International
The latest Bank of England rate rise won’t do much to tackle inflation – here’s what could work
Recent rate hikes will not do much to tackle inflation, but greater cooperation between the Bank of England and the government could help the UK econo…
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There wasn’t much dramatic tension as markets waited for the Bank of England’s latest decision on interest rates. The fifth monthly quarter-point hike in a row was largely expected, taking the base rate to 1.25% in June 2022. All the announcement really revealed, in fact, was what a mess UK economic policy is in.
Neither the Bank of England, nor the government, is now helping to deal with Britain’s economic problems. A more rational approach to monetary and fiscal policy is needed.
The Bank’s aim is to curb inflation. But the interest rate rise is unlikely to affect inflation at all. There may be a small impact on import prices, if higher rates prevent a further deterioration in the value of the pound. But raising the rate at which citizens and businesses in the UK can borrow money will not ease the global rise in oil, gas and food prices that is the main source of inflation now.
The Bank of England’s members know this, of course. Their justification for raising rates is that they want to keep inflationary expectations under control, to prevent an uncontrollable “wage-price spiral”. This can happen when expectations of future inflation lead workers to bargain for higher earnings to compensate, which only adds to inflation. The Bank of England’s fear is a return to the 1970s. Such a wage-price spiral pushed inflation to 22.6% in 1975.
But the problem with this argument is that inflation has been more than 4% since October 2021 and real earnings are not rising. Strip out bonuses being paid in a small number of sectors, and wages rose only 4.2% between February and April 2022, which in real terms (once inflation is included) is a fall of 2.2%. And the trend is downwards, not upwards.
In the 1970s, more than half the workforce were members of trade unions, giving them the muscle to bargain for higher wages. Average earnings in 1975 hit almost 30%. Today, fewer than a quarter of employees are union members, and most of these are in the public sector, where wages are currently rising by just 1.5% on average.
So there is little chance of a 1970s-style inflationary wage-price spiral. But these cuts in real wages are already starting to cause a contraction of the UK economy. Consumers have no choice but to spend more on the necessities of energy and food, much of which leaves the UK economy. So they are cutting back on discretionary spending on items such as entertainment and home goods, where more money tends to stay within the UK.
The result is that the UK economy actually shrank in April. The OECD forecasts that the UK economy will not grow at all in 2023, and the Bank of England believes the UK will fall into recession this year. The prospect now is of stagflation, when high inflation occurs at the same time as weak or weak or non-existent growth.
And in this situation, the Bank of England’s rate rise will actually make things worse. As interest rates rise, consumers and businesses will find it more costly to borrow to invest and save, and aggregate demand will fall further.
Government policy
The government isn’t helping either. The emergency package of support to consumers announced by Chancellor Rishi Sunak in May represents a significant stimulus. But the government’s overall fiscal stance is still contractionary, with significant tax rises acting to withdraw demand from the economy. Sunak is still more intent on limiting public borrowing, in accordance with his self-imposed fiscal rules, than he is on keeping either taxes down or spending up.
So, on the one hand we have the Bank of England raising rates in a way that will not affect inflation, but will curb consumer spending. On the other, the government is simultaneously withdrawing demand from the economy via tax rises. And all while the UK economy is contracting.
It is hard not to see this as anything but an economic policy mess. What the UK needs is much stronger coordination between fiscal and monetary policy. If interest rates are to rise, this should only occur while the government stimulates the economy to ensure output and incomes are sustained.
And underneath all this are much deeper weaknesses in the UK economy, which date from well before COVID-19. The UK has close to the lowest rate of investment, and among the lowest productivity and weakest wage growth of any leading economy. Over the last year, business investment has been falling, deeply affected by Brexit and the overall weak outlook for growth. Productivity fell by 0.7% in the last six months. And the Office for Budget Responsibility forecasts that real wages will still be lower in 2026 than they were in 2008.
