Stagflation in the UK

 Well over here in Blighty we have inflation (or at least the government definition of inflation) hitting 3% while the economy continues to slow due to the credit crunch.  It's like going through a milder version of the 70s (which I fortunately wasn't around to experience). Alas, the only outfit advocating Austrian-style policies is the tiny Libertarian Alliance which has no influence over any of the major parties.  The only hope I can think of is if the famous libertarian blogger Guido Fawkes starts up a campaign for a 100% gold standard but I doubt that's his sort of thing, although he has recommended the works of von Mises before.  At least the USA has Ron Paul.  Question is, seeing as we've had pretty much constant growth in 1992 and avoided a recession in 2001 due to the BoE cutting interest rates just how bad are things likely to get?

Unfortunately no-one knows as the effects on prices of inflation are not distributed evenly across the economy.  And job loss is a hard thing to evaluate as if you lose your job or someone around you loses theirs then that is a bigger issue than an increase in some rate of unemployment.  Everybody has felt the pain of higher energy prices and higher prices on things that depend on energy like food.  Clearly the poor suffer most.

To make matters worse the governments of both the US and UK are doing insane things that hurt the poor more like investing in more expensive alternative energy sources or subsidizing ethanol production.

 It's a problem common all over Europe. Official inflation is more or less "high but under control", meaning between 2% and 3.5%, while GDPs are still growing, albeit at a "slower rate". The feared recession has been averted, though we live in a "difficult moment". Government intervention is working, though somebody has to foot the (heavy) bill.

Low, more or less fixed incomes, a large share of which is spent on goods whose prices raise considerably more than official inflation (bread, gasoline, butter etc), are taking a beating. Small private savers, whose bank accounts have interest rates so low (thanks to a debt-driven economy) that it's becoming increasingly sounder to keep your money under the mattress. Middle class taxpayers (including self-employed professionals), who will be yet again forced to "make sacrifices" in the name of social justice. Small business owners in low-to-middle income areas, who will feel the strain because of decreased consumption and higher costs when compared to big business.

For these persons, and I do not doubt that a very large share of LvMI sympathizers and readers belong to it, the recession has already started and won't go away soon. But for government bureaucrats, big business with strong government ties, large banks depending on cheap credit and the intellighentzia making up the media there isn't a recession. It's just a slump in the business. Ailing banks will be bailed out, large investors/speculators (sorry Austrian folks but not all businessmen are knights in shiny armour) will be allowed to send the commodity market in a crazed spin thanks to new legislation and dirt cheap credit, "suffering" manufacturers will be given a boost at taxpayers' expenses (for example by forcing people to buy "eco-friendly" cars and refrigerators).

And there's absolutely nothing us poor serfs can do about it. Ron Paul is probably the only politician worldwide who fully understands whence our plight comes from, and every decent person around the world should thank him for his courage and honesty. Yet he's a lone fighter against swarms of fat cats, self-deluded social engineers, crazed econutters and, what's worse, millions of loyal subjects to those powers.

 Kakugo, re. speculation and legislation, what are you referring to exactly?

-Jon

Is Guido Fawkes libertarian? 

I would suggest that inflation is running higher in the UK than 3%.  A government department is tasked with producing the stats, and the government is the biggest beneficiary if people think the figure is lower than it really is.

Jon Irenicus:

 Kakugo, re. speculation and legislation, what are you referring to exactly?

-Jon

I am referring to both. Cheap credit is a well known plague and there's no more to say about it. But little is known that there have been subtle changes in the anti-speculation legislation at Wall Street and elsewhere in the past few years, see here for an example about oil-related futures: http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Oil_Speculation/oil_speculation.HTM

To a layman it may not seem like much but this small piece of legislation means a lot to investors desperate for new, secure revenues after the mortgage/banking fiasco.

I became suspicious this winter, after the Energy Department released its datas about worldwide commercially available oil reserves (which turned out to be much better than expected). Oil price didn't flinch for a second but kept skyrocketing. OK, Europe and China experienced a very long and harsh winter but there's always the small issue about stockpiling and refining. Refineries worldwide are running at full speed and reserve tanks are overflowing. Due to extreme prices fuel consumption in Europe are declining for the first time since the '70s.  Chinese imports of raw materials are slowing down. Yet oil is not slowing down. Inlfation? To be sure. But there's much more to it.

rpj83:

It's like going through a milder version of the 70s (which I fortunately wasn't around to experience).

I was around for that, and I remember seeing white collar executives on the day shift at the 7-11.  We are going thru LBJ's guns-and-butter all over again, and I can't even get my peers to remember it.  Our society is so shortsighted.