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Inflation down, unemployment down... What will Labour do now? watch

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    Well guys, Since the disappointing growth figures, increasing inflation as well as increasing unemployment, Labour have jumped on this as a vindication of their view that the coalitions cuts are damaging the economy.

    But love and behold, inflation has come down and unemployment has fallen. So, is this a vindication of the coalitions policies? Will Labour now look a bit out of place claiming the coalitions policies are damaging, or will they engage in some spin?
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    Dey took our jooobs!
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    Well when the Tories took over in June 2010, the unemployment rate was 7.7% and inflation was 3.2%

    Now the unemployment rate is 7.8% and inflation is 4%

    So lets be honest its not an achievement to be crowing about: "Labour left the economy in a mess. Since we've been in, its not got much worse!"
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    (Original post by MagicNMedicine)
    Well when the Tories took over in June 2010, the unemployment rate was 7.7% and inflation was 3.2%

    Now the unemployment rate is 7.8% and inflation is 4%

    So lets be honest its not an achievement to be crowing about: "Labour left the economy in a mess. Since we've been in, its not got much worse!"
    This wasn't meant to be a serious thread, if it was, we can talk about how inflation and unemployment would have risen regardless of who was elected.
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    (Original post by Teaddict)
    Well guys, Since the disappointing growth figures, increasing inflation as well as increasing unemployment, Labour have jumped on this as a vindication of their view that the coalitions cuts are damaging the economy.

    But love and behold, inflation has come down and unemployment has fallen. So, is this a vindication of the coalitions policies? Will Labour now look a bit out of place claiming the coalitions policies are damaging, or will they engage in some spin?
    When you say inflation has come down. Do you mean Demand-Pull inflation or Cost-Push Inflation.

    As the budget cuts are likely to reduce Demand-pull inflation (which is the better of two ''evils''). And Cost-Push inflation seems to be on the rise. It just shows that Demand in the economy is falling.

    Also since unemployment has fallen, and Inflation has fallen. It makes no sense, since you would assume Inflation would go hand in hand with unemployment. Though i'm uncertain because Manufacturing has increased. Though it is all intended for export... which theoretically should increase demand, and usually Demand-Pull inflation....



    Conservative by heart... but just trying to bring balance to the arguement.
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    (Original post by crazycake93)

    Also since unemployment has fallen, and Inflation has fallen. It makes no sense, since you would assume Inflation would go hand in hand with unemployment.

    .

    At a guess, I'm going to say you're doing A level economics? At A2 you'll see why inflation and unemployment sometimes happen together.
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    (Original post by crazycake93)
    When you say inflation has come down. Do you mean Demand-Pull inflation or Cost-Push Inflation.

    As the budget cuts are likely to reduce Demand-pull inflation (which is the better of two ''evils''). And Cost-Push inflation seems to be on the rise. It just shows that Demand in the economy is falling.

    Also since unemployment has fallen, and Inflation has fallen. It makes no sense, since you would assume Inflation would go hand in hand with unemployment. Though i'm uncertain because Manufacturing has increased. Though it is all intended for export... which theoretically should increase demand, and usually Demand-Pull inflation....



    Conservative by heart... but just trying to bring balance to the arguement.
    In general I find the way that inflation is taught at A level, quite confusing. It is treated better at university.

    The relationship between inflation and unemployment is mainly due to the fact that businesses main costs are wages, but they aren't the only costs. You can think of an economy having a 'natural rate' of unemployment, at which inflation will stay constant. The level of the natural rate will depend on supply side features, eg an economy poorly educated workforce may have a higher natural rate of unemployment. In general when unemployment is higher than the natural rate of unemployment, then that means conditions in the labour market are much tighter, workers fear losing their jobs, employers know that it is easy to hire new workers because there are lots of unemployed people looking for work. So they don't need to be offering pay rises and they will still have people wanting to work for them. This will push down on inflation. If the level of unemployment falls below the natural rate of unemployment, then conditions in the labour market are much better for workers, they can demand pay rises, if they don't get them from their firm then the best workers will just go to the firms who do pay better wages. Firms are forced to compete for labour so they have to push wages up and this then increases their costs, which means they pass them on to consumers in higher prices.

    That relationship between unemployment and inflation just captures the effects of the wage-price spiral on driving inflation. It is a big part of it, but not the whole of the story. When oil prices rise, for instance, all businesses face higher transport costs. When the exchange rate falls, then businesses who have to import raw materials from abroad as inputs, face higher input costs. And then ultimately in things like the CPI which is calculated from a typical 'basket' of consumer goods, then the changes in individual markets, eg the price of food, alcohol, clothes etc, get factored in, eg if the price of wheat increases that will affect the CPI.

    The Bank of England can use the interest rate to limit inflation but it only really affects the wage-price element of it. Higher interest rates mean less investment from firms, so unemployment is likely to rise a bit, and firms can get away with paying lower wages. But in the current situation where inflation is mainly due to higher oil and commodity prices, that will not do much good, especially as it takes about a 2 year lag for the interest rate to act on inflation.
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    (Original post by Teaddict)
    This wasn't meant to be a serious thread, if it was, we can talk about how inflation and unemployment would have risen regardless of who was elected.
    I agree. And we can also agree on how the deficit would have risen at the time of the financial crisis regardless of who was elected, especially as the Conservative policy as recently as 2007 was to 'match Labour's spending plans for the next three years'. Funny how the Conservatives were so keen to endorse Labour's spending levels, did they not think they were excessive?
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    (Original post by MagicNMedicine)
    I agree. And we can also agree on how the deficit would have risen at the time of the financial crisis regardless of who was elected, especially as the Conservative policy as recently as 2007 was to 'match Labour's spending plans for the next three years'. Funny how the Conservatives were so keen to endorse Labour's spending levels, did they not think they were excessive?
    Indeed, however, I assume they did so for purely political reasons as if they were calling for cuts then, Labour would have destroyed them in an early election. But then again we can only speculate about what the deficit would be like, if it existed, if the Conservatives were in power.
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    (Original post by Teaddict)
    Indeed, however, I assume they did so for purely political reasons as if they were calling for cuts then, Labour would have destroyed them in an early election.
    I agree and this is the problem.