The government likes to boast about the UK’s very low unemployment rate, now just 3.8%. The labour market is currently as tight as it has ever been, with more vacancies than there are people officially unemployed. But this disguises the fact that employment has also fallen: half a million people have left the labour market since before the pandemic. Some of these have been EU citizens leaving the country; others have taken early retirement, declared themselves sick, or are unwilling to work on the wages they are being offered.
To return to growth, the UK needs to attract more people into the labour market. This requires higher wages, not lower. It also demands an improvement in labour conditions, particularly in the insecure gig economy of zero hours contracts and precarious self-employment. Making work more attractive would require firms to invest in better equipment and skills training, in turn raising productivity.
In a rational economic policy world, the government would now be brokering sectoral productivity deals with businesses and unions, promising government support in return for higher investment and higher earnings. This could indeed be at the heart of the government’s “levelling up” strategy. But unfortunately, we are not in such a world.
Michael Jacobs is a member of the Labour Party and a former adviser to Prime Minister Gordon Brown
recession unemployment pandemic covid-19 stimulus monetary policy pound recession interest rates consumer spending unemployment oil uk eu
International
What Follows US Hegemony
What Follows US Hegemony
Authored by Vijay Prashad via thetricontiental.org,
On 24 February 2023, the Chinese Foreign Ministry released a…
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Authored by Vijay Prashad via thetricontiental.org,
On 24 February 2023, the Chinese Foreign Ministry released a twelve-point plan entitled ‘China’s Position on the Political Settlement of the Ukraine Crisis’.
This ‘peace plan’, as it has been called, is anchored in the concept of sovereignty, building upon the well-established principles of the United Nations Charter (1945) and the Ten Principles from the Bandung Conference of African and Asian states held in 1955. The plan was released two days after China’s senior diplomat Wang Yi visited Moscow, where he met with Russia’s President Vladimir Putin.
Russia’s interest in the plan was confirmed by Kremlin spokesperson Dmitry Peskov shortly after the visit: ‘Any attempt to produce a plan that would put the [Ukraine] conflict on a peace track deserves attention. We are considering the plan of our Chinese friends with great attention’.
Ukraine’s President Volodymyr Zelensky welcomed the plan hours after it was made public, saying that he would like to meet China’s President Xi Jinping as soon as possible to discuss a potential peace process. France’s President Emmanuel Macron echoed this sentiment, saying that he would visit Beijing in early April. There are many interesting aspects of this plan, notably a call to end all hostilities near nuclear power plants and a pledge by China to help fund the reconstruction of Ukraine. But perhaps the most interesting feature is that a peace plan did not come from any country in the West, but from Beijing.
When I read ‘China’s Position on the Political Settlement of the Ukraine Crisis’, I was reminded of ‘On the Pulse of Morning’, a poem published by Maya Angelou in 1993, the rubble of the Soviet Union before us, the terrible bombardment of Iraq by the United States still producing aftershocks, the tremors felt in Afghanistan and Bosnia. The title of this newsletter, ‘Birth Again the Dream of Global Peace and Mutual Respect’, sits at the heart of the poem. Angelou wrote alongside the rocks and the trees, those who outlive humans and watch us destroy the world. Two sections of the poem bear repeating:
Each of you, a bordered country,
Delicate and strangely made proud,
Yet thrusting perpetually under siege.
Your armed struggles for profit
Have left collars of waste upon
My shore, currents of debris upon my breast.
Yet today I call you to my riverside,
If you will study war no more. Come,
Clad in peace, and I will sing the songs
The Creator gave to me when I and the
Tree and the rock were one.
Before cynicism was a bloody sear across your
Brow and when you yet knew you still
Knew nothing.
The River sang and sings on.…
History, despite its wrenching pain
Cannot be unlived, but if faced
With courage, need not be lived again.
History cannot be forgotten, but it need not be repeated. That is the message of Angelou’s poem and the message of the study we released last week, Eight Contradictions of the Imperialist ‘Rules-Based Order’.
