I gave a speech a few weeks ago to a group of Edinburgh fund managers alongside Gillian Tett, the FT’s very glamorous US editor. We both talked about trust in one way and another (see also my recent editorial from MoneyWeek magazine: A question of faith) and I touched on what I consider to be the strong chance that a double-dip recession will lead to a hugely stepped up programme of QE and eventually hyperinflation. (For more on this see Adam Fergusson’s When Money Dies – reviewed in this week’s magazine. If you’re not already a subscriber, subscribe to MoneyWeek magazine.)
The speeches went well – we got as many laughs as you could possibly expect for speeches on macro-economics. But at the end, one of the questioners – CLSA’s Russell Napier – threw us a blinder of a question. Had we noticed, he asked, that the UK had only been bothered by persistent inflation since the introduction of universal suffrage. Did we think there was a connection?
We moved on pretty quickly at the time. But later I realised that there probably is a connection. Why? Because politicians promise what they think voters want, and women voters, being society’s main carers, are most likely to be promised the things that most expand the state. Historically it has mattered – or been perceived by politicians to matter – more to women that they get help looking after the young, the sick and the disabled than it has to the men who don’t do so much of this kind of work.
So what do you do if you want the women of your constituency to vote for you? You promise them more schools and hospitals. You promise them child trust funds. You promise them universal university education. And you promise them happy and well-run care homes for their parents. All the things you know you can’t really afford.
And the more unaffordable things the state promises, the more likely it is to have to print money to pay for it – and the more likely inflation becomes. So it is entirely possible that giving women the vote in the end causes inflation (although that doesn’t make it their fault).
I mentioned this to John Stepek. Perhaps, he says, the same sort of dynamic can be blamed for the endless deflation in Japan. Women may be able to vote in Japan, but it remains a deeply misogynistic country, and they have little political power. Note that only around 2% of central government management posts are held by women. So the bribes offered by politicians tend to appeal to corrupt construction barons (think bridges to nowhere and pointless municipal halls) rather than to women.
That might mean the money multiplier doesn’t work quite as it might in our kind of welfare state – already-rich building bosses don’t spend in the same way as women, and the wives of construction workers, lacking confidence in a safety net, are more prone to hoarding than spending.
So it may be that shoving child benefit and endless welfare into an economy creates long-term inflation in a way that roads and bridges just don’t. Russell is as tempted by this idea as I am, so we are now watching Japan pretty closely. If the new-ish government continues with its family-friendly policies, deflation may one day just be a pleasant memory for the Japanese.
One sign that change may be years, not decades, away? When Russell and I were discussing this last week, he said that we’d see things change pretty quickly if a woman was appointed as head of the Bank of Japan. That hasn’t happened (obviously). But the bank has just appointed its first female branch manager in its 128 year history.