As the Guardian reports this morning:

[Retail] industry figures show prices rose at an annual rate of 1.3% in March, down from a rate of 2.5% in February – the slowest pace since December 2021, according to the latest monitor from the British Retail Consortium (BRC) trade body and the market research firm NielsenIQ.

Non-food inflation dived to just 0.2% from 1.3% in the previous month, while food inflation fell to 3.7% from 5%.

I suspect that most people will see this as good news. Prices are still rising, as the government and most economists would desire, but at a much slower rate now. I have three thoughts.

Firstly, the risk of deflation now looks to be real. If prices of non-food items continue to tumble, there are real signs of a dramatic shortage of demand within the economy that might make this possible. There are always problems when this happens because deflation easily tips over into ever-deepening recession. Those problems would be best avoided. Easing of monetary policy, to make sure that prices only stabilise, rather than fall too significantly, would now seem to be a priority.

Secondly, given that energy prices are also falling, these price falls suggest that the continuing downward trend in overall inflation is very likely.

Thirdly, in that case, there is one set of prices that are now very clearly out of line with the whole economic environment. These are rent and mortgage costs, both of which are heavily influenced by the Bank of England's interest rate policy. Whilst it is undoubtedly true that financial markets are now pricing some expectations of declining interest rates into their mortgage offers, there will be no significant move until the Bank of England cuts their rate, and the same will be true with regard to the pressure on rent increases.

The result is that real household costs, not necessarily properly reflected in inflation calculations, are still rising in too many cases, and this is the likely cause of the downward pressure on prices elsewhere, which is now reaching the worrying stage where deflation could result. All the indications are that there is an urgent need for a cut in interest rates of a significant amount very soon. The problem is that nothing of that sort is currently even being hinted at as a policy option from the Bank of England.

Putting these three factors together, I continue to believe that if any organisation has mismanaged this crisis, it is the Bank of England. They raised interest rates when they had no reason to do so. Now, they are refusing to reduce rates on a timely basis when there is every reason for them to fall because the economic harm that they are creating is significant.

It takes considerable inability to get so much, so wrong, so often, but the Bank of England has achieved it.

Most worrying of all, though, Labour has committed itself to the perpetuation of the Bank's incompetent control of the economy. In that case, there may be trouble ahead.

A new commentator on this blog named Tony Wikrent made an interesting comment yesterday, saying, when discussing the purpose of economics:

”Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends”

This is where economics goes wrong – right from the beginning. The actual history of Understanding this would radically shift the what economists emphasise. Financial markets and prices would become much less importance, and the creation of science and new technology would become paramount areas of inquiry.

Robbins, whose overall contribution to economics was not nearly as important as I think the London School of Economics like to claim it to be, undoubtedly heavily influenced economic thinking with his 1935 book in which he offered the above suggestion. That idea was taught to me in the 70s. It is still commonly noted. Ask ChatGPT what economics is about and it suggests:

Economics is the social science that studies how individuals, businesses, governments, and societies allocate resources to satisfy their wants and needs, given scarcity. It analyzes production, distribution, and consumption of goods and services, as well as the behavior of markets and economies.

Scarcity is the condition that requires economic choice, apparently, based on a search of the web as a whole. The idea remains in common use then, in itself constraining us all. It was, apparently, Robbins maxim that human beings want what they cannot have, and that notion need not be true, meaning it did not have the power he gave it.

In the 1930s, when Robbins wrote, I am aware that one of my grandfathers earned 30 shillings a week (£1.50) and lived in a tied cottage in a state of both considerable insecurity and poverty. My mother’s descriptions of that upbringing have influenced me, without a doubt. In that situation, then Robbins was to some degree right; human beings did want what they could not have.

But, as Tony Wikrent implies, Robbins thinking (both economic and social) was decidedly static. His presumption was that what was scarcity was a permanent state in which the economy must exist. Post-war development showed that this need not be the case. .

Vastly better housing became available. Incomes rose. The post-war consensus delivered prosperity to vastly more people, me included. The problem of scarcity was not solved, but it altered radically. Three themes became apparent.

The first was that it became possible that we could meet need. It was, and remains, possible for us to ensure everyone in the world could enjoy a life where their needs are met. I am not saying that would be easy. I think it could be done.

Second, that fact did not solve the problem of scarcity. Those with the ability to solve the problem of unmet need chose not to do so. Scarcity with regard to need was imposed instead. It was no longer inevitable, but it continued to exist, nonetheless.