In October 2022, Cuba’s Centre for International Policy Research (CIPI) held its 7th Conference on Strategic Studies, which studied the shifts taking place in international relations, with an emphasis on the declining power of the Western states and the emergence of a new confidence in the developing world. There is no doubt that the United States and its allies continue to exercise immense power over the world through military force and control over financial systems. But with the economic rise of several developing countries, with China at their head, a qualitative change can be felt on the world stage. An example of this trend is the ongoing dispute amongst the G20 countries, many of which have refused to line up against Moscow despite pressure by the United States and its European allies to firmly condemn Russia for the war in Ukraine. This change in the geopolitical atmosphere requires precise analysis based on the facts.
To that end, our latest dossier, Sovereignty, Dignity, and Regionalism in the New International Order (March 2023), produced in collaboration with CIPI, brings together some of the thinking about the emergence of a new global dispensation that will follow the period of US hegemony.
The text opens with a foreword by CIPI’s director, José R. Cabañas Rodríguez, who makes the point that the world is already at war, namely a war imposed on much of the world (including Cuba) by the United States and its allies through blockades and economic policies such as sanctions that strangle the possibilities for development. As Greece’s former Finance Minister Yanis Varoufakis said, coups these days ‘do not need tanks. They achieve the same result with banks’.
The US is attempting to maintain its position of ‘single master’ through an aggressive military and diplomatic push both in Ukraine and Taiwan, unconcerned about the great destabilisation this has inflicted upon the world. This approach was reflected in US Defence Secretary Lloyd Austin’s admission that ‘We want to see Russia weakened’ and in US House Foreign Affairs Committee Chairman Michael McCaul’s statement that ‘Ukraine today – it’s going to be Taiwan tomorrow’. It is a concern about this destabilisation and the declining fortunes of the West that has led most of the countries in the world to refuse to join efforts to isolate Russia.
As some of the larger developing countries, such as China, Brazil, India, Mexico, Indonesia, and South Africa, pivot away from reliance upon the United States and its Western allies, they have begun to discuss a new architecture for a new world order. What is quite clear is that most of these countries – despite great differences in the political traditions of their respective governments – now recognise that the United States ‘rules-based international order’ is no longer able to exercise the authority it once had. The actual movement of history shows that the world order is moving from one anchored by US hegemony to one that is far more regional in character. US policymakers, as part of their fearmongering, suggest that China wants to take over the world, along the grain of the ‘Thucydides Trap’ argument that when a new aspirant to hegemony appears on the scene, it tends to result in war between the emerging power and existing great power. However, this argument is not based on facts.
Rather than seek to generate additional poles of power – in the mould of the United States – and build a ‘multipolar’ world, developing countries are calling for a world order rooted in the UN Charter as well as strong regional trade and development systems. ‘This new internationalism can only be created – and a period of global Balkanisation avoided’, we write in our latest dossier, ‘by building upon a foundation of mutual respect and strength of regional trade systems, security organisations, and political formations’. Indicators of this new attitude are present in the discussions taking place in the Global South about the war in Ukraine and are reflected in the Chinese plan for peace.
Our dossier analyses at some length this moment of fragility for US power and its ‘rules-based international order’. We trace the revival of multilateralism and regionalism, which are key concepts of the emerging world order. The growth of regionalism is reflected in the creation of a host of vital regional bodies, from the Community of Latin American and Caribbean States (CELAC) to the Shanghai Cooperation Organisation (SCO), alongside increasing regional trade (with the BRICS bloc being a kind of ‘regionalism plus’ for our period). Meanwhile, the emphasis on returning to international institutions for global decision-making, as evidenced by the formation of the Group of Friends in Defence of the UN Charter, for example, illustrates the reinvigorated desire for multilateralism.
The United States remains a powerful country, but it has not come to terms with the immense changes taking place in the world order. It must temper its belief in its ‘manifest destiny’ and recognise that it is nothing more than another country amongst the 193 members states of the United Nations. The great powers – including the United States – will either find ways to accommodate and cooperate for the common good, or they will all collapse together.
At the start of the pandemic, the head of the World Health Organisation, Dr Tedros Adhanom Ghebreyesus, urged the countries of the world to be more collaborative and less confrontational, saying that ‘this is the time for solidarity, not stigma’ and repeating, in the years since, that nations must ‘work together across ideological divides to find common solutions to common problems’.
