How the great property market bail-out is making you poorer
The government's attempts to avoid a house price crash will lead to higher inflation and lower wages for just about everyone.
I've been participating in a Channel 4 live blog about savers and the miserable rates of interest they are getting on their cash.
The Bank of England's deputy governor, Charlie Bean, says that savers who don't think they are getting enough interest on their cash should keep their consumption up by spending their capital instead. Savers, obviously, find that a pretty unpalatable solution to their problems. They wonder if a better solution might be for the Bank of England to note that inflation is far, far higher than 2%, and to put rates up.
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The idea, for what it is worth, is that at this point in the cycle, price inflation won't lead to wage inflation. That's because, with unemployment so high, only the very unionised think they stand a chance of wage rises any time soon. The net effect, then, is real wage deflation for most British workers, something that obviously makes them poorer. We are supposed to accept this without complaint on the basis that being paid less in real terms makes us more competitive on the world stage and hence more prosperous in the long term.
That might or might not be the case (it is worth noting that similar arguments have been used to defend sterling depreciation and worker impoverishment for decades). But I wonder, if everyone understood the price they were paying for the government's attempts to avoid a house price crash,whether they'd be altogether happy.
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