Wednesday, March 29, 2023

Economics 101

 Last year, Andrew Bailey, the Governor of the Bank of England, called on workers to exercise self-restraint over wage demands so as not to cause inflation to get established. Last week he called on businesses to exercise self-restraint on price increases for the same reason.

Neither workers nor businesses are taking any notice. In Tuesday’s Times, it’s Financial Editor, Patrick Hosking, explains why business won’t be any more than workers:

“Surely, when first introduced to an economics textbook, Bailey learnt that firms are not driven by altruism or patriotism but by market forces and profit? They will charge what the market will bear (…) While modern-day corporations have to consider many stakeholders, they still see their primary duty over the long run to maximise profits for the shareholders.”

There you have it.

Explaining what “charge what the market will bear” means, Hoskins adds:

“Until businesses see more capitulation by their customers, the price escalation will go on. Business will stop lifting their prices only if enough customers defect to competitors, trade down to cheaper lines or find near-substitutes. Or stop buying at all. For the poorest households, this has happened already.”

Nice system capitalism, isn’t it?

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