These wise words must be heeded.
International
Royal Caribbean Officially Makes Controversial Change
The cruise line has made a controversial change that some passengers will love while others will be angry.
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The cruise line has made a controversial change that some passengers will love while others will be angry.
During the early days of the cruise industry's comeback from the covid pandemic, Royal Caribbean outlawed smoking in the casino. At the time, the Centers for Disease Control (CDC) required passengers to wear masks in public areas of the ship except when eating or drinking while stationary.
Smoking was, at first, a sort of loophole. People would smoke in the casino and remove their masks (or at least move them to the side) while playing slot machines. That basically meant that unlike drinking, where your mask could be moved and then replaced for a sip, smokers were essentially not wearing a mask.
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Royal Caribbean (RCL) - Get Free Report closed that loop by fully outlawing smoking in its casinos while masks were still required. That was something that smokers weren't happy about, but probably understood given how large a role the CDC was playing in setting cruise ship rules.
Once the CDC stopped requiring masks (and regulating cruise ships at all), Royal Caribbean reverted to its pre-pandemic smoking policies. That meant that every casino on its ships had a smoking section. Technically, smoking is only allowed when actually playing a slot machine, but that's hard to enforce and the casinos quickly filled back up with smoke.
Now, the cruise line has officially made a long-rumored move that should make non-smokers really happy while angering a whole different group of the cruise line's passengers.
Image source: Matt Cardy/Getty Images
Oasis-Class Ships Getting Non-Smoking Area
Wonder of the Seas, the newest member of Royal Caribbean's Oasis class was originally built to sail out of China. It was moved to Florida due to the covid pandemic which created a sort of happy accident for non-smokers.
The ship was built with a secondary casino that was originally intended as a high rollers room. Once the ship was repurposed to sail from the United States, that smaller casino was shifted from an area designed to cater to big-money players into a non-smoking casino.
For months, it has been rumored that the cruise line would turn the "Jazz on 4" space -- the same location as the non-smoking "Golden Roon" on Wonder of the Seas -- into similar non-smoking casinos. Royal Caribbean never commented on those rumors, but it did warn passengers on some sailings that service in the Diamond Lounge, an area next to Jazz on 4 reserved for Diamond and higher members of the company's loyalty program, would be disrupted due to construction.
The results of that construction have been revealed on another Oasis-class ship, Harmony of the Seas. Johnny Travalor shared pictures of the new casino in a Facebook group for fans of Royal Caribbean's casinos.
"The brand new non-smoking casino on Harmony officially opened today and I have been here since the opening playing, donating!" he shared.
That's not official confirmation that all Oasis-class ships will have Jazz on 4 turned into a non-smoking casino, but all signs point in that direction.
Royal Caribbean Makes Some Passengers Mad
No change on a cruise ship will make all passengers happy. Some Royal Caribbean gamblers have suggested that the non-smoking area, which is much smaller than the original casino, should be the smoking area.
"Maybe once they see the non-smokers are bursting at the seam in that space and the smoking casino isn’t as crowded they will reverse it," Barb Boyer Green shared.
"That should be the smoking room...seems like the non-smokers are being put in a closet," Maureen Ethier added.
Not all passengers, however, are upset because of the size of the non-smoking area. Some are lamenting the loss of Jazz on 4, which hosted live jazz music.
"I think this is an overall loss, with now an entertainment area being taken over on this ship. I always enjoyed the jazz club and this will do nothing for the smell of the ship, net loss for all passengers" Justin Rogers wrote.
"It was our fav such a sad day. It was our escape, great talent, romantic, not another venue like it. Such a shame," added Julia Doumad.
cdc disease control pandemic chinaInternational
The limits of expert judgment: Lessons from social science forecasting during the pandemic
A sobering picture emerges from a study testing social scientists’ ability to predict societal change during the COVID-19 pandemic.
