Home > Data, Inflation, Monetary Policy > The Case for Supply-Side Pessimism

The Case for Supply-Side Pessimism

Chris Giles’ post on demand vs supply made me very gloomy – look at the comparison with US productivity, the “cost of living crisis” is right there in that data.  Here is a slightly different take based on today’s labour market figures.

UK Total Hours Worked

UK Total Hours Worked. ONS YBUS

You could say based on that, the UK demand-side recovery is basically complete.  Hours worked is back on trend.  The demand-side debate is dead.  The stagnation of UK output is, and always has been, purely supply-side.

The fact that supply-side optimists find excitement in one month of a still-above-target CPI rate is even more depressing.  Has nobody learned anything at all?  If the CPI rate is irrelevant when it tells an “inconvenient story” about the aggregate supply/demand balance, it does not suddenly become relevant because one data point confirms your biases.  Recognize that oh-so-wise policymakers might not share your rose-tinted view of the UK inflation data, and what implications that has for macro policy when the CPI rate is above target (see also 2008, 2010, 2011, 2012).  Yes, the MPC really are steering us towards price stability.

And Dr. Carney… great job, really, great job.

  1. November 13, 2013 at 14:54

    I remain optimistic that productivity will recover. Cheer up :)

  2. November 13, 2013 at 14:55

    In the long run, productivity is basically about technology, knowledge, progress, etc, and those things progress even during a recession. So we will eventually return to trend. I just wish it had been a bit quicker with a bit more demand side policy…..

    • November 14, 2013 at 15:45

      I wish I could share your optimism… there seems to be a political consensus that the right response to our supply-side problems is that the government should set prices, intervene in markets more, etc.

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