NAIRU...and all that

This is from an English site.  Good info and questions, but seems to miss the crucial point that inflation is a monetary phenomenon. Inflation is not caused by wages paid to workers any more than wages paid to owners (profits) causes inflation.  Inflation is caused by an increase in the money supply beyond increases in goods and services.  Still, the threat is a very handy club for beating people into excepting starvation wages and high unemployment.---rng

from laborlist.org

NAIRU...and all that

By Peter Barnard

As the coalition government unveils its plans to “get people off welfare and back to work” via the introduction of the workhouse without the walls, there is a fly in the ointment prescribed by Mr Iain Duncan Smith, and it is to be found on page 77 (para B.15) in the Pre-Budget forecast published by the Office for Budget Responsibility earlier this year :

"The prospects for the trend employment rate can be split into the outlook for the ‘structural’ unemployment rate, or non-accelerating inflation rate of unemployment (NAIRU), and the outlook for the labour market activity rate. For the purposes of the projection the NAIRU is assumed to be around 5.25%, which is broadly in line with the unemployment rate prior to the recession, and to remain flat over the projection period. "

The ‘projection period’ in the PBR was up to and including 2014/15.

In passing, the OBR also remarked (in the same paragraph) that the UK has “below average unemployment protection legislation”, but that’s another subject...

The remit (set by government) of the Monetary Policy Committee of the Bank of England is quite specific : non-accelerating inflation, with a target of 2.0% as measured by the Consumer Prices Index.

In other words, and as surely as night follows day, an unemployment rate of 5.25% is unavoidable : about 1.5 million people will be unable to find work between now and 2014/15 because the work and jobs just won’t be there.

If this is indeed the case,  government, and the Labour opposition, need to ask themselves a very basic question: if they are deliberately accepting one and a half million unemployed as a consequence of policy, is it equitable that those who find themselves in this unfortunate position should be denied the state-provided wherewithal to maintain human dignity?

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