastrous not just for the country but for each and every one of us.”

What it ignores is the fact that no pay rise I get makes a blind bit of difference to the inflation rate. And, with decentralized wage bargaining, the same’s true for each of us. Low inflation is a public good. And ideally, each of us would like to free ride on others' efforts to provide it. The upshot is that no-one accepts a low wage rise because it leads to low inflation.
Wage inflation is low because there are two billion Indians and Chinese threatening to do our jobs more cheaply - not because anyone wants to make a contribution towards achieving low inflation.
Darling is making the same error here that Clare Short made a few months ago when she called for a campaign for a hung parliament. He mistakenly believes that good collective goals can always arise from individual choices, oblivious to the fact that people need the right incentives for this to happen.
Every rational person will ignore Darling’s call.
And so they should. Because in a well-functioning labour market* some workers should get high pay rises - those doing jobs where there are labour shortages. If everyone always got the same pay rise, we’d lose the point of wages and prices, which is to tell us what jobs are worth doing and what aren’t.
 All of which raises the question. Why is Darling calling for pay restraint? Is he really stupid enough to think people listen to him?
* I know, there’s no such thing.

Comments

[Zorro]

"Why is Darling calling for pay restraint? Is he really stupid enough to think people listen to him?"

I fear the one eyed chap with is hand up Darlings bottom IS that stupid..

Does anyone really believe Alistair Darling is actually in charge of the Treasury??

[Sam]

In the public sector, bargaining isn't really all that decentralized. One big union does a deal with the government, and all the others point at it and say "we'll use that as a baseline, then".

I don't know if he's stupid enough to think that private business and individuals will pay him any attention - I suspect that what he's mostly doing is signalling to Unison and the like that they need to moderate their demands for the cause of solidarity with the allegedly lefty government.

[Andrew Zalotocky]

I think Sam is right, it's about signalling to the unions that they shouldn't make excessive demands. However, if the union leaders behave rationally in pursuit of the interests of their members they will conclude that (a) the government is weak, and (b) the government is certain to lose the next general election, so they will try to force as many concessions as possible while they can. They have a window of opportunity that will close no later than 2010 with the election of a Conservative government, so they will probably call Darling's bluff.

Incidentally, there's no doubt that it is a bluff because the Labour party is now so dependent on union support for its financial survival that it simply can't afford to tell them to get stuffed, no matter what they do.

[councilhousetory]

The only people Darling is talking to is the Public Sector Unions and I'll be amazed if they are listening. Why should they, MPs aren't listening.

I think what Darling and the puppet master are really frightened of, is the Bank of England ramping up interest rates and what that will do to their electability.

[Alex]

He's calling for it because his political and economic views were formed in a period when it was a key marker of conventional respectability.

[griswold]

Darling is simply acting as he thinks a Chancellor should act. A sort of 'something must be done' approach. Much like Brown's posturing on getting KSA/Opec to pump more oil. The public need their prozac.