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Covering the new Trump Administration - We can Help
With each day seems to come an new appointee to cabinet or significant role, a new policy twist and even the occasional walk back or withdrawal. The steps leading up to January 20, 2025 when Donald Trump resumes office as President of the United States will be getting a lot of coverage - and UC Irvine has it's own team of experts ready to lend their experience, perspective and expert opinion on what is happening. Louis DeSipio examines how democratic nations incorporate new members, including policymaking in the areas of immigration. Topics of Expertise: Foreign Affairs / NATO Immigration and Deportation Department of Education, EPA, Homeland Security, Department of Interior, NOAA, HHS and FDA Jeffrey Wasserstrom specializes in modern Chinese cultural history & world history, who has written on many contemporary as well as historical issues. Topics of Expertise: Foreign Affairs / NATO Free Speech Department of Education, EPA, Homeland Security, Department of Interior, NOAA, HHS and FDA Eric Swanson is an expert on inflation, recessions and what changes in interest rates mean for the economy. Topics of Expertise: Foreign Affairs / NATO Tariffs Impact of Downsized Government Senior's Health and Social Security Heidi Hardt is an expert on NATO, defense, security, foreign policy, organizations, the EU, UN, operations, gender, climate and change. Topics of Expertise: Foreign Affairs / NATO Climate Change Gender and LGBTQ+ Rights Tony Smith’s knowledge of politics includes Constitutional Law, the U.S. Supreme Court and election law. Topics of Expertise: Free Speech Department of Education, EPA, Homeland Security, Department of Interior, NOAA, HHS and FDA Jon Gould is a distinguished scholar in justice policy, social change and government reform. Topics of Expertise: Deregulation Gender and LGBTQ+ Rights All of these experts are available to speak with media - simply click on a profile now to arrange an interview time today.
Does Donald Trump Like Seniors?
At 78, Donald J. Trump already has 13 years of experience as a senior citizen. During his previous presidency, he occasionally referenced his senior status, particularly when discussing issues affecting older Americans. For example, in the 2020 election campaign, he acknowledged his age and addressed fellow seniors directly in his messaging, sometimes referring to himself as part of the senior community. Looking at his record, Trump appears to have a complex relationship with seniors. While expressing support for essential programs such as Social Security and Medicare, he often weaves the needs of seniors into his rhetoric. Yet some of his policy decisions have created mixed feelings among older Americans and advocacy groups. While pledging to protect these programs, he’s considered budget-cut proposals to reduce the funding of both these programs. Plus, his administration attempted to repeal the Affordable Care Act. While even the smartest of experts have learned it’s difficult to predict what Donald Trump will do on key policy decisions, there are some clues as to how his move back into the Oval Office will impact Canada and, more specifically, seniors. This topic got me wondering. Does Trump (a senior himself), like seniors? Let’s look closer at this demographic. Everyone knows that older people are the most reliable voters. The stats are compelling. According to Elections Canada - 75% of Canadians aged 65-74 voted compared to 48% of those aged 18-24. - The statistics for our US neighbours are similar, with 70% of Americans aged 65+ voting and 50% of Americans aged 18-29 voting. Knowing this voting power of the senior demographic, did Trump pander to this voting cohort? Yes, he most certainly did. He knew that as people age, their concerns narrow to a smaller list of critical topics such as Financial Security, Health, and Safety. During his 2024 presidential campaign, Donald Trump focused heavily on appealing to older voters, who historically make up a significant portion of the electorate and are more likely to vote. His campaign emphasized economic stability, protecting Social Security and Medicare, and national security—particularly relevant to older demographics. Let’s take a closer look at how the Trump administration could impact Canada's senior demographic in the following areas: Inflation Background: Inflation has a direct correlation to the cost of living. As the prices of goods and services rise over time, the purchasing power of money decreases – a challenge for many seniors. Critical expenses like housing, healthcare, food, and utilities could increase noticeably, putting pressure on limited retirement incomes and pensions. All this is stressful. According to a 2024 national survey of over 2,000 Canadians (conducted by Leger on behalf of FP Canada), money remains the top stressor for Canadians, with 44 percent citing money as their primary concern; That's up from 40 percent in 2023 and 38 percent in both 2022 and 2021. What This Means: Two of Trump’s biggest promises in his campaign (mass deportation of undocumented immigrants and more restrictive trade regulations) would have a "significant impact," according to an article by Ellen Cushing in the Atlantic. A domestic labour shortage plus double-digit import taxes would raise food prices on both sides of the border. Cushing goes on to say that “deporting undocumented immigrants would reduce the number of workers who pick crops by 40-50%.” While this rhetoric may have played well during the campaign, you can't fake the simple math here. Fewer workers means higher wages. That means higher prices. And the senior demographic will be hit hard because of their fixed incomes. Many will eat less of the expensive grocery store items like fresh meat, fruits and vegetables to make ends meet. Food prices will inevitably climb with these policies. The only question is when. According to a new poll conducted