Unlimited toilet paper!
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And so the UK Pound slides down, now against both the Euro and the Dollar too, which was itself in trouble only weeks ago. Since the Euro has lost value against goods and services, so matters are much worse than they seem.
The government does not know what to do. In the short term it cannot do anything. If the interest rate is put up, it will hold the value of the £ but aggravate recession. If it goes down, it will aggravate inflation. The mistake was made a decade ago, when it was decided to use interest rates as the means for achieving price stabiity. Of couse it did not work. There were people who said this at the time. Come the end of the boom cycle and the government finds itself powerless, since all options must fail.
I do not blame the government particularly. A Conservative government would have been in the same predicament. I blame the academics who promote false theories of economics, as they have done since the rise of the Austrian School of economics over a century ago.
There are powerful, though numerically small, vested interests who benefit from the confusion, as they are the ones who gain from governments' inability to deal with the problem.
Many people have an inkling that there is something fundamentally wrong but they cannot pin it down, and there is a reluctance to be honest, so long as people have a chance of making a fast buck out of the misery. This is evident from the comments made on newspaper web sites in response to articles by the economics correspondents. Using the economic theory available to them, the analysis the journalists produce is invariably defective. The comments made by the public often manage to pick out the flaws in the arguments, though without a coherent body of alternative theory, they are unable to articulate their thoughts coherently and seem just to be confused.
But there is a perfectly respectable body of economic theory available which would enable people to make sense of what is happening and come up with alternatives. This theory lies in the direct line of evolution from the classical economists, starting with the Physiocrats and continuing with Adam Smith (who is usually read selectively by conservatives), David Ricardo and John Stuart Mill. Last in the line was Henry George, who put the whole subject together in a coherent analysis. Unfortunately, the implications were that policies were required which would have threatened the powerful vested interests. Instead, the world got the ultimately futile Marxist revolution. The lack of sound economic theory leaves politicians with no more power than doctors had before bacteria and viruses were discovered.
What happened to economics? The Austrian School theories came along at just the right time to cast such a fog of confusion over the study of economics that these psudo-theories were encouraged and became the economics orthodoxy. The result is the confusion that plagues modern economic policy-making, to the extent that most people will admit that they don't know anything about the subject. It is untrue. If they were to begin to think reflectively and honestly on their own economic circumstances, they will be able to cut their way through this confusion.