Britain's Inflation 30 Years Ago

RousseauX

Donor
If budget surpluses are known inflation fighters is increasing revenue a viable alternative to reducing expenditure? But not through raising taxes, instead it would be increased revenue through lower unemployment via a less severe recession in the early 1980s.

I write that because in my last post I suggested a POD of Mrs Thatcher becoming prime minister 2 years earlier. If she had would the early 1980s recession have been not as bad or even worse for the UK?
increasing employment increases inflation: you are paying out more wages: more money are going towards consumer goods and thus prices go up, the reason why raising taxes and lowering spending (thus budget surplus) lowers inflation is because it makes people buy less since you are taking money out of people's pockets
 
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RousseauX

Donor
That's why Stagflation took hold in the US, started by Nixon, continued by Ford.

Deregulation is what it took, started by Carter, to get things moving again in the US.

For the UK, have to do what Thatcher did. No other way.
Staying the course would lead to collaspe
what stopped stagflation wasn't deregulation: price and wage controls simply exchanges the problem of higher prices with one of queues at the shop: what stopped it was paul volker's tighter monetary policy at the fed and the end of the oil embargo by OPEC
 
Britain's actual inflation rates:

inflation-1970s-1.png


inflation-1980.png


You know, it's almost as if we're seeing a spike in oil prices causing inflation, which peaked in 1974-75, before falling...

(Oh, and spot the inflation spike at the end of Thatcher's tenure).
 
increasing employment increases inflation: you are paying out more wages: more money are going towards consumer goods and thus prices go up, the reason why raising taxes and lowering spending (thus budget surplus) lowers inflation is because it makes people buy less since you are taking money out of people's pockets

Ergo, Jim Callaghan and Denis Healey were trying to bring inflation under control by limiting negotiated pay increases - a tactic which largely held until the unions decided to go feral in the winter of 1979 (Callaghan would have very likely won an election in October 1978).
 
it's almost as if we're seeing a spike in oil prices causing inflation, which peaked in 1974-75, before falling...

It certainly looks that way!

United States
reed-figure6.png


https://www.bls.gov/opub/mlr/2014/a...dex-and-the-american-inflation-experience.htm

In late ‘74, looking at the high, abrupt curves for gasoline and energy inflation and then looking at the much lower and smoother curve for overall inflation, the peak for this lower curve follows later in time.

Although in early ‘80, the peak for overall inflation maybe follows ever so slightly, but it’s much closer in time to the other two peaks.
 
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I’d only add that, I think a modern economy is almost biologically complex. And drawing an analogy from medicine, I’d say the clear route forward in the vast majority of cases is neither baby steps nor giant steps, but rather a solid medium step followed by observing feedback.

Of course, in this timeline we’re doing something different. Our goal here is to pursue anti-inflation to an irrational extent, at too much cost and risk to jobs and GDP, even with the goal of “least harm.”
 
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