for CIBC and Financial Planning Canada on November 27, 2023, approximately 75% of working Canadians still need a formal financial plan for retirement. And many retirees face economic difficulties. A whopping 25% are still carrying debt into retirement. Many also report they have a substantial portion of debt and report that their retirement lifestyle isn't as comfortable as expected. The impact of inflation could be dire with few solutions; it is different for these older Canadians because they cannot re-enter the workforce. The only saving grace is that many of the hardest-hit Canadians are homeowners with equity options. Interest Rates Prediction: According to Beata Caranci, SVP & Chief Economist of TD Bank, the US is likely to raise interest rates to control growth. Canada is also expected to increase its rates, mainly to keep the Canadian dollar stable against the U.S. dollar. The Bank of Canada could be forced to rescind the projected planned interest rate reductions or at least reduce them. However, it's a delicate balancing act. Our economy could suffer if we don’t mirror the US increases in interest rates. Impact: Increasing Canadian interest rates will impact seniors by increasing mortgage carrying costs. At the same time, older Canadians with investment savings could see increased returns on these savings. A rise in interest rates would also impact housing prices and foreign exchange rates. House Prices Background: Economic, demographic, and policy-related factors influence home prices in Canada. The new Trump administration will undoubtedly impact these factors. To understand this area, let's examine some significant variables affecting housing costs. 1. Supply and Demand When housing supply is limited, and demand is high, prices rise. Conversely, when supply exceeds demand, prices stagnate or fall. Should the new administration adopt more restrictive immigration policies in the US, Canada might see an increased influx of skilled workers and families seeking an alternative place to live. Housing demand will likely increase in major Canadian cities—Toronto, Vancouver, and Calgary- resulting in price increases. 2. Population Growth An increase in population or immigration boosts housing demand, particularly in urban centers, consequently increasing home prices. Canada welcomed 485,000 immigrants in 2024, many of whom settled in cities like Toronto and Vancouver. This influx has driven up demand for housing, contributing to price increases. The Canadian government has recently reduced the number of immigrants we allow into our country, dropping the number from 500,000 to 395,000 in 2025. Current immigration numbers plus any overflow from the US should keep demand buoyant and we could see home prices continue to rise. However, Canada needs more housing, especially in high-demand urban areas. In addition to immigration, slow construction timelines and zoning restrictions are contributing factors. Canada's ongoing housing shortage and the potential impacts of Donald Trump's election win in the U.S. could exert upward pressure on home prices, particularly in major cities like Toronto and Vancouver. These cities, already grappling with limited housing and high prices, will likely see further price increases due to increased demand. Without robust policy interventions to increase the housing supply, Canada’s housing prices, particularly in major centers, will likely continue rising. And there will be winners and losers here. This is great news for seniors wishing to sell and exit the market by finding other living arrangements, such as renting, moving in with family, or entering retirement homes. It is even better news for seniors wishing to age in place as they will have more equity to fund their retirement. But it’s disappointing news for those wishing to downsize and stay in the same communities. They may be able to sell high, but they could also be forced to buy high. 3. Foreign Currency Trump's policies, such as tax cuts and protectionist trade measures, have historically strengthened the U.S. dollar. If similar policies are reintroduced, the U.S. dollar could become more robust due to increased investor confidence and perceived economic growth in the U.S. That’s bad for Canadians traveling or living in the U.S. Trump's potential trade disputes, particularly with China, and his aggressive geopolitical stance could also create uncertainty in global markets. While this might temporarily strengthen the U.S. dollar as a haven, long-term concerns about trade wars and deficits could cause fluctuations, impacting the Canadian dollar's stability against the U.S. dollar. This volatility directly impacts Canadians, especially those with significant financial exposure to the U.S. dollar. A second Trump presidency will likely impact the exchange rate between Canadian and U.S. dollars, which is especially relevant for 85% of Canadian Snowbirds, who, according to Snowbird Advisor, spend winters in the United States. This number was estimated to be 900,000 in 2023. These seniors may face increased expenses for property taxes, utilities, and other daily living costs in the U.S. If exchange rate volatility persists, locking in more favourable rates or using specialized currency exchange services, US credit/debit cards with lower transaction fees, and using US dollar accounts might be wise - especially for more significant financial transactions. The Bottom Line One thing is certain. Trump's second term has the potential to impact many Canadian seniors if he implements the policies he discussed during his election campaign. While some could benefit financially from higher home equity and investment returns, many may need help with increased living costs, especially food and foreign exchange challenges, particularly Snowbirds and those on fixed incomes. While we are all watching this situation unfold, one thing is sure. It's difficult to predict if Trump’s second term will make Canadian or US seniors "great again."
