The learning curve is steep. Only now, after more than a decade of running the Bank of England’s printing presses, is a new generation beginning to realize that there is no such thing as a magic money tree.
All economic actions have consequences, and the return of double-digit inflation – evoking memories of the 1970s – is rapidly changing the political narrative.
When Rupal Patel and Jack Meaning, two economists at the Bank of England, came up with the idea of writing an explainer on economics for sixth graders and other interested laymen, they could never have imagined that the Bank would find itself at the center of political crossfire. .
Guide: Bank of England economists Rupal Patel and Jack Meaning’s book – aimed at sixth-formers and interested laypeople – has sparked a political row
After all, for most of the period since the Bank of England gained independence from government in 1997, the old lady of Threadneedle Street has managed to stay in touch with the 2% target for house prices. consumption set by the government.
It was only after the double Covid-19 crisis and Russia’s war against Ukraine that prices exploded.
The Bank’s Governor, Andrew Bailey, was slow to get off the ground and the institution’s credibility was sorely tested.
The response to the Bank’s economists’ paperback, Can’t We Just Print More Money? The economy in ten simple questions now seems obvious.
When I recently met the Bank’s enthusiastic authors, they recognized that there was no greater need for a better understanding of economics than there is now.
“I think it’s really for everyone,” Patel said. “Anyone wondering, right now, why energy prices are rising.”
The very big question that looms over our conversation is why didn’t the Bank see the inflation problem coming?
Meaning, a former economist working for the independent think tank National Institute for Economic and Social Research (NIESR), says his previous job was private secretary to former Bank of England chief economist Andy Haldane, and that his boss sounded the alarm.
By writing this book, the authors seek to inspire a new generation of economists
Haldane, now chief executive of the Royal Society for Arts (RSA), warned in spring 2021 that the “genius of inflation is out of the bottle”.
“Financial crises and these big events are hard to spot, in the same way that the weather forecaster can’t tell you precisely at 2 p.m. that the rain is going to fall,” says Meaning.
Inflation is more complex than most of us realize and we can spend our whole lives studying it and still be wrong, he argues. Which, he says, makes it even more important that people who haven’t thought about it for five minutes need to be grounded.
“The Bank has implemented quantitative easing [money printing] when the economy needed a boost,” Patel said.
“In the book, we explain why we can’t keep printing money and how that can lead to inflation.
“The current rate of inflation is caused by many factors beyond the control of the Bank of England.
“There is not much we can do to influence Russia’s energy supply. We hope that if people start to understand a little more about what’s going on in the economy right now, they can understand where things can be controlled and where they can’t.
How will rapidly rising interest rates affect you?
The base rate rose from 0.1% to 1.25% in the space of six months, in a wave of rate hikes that would have been considered unthinkable a year ago.
With inflation at 9% and set to head north into double digits soon, it behooves the Bank of England to show it has a grip and that we are not going back to the 1970s.
But is a rapid rate hike the right thing to do, and how will it affect savers, borrowers and investors? Georgie Frost, Lee Boyce and Simon Lambert discuss this and more in this podcast episode.
Press play to listen to the episode on the player above, or listen (and please subscribe and give us your opinion if you like the podcast) on Apple podcast, audioboom and Spotify or visit our This is Money Podcast page.
The Bank’s whole approach to inflation and interest rate trends makes it seem disconnected.
After first describing the surge in prices after the start of the lifting of Covid restrictions in 2021 as “transitional”, it was not until the end of the year that he embarked on a travel to slow prices.
Since then, the monetary policy committee responsible for setting interest rates has voted rate hikes from the ultra-low 0.1% to 1.25%.
But while the Bank lagged, its US counterpart, the Federal Reserve, was more aggressive, raising rates by 0.75 percentage points in one fell swoop this month.
The Bank’s snail-like response drew implicit criticism from former Governor Lord King, a warning from Chancellor Rishi Sunak not to allow inflation to take hold and a call from the former Permanent Secretary to the Treasury, Sir Nicholas Macpherson, to adopt “sound money”. .
What Patel and Meaning are trying to do is not so much explain where inflation comes from but its impact on ordinary citizens.
“Today’s high inflation is essentially eroding the power of money to buy things,” Meaning says. “The pound in your pocket buys you less in the shops – everyone knows that and feels it when they go to the supermarket.”
Record: For most of the period since independence in 1997, the Bank of England has managed to stay within reach of the government’s 2% consumer price target
Meaning’s former employer, NIESR, recently made headlines when it claimed that the authorities’ failure to rein in inflation could push 2 million Britons into ‘destitution’.
This, according to Meaning, is all the more reason to read their book because “it shows the power of economic forces” and “the real impact on people’s quality of life”.
Big events like an increase in the cost of living or recessions affect people in all sorts of ways – their health, their well-being and, most importantly, their income throughout their lives, not just during the period they are. live through.
Because of the times we live in, inflation dominates our conversation. In the book, the authors also seek to explain how – despite all the current negativity – economic forces in the form of inventions and technologies have driven up living standards across the board.
People tend to talk about the Internet and computers these days. But Patel points out that “the humble washing machine has actually helped a lot of people, especially women, to have better opportunities.”
Working at the Bank at present must be difficult with critics pounced on the apparent failure, with all its forecasting skills, to spot the inflationary threat.
But there is another side to all this. There’s nothing like a good crisis (and Patel and Meaning say it happens every decade or so) to spark interest in how economies work.
By writing the book, the authors want to inspire a new generation of economists, both at school level and among older students.
When King was governor from 2003 to 2013, one of his persistent complaints was that the UK was lagging behind in producing local economists with PhDs and had to import them from the rest of Europe.
If Patel and Meaning could help reverse this trend, they would have done a great public service.
To achieve this, they have pledged that all proceeds from their book will be used to send copies to every public high school nationwide.
It would be a brilliant result and could help restore the image of an institution damaged by the return of price increases in the style of the 1970s.
■ Can’t we just print more money? The Economy in Ten Simple Questions by Rupal Patel and Jack Meaning, Bank of England. Published by Cornerstone Press €14.99
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