Third, the reason why need was not met was because those with the means to do so chose, or rather were persuaded, that satisfying their wants was a higher goal than was the meeting of the needs of others.

When Robbins wrote in 1935 the whole field of marketing, and the manipulation of human perception that it involves,  was virtually unknown.  Advertising did, of course, exist. But marketing is quite different. It seeks to create wants where none existed, and that activity did not become commonplace until the 1950s. The imposition of continued scarcity was a necessary condition for marketing’s success. Innovation might have created the means to address all needs, but the reality was that it was instead primarily directed at meeting previously unknown wants.

Does that mean that I disagree with Tony Wikrent? It does not. The point he makes is powerful, and appropriate. It does, however, need to be framed and that framing is to be found in the choice that supposedly free markets have made with the power to create technology that we have discovered.

That power has been used to achieve three outcomes. One, very obviously, is consumption beyond the physical constraints that the planet can sustain. As a result, we have the climate crisis.

Second, this power has been used to concentrate wealth in the hands of a few. Technology in innovation has, when subverted to private purpose, and when coupled with the abuse of artificial legal constructs like patents and copyrights, been used to create market power that eliminates competition, suppresses further innovation and delivers massive inequality within society.

Third, as a result, innovation has begun to destroy its own potential to meet either needs or wants as the preservation of the wealth of a few is deemed a higher-order priority than meeting the needs of an increasing number of people, whilst it also destroys the very markets that supposedly fostered its creation.

To put it another way, the whole purpose of market-based economics has become the prevention of the meeting of needs whilst simultaneously creating the means for an increasingly smaller number of people to consume to excess way beyond any conceivable measure of human requirement.

The problem for this economic model is that it is unsustainable. As more and more people are driven towards economic desperation, which is very obviously happening at present, the social acceptability of this form of economics is collapsing. Simultaneously, the excessive use of natural resources that it requires is becoming evermore apparent. Neither, by themselves, would be sufficient to bring this system down. Together, they create a situation where that is likely.

What happens then is the question to ask? This is where I think Tony’s comment is very relevant. Suppose that the whole purpose of industrial and agricultural development was to become the overcoming of the scarcity of resources. Could we find the food to feed the world, the water to sustain it given global heating, and the means of shelter, free from risk, where people might enjoy secure lives of reasonable comfort, free from fear? I think we could. But it does present the most massive challenge to a hierarchy of innovation and power that largely ignores need at present and instead presumes that the accumulation of excessive wealth for a few is the goal of society.

With politicians, taking an Easter break, inspiration has to come from elsewhere this morning. I am returning, in that case, to the article by economics Nobel Prize winner Angus Deaton on the IMF website, which was entitled "Rethinking my economics".

I admire Deaton for having the courage to write this article. That is what it takes to admit that you might well have been wrong throughout a large part of your career, which is what he appears to be doing.

There are, I think, three themes. The first is this one:

Power: Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game. Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.

Unsurprisingly, I agree. Political economy is all about the influence of power on the allocation of economic resources. Most economists assume that this is not a problem by suggesting that everyone has equal access to capital, which equal access can be equated with an assumption as to there being equality of power when they undertake their spurious calculations. The difference in worldview is decidedly stark. One reflects reality, and the other does not. It is about as blunt as that. It would seem that Angus Deaton has now realised that. That matters. As I argued earlier this week, power and its abuse are what really matters when it comes to the creation of economic justice.

Then there is the spurious economic argument for efficiency, which we hear expressed all the time as the demand for more productivity. On this Deaton says:

Efficiency is important, but we valorize it over other ends. Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends or to the stronger version that says that economists should focus on efficiency and leave equity to others, to politicians or administrators. But the others regularly fail to materialize, so that when efficiency comes with upward redistribution—frequently though not inevitably—our recommendations become little more than a license for plunder.

Again, I agree. The vast majority of the demands for productivity made within the economy are intended to reduce the level of labour input into the production of goods and services, whilst at the same time increasing the return to the rentier who has exploited the natural resources of the world to deliver the material component. Almost without exception, this becomes the license for plunder to which Deaton refers.

That said, I do of course know that there are exceptions. But, to refer to his previous argument on power, differentiating the two by undertaking an analysis of power is critical if we are to understand the reality of the demands for efficiency made within our economy. By no means all demands for efficiency are benign, and many are far from it.