NATO, Russia and a New Approach to Foreign Policy
The election of Donald Trump for a second time as the President of the United States may have come as a surprise to many, for world leaders it means an immediate shift when it comes to global issues. Trump campaigned on dealing with the war between Russia and Ukraine and the wars Israel is fighting on multiple fronts himself, and resolving these delicate and complex conflicts with little regard to those at NATO or other leaders around the world. Trump has also indicated that serious changes will be coming to how America handles trade -which will also put how his administration deals with President Xi Jinping in China and the newly elected President of Mexico, Claudia Sheinbaum in the spotlight on center stage. There is already a lot of speculation an even a few glimpses at what lies ahead for US foreign policy, and if you're a reporter covering the lead up to this much hyped event - then let our experts help with your coverage. Louis DeSipio examines how democratic nations incorporate new members, including policymaking in the areas of immigration. Jeffrey Wasserstrom specializes in modern Chinese cultural history & world history, who has written on many contemporary as well as historical issues. Eric Swanson is an expert on inflation, recessions and what changes in interest rates mean for the economy. Heidi Hardt is an expert on NATO, defense, security, foreign policy, organizations, the EU, UN, operations, gender, climate and change. Tony, Jeffrey, Eric and Heidi are available to speak with media - simply click on either expert's icon now to arrange an interview today.
How Will Rate Cuts Affect the Election?
On September 18, the Federal Reserve established the first interest rate cut since the Covid pandemic in 2020. The Fed lowered the federal funds rate by half a percentage point – a much larger change than the typical quarter percentage point cut. Dr. Jeff Haymond, dean of the Robert W. Plaster School of Business at Cedarville University, shared insight about the motivations behind this rate cut in a recent interview. Here are some key points: The United States' national debt has been described as a "ticking time bomb." What impact will this and future interest rate cuts have on the national debt? In light of this recent move, current presidential candidate Donald Trump has articulated his economic plan to put a cap on credit card interest rates. Would this bring down the cost of living in the United States, or will it lead to less options for the consumer? This slashing of the interest rate comes only a short time before the presidential election, with many claiming that this cut was, in fact, a political move. Will it affect the decisions of voters as the election draws near? If you are covering the recent interest rate cut or potential for future cuts and need to know more, let us help with your questions and stories. Dr. Jeff Haymond is an expert on this subject and is available to speak to media regarding the action of the Federal Reserve and what this means for families in the United States – simply click on his icon or email mweinstein@cedarville.edu to arrange an interview.
Covering the Fed's Interest Rate Decision? Our Expert can Help
The Federal Open Market Committee has three meetings left in 2024 and markets expect interest rates to be cut. This could have a serious impact on the economy as inflation trends downward and restrictive monetary policies are now ready to be loosened. There will be a lot of media attention and speculation around the September 18 decision and its anticipated effects on the global economy. It's why experts like Florida Atlantic's William Luther are ready to help with any questions or coverage. William J. Luther, Ph.D., is an associate professor of economics at Florida Atlantic University, director of the American Institute for Economic Research’s Sound Money Project, and an adjunct scholar with the Cato Institute’s Center for Monetary and Financial Alternatives. The Social Science Research Network currently ranks him in the top five percent of business authors. *** Recent Media: Fox News: GOBankingRates: Newsweek: William Luther, Ph.D., an assistant professor in FAU’s Economics Department, has expertise in economic growth, monetary policies, business cycles and cryptocurrencies. Luther’s research has obtained media interest across the nation, including recent coverage by The Wall Street Journal, Politico and Florida Trend. If you're looking to know more - let us help. Simply click on William's icon now to set up an interview today.
