While we complain about “the cost of living”, the mugs who elected Donald Trump again were on about “inflation”. Aren’t they the same thing? Maybe, maybe not.
It’s been a year of wearying in the fight against inflation. But if you think you know what it all proves, you’re probably kidding yourself. The first mistake is to subject it to too much rational analysis.
Well, only in economics textbooks. In the real world, inflation is the rate of increase in prices, and you fix it not by reducing the level of prices, but by reducing the rate at which they continue rising. Ah, said the smarties, you don’t understand that people care far more about inflation than about unemployment. Inflation hits everyone, whereas unemployment affects only a few.Is that what you think? If so, you’re probably too young to know what happens in a real recession. When unemployment is soaring and the evening news shows pictures of more workers getting the sack every night, believe me, the punters get terribly frightened they may lose their own job.
The one thing voters know is that prices keep rising. And they’ve never liked it. They don’t like it whether prices are rising by 2 per cent or 10 per cent – and the highly selective consumer price index they carry in their heads always tells them it’s nearer 10 per cent than 2. To a rational economist, determining what’s happening to the cost of living involves comparing what’s happening to prices on the one hand with what’s happening to wages and other income on the other. Strictly, the comparison should be withBut that’s not how voters in either country see it. They keep prices in one mental box, but wages in another. The pay rises they get are taken for granted as something they’ve earned by their own hard effort.
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