« Unemployment, scarring & well-being | Main | Animal spirits & ideology »

October 05, 2011



Another one would be that the wages number is going to get revised down:-)

Luis Enrique

if households are busy repaying debt, won't higher wages help them do that faster and get us out of this hole sooner?


"You might wonder how this story fits in with my long-held view that there’s a dearth of investment opportunities.
One possibility is that the dearth is diminishing..." perhaps an (anticipation of) slower issuance of gilts might reduce the crowding out effect of Government deficit spending on investment. Or maybe the negative real yield on these assets is doing it?

Either way it could show crowding out to be real? No?

Tom Addison

FWIW, my personal situation (and it's the same for many people my age) is that even though I should be getting a good payrise next year, I'm still going to saving as much as I can (as I am now) because of how much you need for a bloody deposit to buy a house nowadays.

Paolo Siciliani

You are assuming a costant MPC, but how do you feature in future expactations into that?

I mean, if employees believe that the trend in favour of profits to the expense of wages will be reverted for good, they will probably move to a higher MPC in line with the life-cycle theory of consumption.

That is to say, the wage increase you refer to is hardly an indication of a long-term change backed up by a wage-led growth political agenda.


@Jackart - if capex were sensitive to gilt yields, it should have been stronger in the 00s as yields fell. Thios makes me suspect the impact of the risk-free rate on capex is small in itself.
@ Paolo - good point, but I suspect capex is more sensitive to profit expectations than consumer spending is to wage expectations.


May be if British workers had more employment protection they would be more inclined to spend their pay? Instead there is austerity cuts and more attacks on employment rights and social security from this Cabinet of moronic millionaires. The fear that ministers want to impose on workers will merely make them more cautious and less inclined to spend reducing the most important component of demand. Repayment of private sector debts will reduce total demand if State spending is reduced at the same time. Not an optimistic situation.


More employment protection means less employment, ceteris paribus.

Ralph Musgrave

Chris ignores the fundamental purpose of the economy, which is to produce what the consumer wants: both in the form of private sector produced stuff and public sector produced stuff. Stimulus should therefor ALWAYS take the form of extra public sector spending and feeding more purchasing power into consumers’ pockets.

As to the fact that investment spending is currently higher than normal (as indeed it is in the US) that is not a reason for abandoning the above principle. There will ALWAYS be erratic variations in investment spending, consumer confidence and a dozen other variables.

Put another way, I agree with Luis Enrique above (and not for the first time).


"Wage led growth" would be nice, but surely the important thing is more wage-led wages. The importance of giving people money so that they can buy food should not be underestimated, I believe.

The comments to this entry are closed.

blogs I like

Why S&M?

Blog powered by Typepad