Is Florida becoming more affordable for renters?
Between high interest rates, an influx of newcomers eager for housing and inflation taking a toll on the cost of almost everything - it's been an expensive year for anyone living in Florida. But it appears the tide might be finally turning on high costs and the price to rent a place in the Sunshine State might be going down. It's a trend that has media looking for answers and experts like Florida Atlantic's Ken Johnson getting calls to provide his insight, opinion and expertise on the topic. Florida Atlantic University recently released a new study showing that the state’s rental markets might be stabilizing. In the release, FAU officials announced that rents in areas like Palm Bay and Jacksonville have recently gone below their long-term pricing trends. Meanwhile, the data indicates that other major cities in the state — such as Cape Coral, Orlando and Deltona — saw only slight increases in rent prices, with price increases gradually slowing down. As such, it could be a sign that many renters statewide could soon see lower prices. “While these measures are small, they are a positive sign of where the rental market could be heading in the future,” said Dr. Ken Johnson, a real estate economist with FAU’s College of Business. “These Florida cities are renting at a discount compared to their historical averages, and others appear to be heading in that direction, suggesting that rental markets around the state are stabilizing.” June 06 - Click Orlando.com Florida may be an interesting case study on what lies ahead. Will these rental trends in Florida start to appear nationally? Who will best benefit from lower rents and what will it mean for the economy? Will lower rents attract more people to Florida and could that reverse this trend? There's a lot to know and understand about the rental market. And if you're a journalist covering the topic or looking to know more - then let us help. Ken H. Johnson, Ph.D., an economist and associate dean in FAU’s College of Business, is available to speak to the media. Simply click on his icon to arrange an interview and time.
Ask the expert: 2024 economic outlook
Although the economy has improved since the COVID-19 pandemic, inflation has been a challenge for many Americans throughout 2023 and the economy remains a top issue ahead of the 2024 election. Experts are already making predictions about interest rates, inflation and the market for next year. Antonio Doblas Madrid is an associate professor in the Department of Economics in Michigan State University’s College of Social Science. He reflects on the economy this past year and answers questions about what you can anticipate about the economy in 2024. What are a few of the most memorable economic events of 2023? The economy in 2023 reminds me of Rocky Balboa, the boxer with a strong chin from the Rocky films who, despite getting hit over and over, keeps moving forward. A year ago, the consensus prediction among investors and professional forecasters was slower growth and higher unemployment. Inflation was still above 6%, the Federal Reserve increased interest rates to one of the highest rates in 40 years, and the stock market ended 2022 in the red. Many observers said a ‘soft landing’ was a pipe dream and a recession inevitable. The year 2023 brought its own set of challenges. To name a few, a debt ceiling standoff started in January and continued until May, bringing the government dizzyingly close to default and causing a ratings downgrade. In March, the failure of Silicon Valley Bank started a crisis that, had it not been contained by a historic expansion of deposit guarantees, would have spread through the system and taken down the economy. A war broke out in Gaza. A large-scale auto workers strike temporarily shut down large parts of the sector. And the economy of China, a major trading partner, decelerated. Given all this, it is remarkable how good the numbers look right now. Inflation has steadily fallen to around 3% and is now within striking distance of the 2% target. The most recent gross domestic product, or GDP, report shows a robust 3% year-on-year growth rate, the unemployment rate remains at 3.7%, and the stock market has made a roaring comeback. The numbers look stronger than those of other major advanced economies, such as the eurozone, the United Kingdom, Japan or Canada. However, it is too early for a victory parade. The fight against inflation is not over, monetary policy has long and variable lags and, even in a strong economy, many people are struggling. But, thus far, it is hard to imagine a softer landing than 2023. What’s expected to happen with the economy in 2024? With the usual caveat that even the best predictions have a margin of error, professional forecasters see the economy still growing in 2024, albeit more slowly. The numbers hover around 1.5% for real GDP growth and 4% for the rate of unemployment. This paints a picture of moderate growth, and a labor market that, while no longer crushing records, is still within the range of what can be called full employment. What’s predicted to happen with inflation? Forecasters and market-based measures of expectations both predict that inflation is likely to continue falling gradually in 2024, to about 2.5%. Thus, the inflation shock that hit the economy is expected to continue fading, although it may take some time to go that last mile from 3% to 2%. The Fed also appears to be quite optimistic on inflation, given its latest forward guidance. What will happen with interest rates in the new year? The Fed expects