Deaton added this when discussing this issue:

Keynes wrote that the problem of economics is to reconcile economic efficiency, social justice, and individual liberty. We are good at the first, and the libertarian streak in economics constantly pushes the last, but social justice can be an afterthought. After economists on the left bought into the Chicago School’s deference to markets—“we are all Friedmanites now”—social justice became subservient to markets, and a concern with distribution was overruled by attention to the average, often nonsensically described as the “national interest.”

I am not sure what to add, apart from 'quite so'.

Let me then note the final issue he mentions that I want to highlight here, which is:

Humility: We are often too sure that we are right. Economics has powerful tools that can provide clear-cut answers, but that require assumptions that are not valid under all circumstances. It would be good to recognize that there are almost always competing accounts and learn how to choose between them.

I know he also refers to ethics and empirical methods in the note that he wrote, but I feel that both can be summarised in this single paragraph on humility.

If we are to make choices between competing accounts, then we necessarily need to have an economics that is ethical. In a very real sense, there is no other choice.

That, as Deaton himself noted, requires that economics rethink its use of empirical methods that necessarily impose an artificial worldview on economic analysis so that economists might undertake their existing form of mathematical interpretation of the incomplete and flawed data that they collect, which they do, however, presume to be value free in almost all the exercises that they undertake.

As I have always argued, the stories that we tell each other about the economy in which we live are more important than the data we collect about it because they provide the framework within which any information is interpreted. It would seem that Deaton now agrees.

I call that progress, except for the fact that about 92% of the world's living economists are probably now in disagreement with him now. We will just have to make progress, one step at a time.

Like many, I was confused by Will Hutton’s arguments in The Observer today, in which he argued that Rachael Reeves has given Britain “the plan for economic lift off”. Unsurprisingly, I disagree with him.

Let me summarise my argument at the outset. I think Will Hutton is looking for a job. I cannot explain what he is saying in any other way.

Then let me move to the detail. Will is arguing, as I can see it, three things.

First, his suggestion is that those who have tried to impose policy on the economy have always got things wrong. He quotes Polanyi, who he interprets as saying that it was the imposition of centrally dictated policy that gave rise to the extremist backlashes of the 1930s. As a result, he seems to be applauding her for backing away from that central planning. Doing so, he ignores his own past demands, and what most would think to be the critical economic social democratic role of any government, which is to constrain the errors, excesses and inappropriate directions of market economics. Perhaps he is, however, revealing that he really has been a disciple of Hayek all along, whilst also revealing that he thinks she is. I really can’t work out what else he is trying to say.

Then, entirely paradoxically, he endorses her claim that this is an inflection point where what he describes as “a new productivist economic paradigm is emerging” which he argues is “vital for economic growth and social cohesion through higher public investment, an active industrial policy and quality public services.” Anyone who can reconcile this second argument with his first, noted above, deserves a prize.

Third, he then argues that adopting Jeremy Hunt’s fiscal rules, as she is, will not in any way constrain her ambition to deliver this plan for growth. His reasons for saying so are, as far as I can work out, twofold. First, he seems to suggest that the rule is just for show because the figures can always be fudged to make it work. This might be a frank recognition of reality, but it does not constitute either a fiscal plan, or economic sense. Then, the paradox continues, because having firstly condemned central planning, and then praised it, he then seeks to reconcile his positions and the use of this fiscal rule by suggesting that the job of government will, in Rachael Reeves opinion, be to direct the way in which private capital will be invested, because the government is not going to make any available. In that way the fiscal rule is upheld but the desired growth is delivered in accordance with a plan for which Reeves can then take credit. Quite why he thinks that this might be possible he does not say, because very obviously Rachael Reeves does not know either, if that is what she really thinks.

But then, there’s a great deal that Rachael Reeves does not know or say. She does not say how she will tackle poverty. Nor has she got a plan to save local government. The NHS can only be presumed to be up for sale. There is no money for education. Devolution, as ever, got no proper mention from Reeves. And apparently, all this can be ignored because the right wing press would criticise Reeves if she did discuss such issues, so Will Hutton thinks she need not do so.

I am sure, as I mentioned at the outset, that Will Hutton had a reason for writing this article, but the piece is itself profoundly confused in an attempt to endorse Reeves’ own incoherence. If this is indication of the current level of centre-right thinking around Reeves (where she, herself, is located on the political spectrum) it is a pretty depressing foretaste of the disaster that Labour will be.