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May 12, 2011


ahmed desai

Chris, your current objections to wage-led growth can easily be overcome.

1.Legislation could be implemented imposing a living wage on all employers, currently £8.30 per hour for London, less elsewhere.

2. This is not only a permanent rise, but all workers would know that this is their 'safety net' rate rising with infltion in perpetuity, thus encouraging increased demand

3. The capitalists are already unwilling to invest- through the decline in private sector investment they are responsible for two-thirds of the fall in output since the peak of the boom. This is despite sharply rising cash surpluses. Therefore the mesure is both affordable- and takes capital out of the hands of those who are unwilling to spend it and puts it into the hands of those that will.

Jimmy Hill

How does this fit in with your story about there being a dearth of investment opportunities and this is why the private sector is not investing?

Could it not be that growth will be sluggish regardless of the distribution between wages and corporate profits?

Luis Enrique

if consumption demand is the engine, does the proportion of consumption goods produced in the UK matter?

Adam Bell

I'm not at all surprised that you immediately reached for the levers of policy, but the obvious choice is to give people the freedom to fight for higher wages by relaxing union legislation in a targeted fashion: http://www.libdemvoice.org/opinion-the-lib-dems-should-work-with-unions-23977.html


Perhaps the issue is shareholder value capitalism?


...and the solution is worker democracy! Sorry for the double post.


I can't remember the details, but I read from a reputable sourcce (well, ok, an economist) that Thatcherite monetarism was completely dead by 1981 or so, since it was found that it didn't work as they thought.

Also, surely investment has fallen here because there are better investment opportunities in developing countries. So perhaps we should just suck it up and get along for a decade or two of low growth?


Let's get our thinking straight.

Aggregate demand will only rise when aggregate borrowing exceeds agreegate repayment.

If the private sector has been through a credit bubble and is now deleveraging, the best measure is to boost incomes to make deleveraging easier and quicker. Encouraging sensible private investment is also important.

How can incomes be raised if the private sector is not creating enough credit? The government must step in a borrow through 'bog standard fiscal expansion'.

In the japan-style lost decade scenario the West now faces, government fiscal expansion is the right way to help the private sector deleverage so that normal economic growth can resume.

The conservative view of a direct conflict between private and public sector borrowing (crowding out!) is profoundly wrong and must be challenged.


As well as a potential short-term rise in aggregate demand, I think redistribution towards workers would bring about a more important long-term rise.

Higher wages could raise aspirations as well as the ability for workers to pay for better education and training both for themselves and their kids. This could potentially up-skill the workforce and increase productivity.

More people with higher disposible incomes could also mean an increase in entrepreneurialism. Ceteris paribus, there will might be a better chance of business survival if 10 different people try to set up a business with £1,000 each than one person with £10,000.

Last but not least (and related to your last post), if most companies started to pay a living wage instead of a minimum wage, there would create a greater incentive for people to move off benefits and into work.

oo, on to policy levers to achieve this. How about corporation tax breaks for companies that pay the living wage? How about total corporatation tax exemption for co-ops?


Note the graqph starts to drop off around 1992.

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