inflation to fall quickly, so quickly, in fact, that it has started to reverse the hawkish policy of the last two years in its forward guidance. This means that, although the Fed has not lowered interest rates yet, it has started talking about the possibility of rate cuts — three of them — in 2024. With the economy still at full employment, this clearly means that the Fed is expecting inflation to continue to fall. How could the presidential election affect the economy? There is a popular belief that election uncertainty is detrimental to the economy, but we do not really see that in the GDP data. Growth rates in presidential election years are not lower than average. On average over the last few decades, there is a small negative effect on the stock market in election years, but it disappears in the 12 months following the election, regardless of which party is elected. What economic words of wisdom can you share for 2024? It seems to me that the perception of the economy is worse than the reality. So, I would recommend stepping away from the noise and looking at the data for some objective measures. As far as saving for retirement goes, I think mainstream financial advice is solid. So, listen to your financial advisor if you have one. If you don’t, that’s okay, it is not that hard. There are many free tools, like retirement calculators, to help you figure out how much to set aside monthly. Take advantage of employer-provided and tax incentives. Invest mostly in stocks when young, gradually switching to fixed income as you age. For equities, follow a passive strategy. Buy and hold index funds. Do not try to pick stocks or time the market. If you are at the fixed-income stage, you may want to open a high-interest CD to lock in a high rate before the Fed starts cutting rates again. Finally, set up your contributions automatically draw, stop thinking about money for a few months and invest instead in nonfinancial assets, like relationships and health. Looking to know more about the economic outlook for 2024 or do you want to connect with Antonio Doblas Madrid? To schedule an interview - simply contact Jack Harrison, Public Relations Coordinator today.
MEDIA RELEASE: CAA Insurance Company Addresses Escalating Auto Theft Crisis Across Canada
CAA Insurance Company is deeply concerned with the auto theft crisis unfolding across Canada. According to industry experts, in 2022, auto theft exceeded $1.2 billion in claims, a number that is only expected to rise if things do not change quickly. “Consumers are at a tipping point, and they will soon feel the tangible effects of the auto theft crisis,” says Elliott Silverstein, Director of Government Relations CAA Insurance. “If the rate of vehicle theft does not decrease, it will lead to an increase in auto-related costs that could become unbearable for drivers in Ontario, many of whom are already struggling with affordability.” Current Impact on Consumers The ongoing shortage of microchips and vehicle availability is intensifying the situation, making vehicle rentals and replacements both time-consuming and costly for consumers, with wait times for new vehicles sometimes exceeding a year. With interest rates remaining high, the cost of purchasing or leasing a new vehicle will further burden consumers. However, what is most troubling is that as consumers take necessary precautions, thieves are exploring other more aggressive ways to steal cars, which include home invasions. "Getting your car stolen will not only disrupt your daily life but there is also considerable emotional distress it takes on your life as well. We believe the surge in auto theft cases demands a united front," adds Silverstein. Call to Action CAA Insurance believes everyone has a role to play in combatting auto theft and is urging stakeholders – including government, insurers, and vehicle manufacturers – to collaborate and develop a plan to combat this issue. “The impacts of auto theft are significant. For the insurance industry, it is the equivalent of addressing a year-round catastrophic incident (like a flood or tornado) with no visible end in sight,” adds Silverstein. Technology advancements have far surpassed vehicle standards, which haven’t been updated since 2007 in Canada, making it more difficult to reinforce technology-based solutions like immobilizers and mandate their inclusion in new vehicles. Preventive Measures and Tips for Consumers However, our data shows that consumers can make simple adjustments to safeguard their vehicles. To help mitigate the risk of vehicle theft, CAA Insurance recommends the following preventive measures for consumers: Secure your parked vehicle with a steering-wheel lock, brake pedal lock, or wheel lock, such as “The Club” to secure your parked vehicle. Secure your car key fob by storing it in a Faraday box or pouch to prevent signal hacking. Consider a professionally installed after-market immobilizer. Lock your doors (both car and home) and park your vehicle inside if you have a garage. If you own more than one vehicle, it's recommended to park the less valuable one nearer to the street. Install motion sensors and a camera on your driveway to capture any activity. Cover the VIN (Vehicle Identification Number) so it's not visible on the dashboard. Store a GPS tracker (ex, Air Tag) to track your vehicle should it be stolen. Ensure items are out of sight, and do not leave valuables in your vehicle. Always avoid leaving your vehicle unattended while it is running. CAA Insurance urges individuals to report any suspicious activity to police and avoid confrontations with thieves.