    If the Conservatives had fought the election on a platform of balanced budgets, the electorate would not have cared, which is why the Conservatives were pledging extra spending on law and order, defence, extra tax cuts etc, to try and keep up with Labour's spending pledges on health, education and so on.

    So I understand the dilemma the Tories were in at the time. However that also makes it hypocritical for them to now keep harping on about Labour's excessive spending in government, and Labour's lack of bank regulation, when these were consensus mistakes.

    I think it would be a lot better if a consensus emerged where parties focused around fiscal discipline from now on. I would actually like to see some binding fiscal rules come in, to give the Treasury to an extent some independence, like they did the Bank of England. If there was an independent budget setting committee, which put restraints around the permitted deficit in any one year, then they could set the budget and the government could decide how to spend it.
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    (Original post by MagicNMedicine)
    Well when the Tories took over in June 2010, the unemployment rate was 7.7% and inflation was 3.2%

    Now the unemployment rate is 7.8% and inflation is 4%

    So lets be honest its not an achievement to be crowing about: "Labour left the economy in a mess. Since we've been in, its not got much worse!"
    Wrong, unemployment was at 2.51 million or 8% when the coalition formed.
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    (Original post by Teaddict)
    Well guys, Since the disappointing growth figures, increasing inflation as well as increasing unemployment, Labour have jumped on this as a vindication of their view that the coalitions cuts are damaging the economy.

    But love and behold, inflation has come down and unemployment has fallen. So, is this a vindication of the coalitions policies? Will Labour now look a bit out of place claiming the coalitions policies are damaging, or will they engage in some spin?
    Meanwhile, retail sales are suffering a 16 year record slump, manufacturing isn't looking healthy and growth predictions for the current quarter are being downgraded every couple of weeks now. Not exactly signs of confidence in the Coalition.

    Oh, and speaking of confidence...

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    The coalition has been in power less than a year! Lets see what the figures are like in 4 years time!
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    Although I'm a Labour supporter, I still believe that the Conservatives party are more capable of dealing with economic crisis. The Labour party haven't really done enough to take us out of the recession.

    I have to say though, It is looking promising with the Conservatives in power. Although, they have done some painful cutting in the public sector and I know some people that lost their job/s and others which their salary has been decreased dramatically. Even though people were furious a couple of weeks ago, I agree with the spending cuts that Osbourne declared. It only hits people in the short term as the cuts were so sudden but I'm sure it will help the economy in the long run. Hopefully we don't end up in a double dip recession otherwise we'll end up like the PIGS economy that needed bailing out.

    All in all, the coalition government appears to be doing a fairly good job in some areas of the economy. There are still few policies opened up for criticisms though.
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    Labour will point out all the cuts they think are unfair.
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    I'd rather wait for another couple of years then seeing figures.
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    (Original post by MagicNMedicine)
    I agree and this is the problem.

    If the Conservatives had fought the election on a platform of balanced budgets, the electorate would not have cared, which is why the Conservatives were pledging extra spending on law and order, defence, extra tax cuts etc, to try and keep up with Labour's spending pledges on health, education and so on.

    So I understand the dilemma the Tories were in at the time. However that also makes it hypocritical for them to now keep harping on about Labour's excessive spending in government, and Labour's lack of bank regulation, when these were consensus mistakes.

    I think it would be a lot better if a consensus emerged where parties focused around fiscal discipline from now on. I would actually like to see some binding fiscal rules come in, to give the Treasury to an extent some independence, like they did the Bank of England. If there was an independent budget setting committee, which put restraints around the permitted deficit in any one year, then they could set the budget and the government could decide how to spend it.
    I think something like that would be most welcomed actually - the issue is how rigid it would become to set rules like that? Perhaps a series of rules stating that the government cannot allow a deficit to exceed 3% and that the national debt shouldn't exceed 60% without parliamentary approval.

    I don't know, but you cannot have a rigid system.
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    (Original post by Teaddict)
    I think something like that would be most welcomed actually - the issue is how rigid it would become to set rules like that? Perhaps a series of rules stating that the government cannot allow a deficit to exceed 3% and that the national debt shouldn't exceed 60% without parliamentary approval.

    I don't know, but you cannot have a rigid system.
    Parliament does approve it.

    Its called the budget, which they vote on.
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    (Original post by Quady)
    Parliament does approve it.

    Its called the budget, which they vote on.
    :facepalm2:

    I meant far more frequently. To run a deficit over 3% each quarter or whatever, they must get parliamentary approval...

    I said I don't know how, but some mechanism to enforce fiscal responsibility.
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    (Original post by Teaddict)
    :facepalm2:

    I meant far more frequently. To run a deficit over 3% each quarter or whatever, they must get parliamentary approval...

    I said I don't know how, but some mechanism to enforce fiscal responsibility.
    The coalition would love that with the welfare increasing as more people are signing onto JSA :P
 
 
 
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