The Guardian view on food price caps: better at taming inflation than rate hikes

theguardian.com:

T he whisper that the government was considering price caps on food, now the biggest driver of inflation, has produced the inevitable backlash. Out scuttled mini-me Thatcherites and big business PRs waving shrouds. Ministers admitted only to looking into the idea of “voluntary” controls. But the last 15 years have shown that state intervention is considered economic heresy until it becomes politically necessary.

While control of inflation is the job of the Bank of England, the government has made halving inflation this year one of the five pledges on which it wishes to be judged. Since 2008 there has been a turn away from free-market ideology, as it became increasingly clear that the economy was not working in the way textbook models had assumed. This has become obvious in the case of inflation, which mainstream economists mistakenly viewed from the vantage point of the 1970s. Seen from here, rising prices are to do with too much demand in relation to economic capacity on one hand, and too much money chasing too few goods on the other.

This outlook has been overtaken by a new consensus, spearheaded by Isabella Weber, at the University of Massachusetts Amherst, who says that not only is this the wrong interpretation, but so is the idea that rising prices can be tackled by rising interest rates.

Instead, Dr Weber looks at the problem through the lens of distributional conflict between workers and companies. She argues in her latest paper that firms with market power can hike prices, and a widespread acceptance that they have a chance to cash in leads to “seller’s inflation”. Workers react by attempting to protect real wages. From this perspective, labour conflict is not the origin but the consequence of inflation.

Floating