Everyone is keeping a close eye on the economy. Whether on a global scale or at the kitchen table - it's a topic that is at the top of everybody's mind these day. Simon Medcalfe, PhD is the Cree Walker Chair in the Hull College of Business at Augusta University and resident expert on the economy, and he shared his thoughts on where the economy stands as the final months of the year approach. Q: The Gross Domestic Product report was up, what should we take out of that? “The GDP was interesting because it was actually up. The first two quarters were negative growth, so the economy had shrank. This time, the growth figure came in at 2.6%, but closer reading suggested it was actually a worse reading then the negative readings we had because consumer spending by firms was essentially flat. The growth was seen in net exports or government spending or things like. Consumers were kind of pulling back a little, which is why earnings were a little lower as well.” Q: The economy needs to slow down a little, doesn’t it? “I mean, yes, if you’re thinking about the Fed, that’s what they are worried about right now, inflation, because the economy is so incredibly hot, particularly with regards to prices. They’re raising interest rates with the aim at slowing down the economy. Unemployment is historically very, very low, if not at record levels in different places, so we could probably sustain a little slowing of the economy without impacting the labor market too much and try to get this general inflation under control.” Q: The economy could use a little unemployment, it’s that kind of counter intuitive? “Some unemployment is not bad. Economist use to suggest in the long run, the natural rate of unemployment is about 5-6%. Now we have unemployment in the 2-3% range in places. We have a little bit of wiggle room to see that increase.” Q: What's the difference between frictional and structural unemployment? "Economist talk about frictional unemployment and structural unemployment. Frictional unemployment is more of a job match or job search problem. So it’s a lack of information. Structural unemployment is because of the changing nature of industry within an economy. An example being people working in textile manufacturing and it’s hard for them to go straight into computer science coding because they don’t have the skills. This is more long term than frictional and in some cases can be quite detrimental to regions and people.” Q: The Fed is likely to raise interest rate by .75%, are there signs of this slowing down? “I think they’ll start slowing that down over time, but I think their projection is about 4.6% and we’re like 3.25% now. They’re looking at all the economic indicators. Not looking at any one or two, but everything. They’re looking at inflation, and have different measure of that. They’re look at the breakdown of inflation like how much of it is due to the war in Ukraine, and what areas of the economy it may be impacting. They’re looking at the labor market, definitely looking at manufacturing output, etc. The one thing they don’t generally look at is financial markets. They would look at the housing market though and different sectors of the real economy, not the financial economy.” Dr. Simon Medcalfe is a highly regarded economics expert in the Hull College of Business at Augusta University. Medcalfe is available to speak with media regarding the economy and its outlook – simply click on his icon now to arrange an interview today.
