Press Release: Inflation drop to 0.3% will make every Briton better off

For further comments or to arrange an interview, contact Communications Manager Kate Andrews: kate@adamsmith.org / 07476 915072

Commenting on the drop of CPI inflation rate to a record low of 0.3%, Head of Research at the Adam Smith Institute, Ben Southwood, said:

There is good disinflation—cheaper inputs and improved productivity—and bad deflation—weak demand—and what we’re experiencing now seems to be the good kind.

Though the headline rate is 0.3%, Mark Carney’s letter to the chancellor will undoubtedly explain that this is due to falling prices of food and fuel imports, which do not risk recession and simply make every Brit better off. Core inflation (which excludes volatile products like food and fuel) is ticking along much closer to target at 1.4%.

It is vital for monetary stability and neutrality that the Bank keeps its policy predictable—a rule-based system would be superior to the current system of discretion—but right now policy is roughly where it should be.

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07476 915072.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Avoidance, evasion, and tax tyranny – Dr Eamonn Butler writes for Conservative Home

Director of the Adam Smith Institute Dr Eamonn Butler wrote an op-ed for Conservative Home about the difference between tax avoidance (legal) and tax evasion (illegal) and argued that Labour’s recent hysteria over tax avoidance is just playing at politics:

At Prime Minister’s Question Time yesterday, Ed Miliband banged on (again) about tax avoidance. And in the Opposition Day Debate on the same subject, Ed Balls spelled out his party’s plans to ‘introduce tougher penalties for those who are caught avoiding tax’. Pardon? Did you say penalties? For what? Tax avoidance – organising your affairs, within the tax rules, such that you pay less tax – is perfectly legal (or at least, it should be…but read on). It is tax evasion – concealing or under-declaring your income or taxable assets so as to escape tax  – that is, rightly, illegal.

However, in their werewolf greed (to use Marx’s colourful description of capitalists) to maximise the revenue of a government that now consumes nearly half the national income and then borrows still more, our politicians have deliberately conflated the two. Which allows them glibly to talk about ‘penalties’ for something that is perfectly legal, but which they don’t much like. Staying within the law, but structuring your affairs so as to pay less tax than you might otherwise do, is portrayed as no less reprehensible as criminally deceiving the tax authorities. We’re all in this together, after all, and the government needs the money. So now, thanks to this sleight-of-hand (of which George Osborne is just as guilty), penalties appropriate to the criminal activity are being subtly extended into the legal activity. Indeed, without any real debate on the subject, they have already been extended far beyond the Rule of Law.

Read the full op-ed here.

Dr Eamonn Butler’s comments on record-high pension deficits feature in The Telegraph

Director of the Adam Smith Institute, Dr Eamonn Butler, highlights the problems with regulating pension funds in The Telegraph. 

Eamonn Butler, director of the Adam Smith Institute, said: “Regulation of pension funds has meant that their decisions are often nothing to do with finding returns, but instead driven by an overbearing system of rules and red tape.”

Read the full article here.

ASI paper “The Real Problem was Nominal” features on The Economist’s blog

New ASI paper “The Real Problem was Nominal – the crash of 2008″ was featured on The Economist’s blog, which looked at how British data would fare in the ‘musical chairs’ model:

SCOTT SUMNER has written a paper for the Adam Smith Institute in which he sets out the market monetarist interpretation of the great recession. Central to this is the “musical chairs” model of unemployment, which he assesses against American labour market data.

The musical chairs model says that shocks to nominal GDP—or total spending in the economy—drive unemployment. When nominal GDP falls, there is no longer enough spending to sustain the same number of jobs unless wages fall. Because wages are slow to adjust, unemployment rises instead.

Read the full article here.

The Real Problem was Nominal” - written by Prof Scott Sumner, a leading economist who was a key inspiration for the Federal Reserve’s QE3 programme - explains how the European Central Bank  is repeating the mistakes that the Fed and Bank of England made in the 2008 crisis—trying to plan credit and micromanage the financial sector, when the real issue is excessively tight monetary policy.

The paper argues that Eurozone quantitative easing will not reverse the Eurozone’s decline unless it is open-ended and tied more explicitly to the ECB’s inflation target. Targeting nominal GDP—the total amount of spending in the economy, also known as aggregate demand—would be even better, the paper argues, guaranteeing more stability when unexpected supply-side shocks like oil price movements make inflation targeting trickier.

Download “The Real Problem was Nominal” for free here.