Hiding the policy from the public (with the occasional glimpse of the truth)
While the rest of this website is devoted to exposing the intent of elites to use the weapon of unemployment on their working classes, it has to be acknowledged there is very little public awareness of this policy. This page explores some of the ways that politicians, economists and journalists are able to conceal their support for the use of unemployment in maintaining levels of profitability.
US economist Dean Baker has written about the lack of public awareness of the connection between central banks and unemployment. In “The Federal Reserve Board – What It Is, and Why It Matters” (November 3, 2005) (click here for the PowerPoint presentation) he writes:
“The public is very poorly informed about what the Fed does and how it affects them.”
“No one understands (NAIRU and its policy implications –) that an agency of the government (the Fed) would deliberately raise the unemployment rate”
Of the effort to obscure the Federal Reserve`s agenda on unemployment he writes:
“The financial sector is very scared of having public debates over Fed policy. They use euphemisms to avoid having a public discussion of the actual policy (e.g. raising interest rates to keep the economy from overheating).”
There are several other euphemisms used to mask the concern that there is insufficient unemployment, here are two of them:
“there are inflationary pressures in the labour market”.
“there is tightness in the labour market”.
Even on the rare occasions that the mainstream media mentions any connection between inflation and unemployment, it is much rarer still for the mechanism by which a central bank can raise unemployment to be explained.
In the UK (a country not known for the openness of its institutions) the monthly decision on interest rates of the Monetary Policy Committee of the Bank of England is routinely reported by the mainstream media, and a short time later the Committee`s minutes are released. At times when interest rates have been raised (or held) in response to “inflationary pressures” in the economy it is very rare for the media to make clear the intended effect on unemployment. In their 1998 paper “New labour, new monetarism” economists Philip Arestis and Malcolm Sawyer observed a similar lack of explanation in the Labour Party`s 1997 election manifesto, which declared an inflation target, but failed to mention how it would be achieved:
“It is notable that, in their manifesto for the 1997 election, the Labour Party made no proposals for the control of inflation other than to set a target of 2.5 per cent or less. This was followed by the reform of the Bank of England with operational independence being granted in the very early stages of the Labour government; the clear implication being that granting independence to the Bank was a signal that inflation can be controlled through manipulation of the interest rate. It is a rather strange feature of current political debate that inflation is seen as ‘evil’ and yet no attention is given to how inflation can be contained.”
A deliberately misleading forecast on unemployment
Part of the jigsaw of concealment in the UK was revealed by the Treasury Select Committee`s Report dated 29 July 1998, in which the MPs on the committee noted that the Monetary Policy Committee`s position was that “unemployment must rise if the inflation target is to be met”. The committee also noted that this was inconsistent with “the Treasury’s assumption that unemployment will be held flat at its April level”. As previously explained, the MPC`s remit allows it to use unemployment to reduce inflation (the latter is prioritised over the former in its remit for just this reason) and it had increased base rates in June to 7.5% in order to increase unemployment.
The establishment credentials of the Treasury Select Committee were revealed in the next sentence of its report, which started with the words “We accept that by convention Governments never publicly forecast a rise in unemployment” and finished with “but we believe that in the interests of transparency the Treasury should now begin to publish its estimates for unemployment when it publishes new spending plans”. So in the minds of the committee members (which included alleged Labour party left-winger Brian Sedgemore) the interests of “transparency” are served by the Treasury publishing estimates of unemployment which it knows full well the Bank of England is determined to exceed by fulfilling its remit, a remit it was given just one year earlier by the political head of the Treasury, Chancellor Gordon Brown!
If a rise in unemployment had been “publicly forecast” in June 1998 (or at any time during any boom for that matter) it would fall to journalists/economists to explain this counter-intuitive phenomenon by revealing the intended effect of an interest rate rise on unemployment during a boom.
The absence of a forecast and the failure of the Left to explain (at every opportunity) the use of elevated interest rates to maintain high rates of unemployment during a boom leaves an open goal for the Right, one can even imagine a right-wing commentator saying something like “this proves that there are people who are so workshy they`re leaving jobs during a boom because they prefer to live off state benefits”.
Even when unemployment and inflation are mentioned in close proximity it can be done in such a way that the uninitiated may be none the wiser as to just how they`re connected. In an interview on the BBC`s Radio 4 “Money box” personal finance programme (broadcast 21st May 2011), Brian Hilliard, the Chief UK Economist at Societie Generale was asked whether he would raise interest rates. He replied by saying that he favoured an immediate rise of 0.25%, followed by further rises of 0.25% per quarter.
The interviewer then asked:
Will that work though because inflation is coming in from outside? There’s not much point in encouraging people here to borrow less and spend less if fuel prices, commodities, basic foodstuffs are all coming up, going up with imported prices.
We have already seen that central banks are quite prepared to substantially raise unemployment for this reason alone, but the interviewer seemed to think that Hilliard`s intention was that the Bank of England should reduce inflation by reducing demand, and that this would be achieved by merely making borrowing more costly. The fact that a reduction in demand for goods and services leads to a reduction in demand for labour was not raised by the interviewer. In reply Hilliard conceded the point that there was imported inflation but went on to specify what he saw as a bigger factor:
That is part of the explanation. It’s certainly one that the Governor of the Bank of England puts forward as the main explanation. But it’s also due to domestic factors. If we look at the largest single component of prices is (sic) services inflation, and that is around about 3.5% and shows no signs of falling.
He went on to say that:
there’s no sign of the long-term trend coming down and that is linked more to the conditions in the UK labour market, which despite an increase in unemployment is still in far better shape than we dared hope during the depths of the recession.
The interviewer didn`t respond to Hilliard`s fascination with the level of unemployment and instead went on to ask about quantitative easing!