Inflation: Simple Causes But a Complicated Cure JULY 2022 We face a wave of strikes, intended to restore the purchasing power of wages in face of inflation. But strikes cannot succeed in restoring everyone’s purchasing power. In the near term, inflation’s impact on living standards can be significantly mitigated only by importing more and so increasing our trade deficit, financed by foreign borrowing. Unwillingness to do that means we are likely to prolong the wave of strikes and so suffer a bruising recession created by restrictive monetary policy. This will cause yet more damage to living standards. However, debt-funded importing of consumption items in order to maintain living standards is poor policy longer-term. It can’t stop the harmful redistribution effects of inflation that are already emerging. Most important, it doesn’t address the longstanding source of our lagging living standards – too little economic growth and economic resilience due to our failure to grow productivity. Without increased productivity, debt-funded consumption repair will cumulate to tomorrow’s fiscal crisis. Therefore, we face a very difficult policy challenge. We must act to support living standards over the next year or two, mitigate the social problems that inflation is already causing and, simultaneously, divert our priorities (and our continuing borrowing) to foster much improved productivity growth. Causes This is a simple story. Today’s inflation demonstrates that we are poorer than we were three years ago. The value of what we, collectively, produce and earn, has shrunk, relative to the cost of the things that we seek to consume. Inflation constricts our consumption options to what we can now afford. We are poorer for two reasons. First, because we produce and earn less domestically, and second, because the things that we don’t produce but import have become scarcer, forcing us to pay more to get them. • Brexit caused an immediate and seemingly permanent devaluation of Sterling, raising the costs of everything that we import. It also seemingly permanently reduced our exports to the EU, our largest trading partner. No new trade possibilities are similar in scale, so there is a long-term loss of income. Moreover, increased non-tariff barriers have raised the cost of imports from the EU beyond the exchange rate effect. • The pandemic has reduced the worldwide supply of all sorts of goods, therefore raising their prices. This is due to supply chain problems, the zero-Covid China lockdown, the reduction in UK output because a significant portion of the population is out with Covid at any time. Crops are left rotting in the fields because there aren’t enough domestic agricultural workers and, of course, no more EU farm workers. • The war in Ukraine has escalated the costs of energy and food grains. In the future it will propel redirection of domestic resources to the production of war material, which is not edible. Consequences Inflation not only makes us, collectively, poorer, it differentially distributes the pain. • Everyone in the UK could go on strike to try to raise their wages enough to maintain their real consumption. But as the pie has shrunk, that is impossible. The extra money people get will simply chase the same, smaller amount available and the prices of goods and services will rise further. If the ensuing price rises provoke further wage increases, we chase our tails. This is the wage/price spiral that the Bank of England fears. • Some groups have more wage bargaining power than others. Perhaps the railway unions can indeed hold the country to ransom and regain their purchasing power. But then others, less empowered than railway workers, will become greater losers. • Inflation causes a flight to real assets – houses, commodities – whose values float up with the price level. Because ownership of real assets is very unequally distributed, the asset-rich minority is likely to come out better than before while the asset-poor majority lose even more. The purchasing power of people living on fixed-return assets such as retirement annuities would be devastated by a wage/price spiral. Similarly, as interest rates rise with the price level (or even faster if the Bank of England has its way), debtors on floating rate loans will be hit hard. • Different geographic areas have different mixes of people who would be gainers and losers from a wage/price spiral, exacerbating our substantial regional inequalities. Cure Part 1: Near-Term Mitigation How is it possible to offset the fall in current consumption which is provoking the wage/price spiral? People can consume more than they earn only by borrowing. The key is how that borrowing is undertaken. Households could borrow from private UK lenders, or the state could sell bonds to UK citizens and give the proceeds to other UK citizens to spend. But if all they can spend it on is the total value of UK output, that pie is shrinking. More money from borrowing would only raise prices, that is, add to inflation. Total UK consumption can exceed the value of UK output only if the extra is imported. Because the imports are paid for in another currency, borrowing to pay for those imports must be borrowing from foreign sources. The debt (public and private) that the UK owes others must rise by the value of the excess consumption. However, consuming more today by adding to our overseas debt isn’t a miracle cure. • Not everything can be imported. Domestic services of all types are provided, well, domestically. GP visits and houses and hotel rooms and haircuts will cost more as a result of wage inflation, no matter the amount of net foreign borrowing. These price increases will continue to provide some impetus to a wage/price spiral and make it more likely that the Bank of England will end up pushing the economy into recession to stop it. • The problem with debt is that you have to pay it back, and in the meantime, you pay interest on it. More consumption today means surrendering a greater amount of potential consumption in the future. Only if there is strong UK productivity growth will this foreign debt repayment not cause significant future trouble. Sadly, the UK has lagged in productivity growth among advanced economies for many years. Cure Part 2: A More Productive Economy The policy most likely to maintain social cohesion in the near term, and greater prosperity in the longer term, is a tricky two-step. We need to borrow to defend most people’s consumption in the next year or two, but then switch the budget to support growth and productivity-enhancing investment. Unless we do this, our debt repayment obligations will grow to unmanageable levels and meanwhile our level of consumption will continue to shrink relative to that of our peers. Our political system has not been good at tricky two-steps. It can manage short-term stimulus, funded by debt. But for decades the UK has failed to invest sufficiently in physical, technological and human capital to create productivity comparable to our peers. The inflation crisis is a call to action. Not only to mitigate current deterioration in living standards but to build a modern economy that sustains rising living standards into the future.