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Imagine being a policymaker at the beginning of the COVID-19 pandemic. You have to decide which actions to recommend, how much risk to tolerate and what sacrifices to ask your citizens to bear.
Who would you turn to for an accurate prediction about how people would react? Many would recommend going to the experts — social scientists. But we are here to tell you this would be bad advice.
As psychological scientists with decades of combined experience studying decision-making, wisdom, expert judgment and societal change, we hoped social scientists’ predictions would be accurate and useful. But we also had our doubts.
Our discipline has been undergoing a crisis due to failed study replications and questionable research practices. If basic findings can’t be reproduced in controlled experiments, how confident can we be that our theories can explain complex real-world outcomes?
Predicting social change
To find out how well social scientists could predict societal change, we ran the largest forecasting initiative in our field’s history using predictions about change in the first year of the COVID-19 pandemic as a test case.
To do this, we tested how well social scientists could predict societal change in two ways. First, we asked social scientists for quick guesses about how things would change over the next two years of the pandemic.
Second, we ran a competition where over 100 teams of social scientists with access to historical data made month-by-month forecasts. We formally assessed their predictions for a range of social sciences phenomena, including changes in prejudice, subjective well-being, violence, individualism and political polarization between May 2020 and May 2021.
Our findings, detailed in peer-reviewed papers in Nature Human Behaviour and in American Psychologist, paint a sobering picture. Despite the causal nature of most theories in the social sciences, and the fields’ emphasis on prediction in controlled settings, social scientists’ forecasts were generally not very good.
In both papers, we found that experts’ predictions were generally no more accurate than those made by samples of the general public. Further, their predictions were often worse than predictions generated by simple statistical models.
Improving predictions
Our studies did still give us reasons to be optimistic. First, forecasts were more accurate when teams had specific expertise in the domain they were making predictions in. If someone was an expert in depression, for example, they were better at predicting societal trends in depression.
Second, when teams were made up of scientists from different fields working together, they tended to do better at forecasting. Finally, teams that used simpler models to generate their predictions and made use of past data generally outperformed those that didn’t.
These findings suggest that, despite the poor performance of the social scientists in our studies, there are steps scientists can take to improve their accuracy at this type of forecasting.
Our research also found that, compared to lay people, social scientists were more aware of the herculean nature of the task at hand. In our studies, they expressed uncertainty and less confidence than lay people when making forecasts.
Similarly, social scientists expressed uncertainty in their open-ended predictions for the World after COVID project, a video series we conducted with eminent scholars in the first year of the pandemic.
Thus, social scientists still have some wisdom to offer, reminding us of the uncertainty and the need for humility when forecasting the future.
A call to action
Our work highlights the importance of developing reliable sources of data and suggests strategies that can improve the accuracy of such forecasts.
These results are a call to action for the scientific community to continue developing better methods for predicting societal change so the public can rely on scientists in times of crisis.
Our projects show that expert prediction of societal change during the COVID-19 pandemic was far from perfect. But they also suggest ways such predictions can be improved. By drawing on specific expertise, collaborating across disciplines and making data-driven models, social scientists can produce more accurate and useful forecasts for policymakers and the public.
The scientific community should strive to develop better methods for predicting societal change, while acknowledging the uncertainty and complexity involved. Policymakers should appreciate the value of expert insight, but also be aware of its limitations and potential biases. If we want to predict the future, or shape it for that matter, than a bit of humility would likely help.
Igor Grossmann receives funding from the Social Sciences and Humanities Research Council of Canada, Ontario Ministry of Research, Innovation and Science, The John Templeton Foundation, and the Templeton World Charity Foundation.
Cendri Hutcherson receives funding from the Social Sciences and Humanities Research Council of Canada, the Natural Sciences and Engineering Research Council of Canada, the Canada Foundation for Innovation, the Ontario Ministry of Research and Innovation, and the National Institutes for Mental Health (USA).
Michael Varnum has received funding from the National Science Foundation (USA), the US Fulbright Program, and the China Postdoctoral Science Foundation.
depression pandemic covid-19 canada ontario china
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