A look into the future through prices, body cameras and off-street parking

Top of the Charts

Afternoon all,

Party conference season is back. Which is about as nice as waterboarding. The travelling circus of techy think tankers, jaded journalists and loaded lobbyists has survived Brighton (which is saying something given the weather). Labour’s jamboree taught us that the party does want to borrow loads for green investment but doesn’t want a £15 minimum wage immediately (unsurprisingly given that’s probably £1 per hour above the current average wage).

Tomorrow the carnival heads to Manchester. Boris won’t have to deal with any of the internal soundings off that dominated Keir’s week. That’s what winning an 80-seat majority does for you. But it’ll be a more difficult conference than No10 was hoping for, with the week almost choreographed to put the growing cost of living crunch centre stage: furlough ends and energy bills go up today, while the monumental Universal Credit cut kicks in on the same day Boris gives his speech. The recognition that every minister will be asked about this is exactly why the government announced a sticking plaster/£500m Household Support Fund yesterday.

Our sticking plaster for those unfortunate enough to be in Manchester is that TOTCs is here to divert you during the more tedious speeches. The rest of you can just enjoy it while gloating about your superior lifestyle choices. Either way, have a good weekend all.

Torsten Bell
Chief Executive
Resolution Foundation

Inflated expectations. Inflation is on the rise and the big debate is whether that’s temporary/benign or will last/destroy capitalism. Those worried it will last argue that temporarily higher inflation (e.g. rising gas prices) could endure if the public’s expectations of future inflation start to rise – while team temporary (e.g. the Bank of England) point to the fact that so far inflation expectations haven’t surged. Into this hot debate comes a big paper from long-term Fed official Jeremy Rudd. Its controversial summary attacks the current debates entire framing: “Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations.”

Inflation strikes back. For a less techy inflation discussion you should read this blog from Dario Perkins, which shares the dismissal of inflation expectations and suggest we focus our inflation worries elsewhere – specifically on the fact that the causes of what we currently see as temporary inflation (e.g. the switch to spending on goods rather than services) could turn out to be longer lasting. It’s a well written reminder that the biggest problem facing us is that the pandemic’s economic impacts are far from over. Overall, we might be better off thinking about the inflation question as how large/long lasting these temporary surges will be, rather than whether some mystical force (such as a wage spiral) will make them permanent.

Self-policing. The question of public faith in the police is in lights this week, for truly dreadful reasons. And there is a longer-term debate around the world about the behaviour of police officers – particularly about how to ensure only necessary violence is employed by those enforcing the law. What works to reduce unnecessary violence? Transparency is the answer from new research investigating the utility of body cameras worn by the police in reducing violent/aggressive interactions between police and citizens. A trial in Brazil is found to deliver big results – with the use-of-force falling by 60 per cent and more accurate police reports being filled. The effects are strongest when cameras are worn by junior officers – suggesting that part of the impact comes from overcoming career concerns that might prevent junior officers monitoring their seniors. The lesson? Let the sunshine in.

Trouble in paradise. Covid-19 hasn’t only changed how we work, but also where we want to live. So shows new ONS research on the recent house price surge: prices are up fastest (by over 20 per cent) in beauty hotspots like some of North Wales, Devon and Yorkshire. All seven areas that saw house price falls in July are in London. But the blog warns us against the “this is all brilliant” take that you tend to get from people arguing that working from home means people can live in Wales but earn Westminster wages – maybe some professionals can, but the impact of that on housing costs is very bad news for low earners and young people in those areas.

Covid consumption. The only benefit from the pandemic dragging on is that we can now start to evaluate economic policies implemented in it. A new note does exactly that for cash transfers of ¥100,000 per resident in Japan (you’ll remember lots of people were calling for similar universal payments here). There are two lessons. One is relevant to downturns in general, with consumers spending some of the cash immediately (the researchers find an immediate marginal propensity to consume of around 10 per cent – which is consistent with previous cash handout schemes). But another finding is important too: there was no increase in face-to-face service consumption. The authors rightly say this is good news because infection risk wasn’t raised. But that also means the policy wasn’t well targeted at supporting the income of those working in the very sectors hardest hit by the pandemic. The takeaway = furlough to support the incomes of those hard hit, rather than cash to support everyone’s consumption, was the right way to go.

Chart of the Week

The Net Zero transition is about to get real as we change how we heat our homes and get around (I didn’t think you could possibly make Tesla drivers more smug, but the current fuel fiasco has proved me wrong). The good news is the aggregate cost of achieving Net Zero by 2050 is relatively small (under 1 per cent of GDP over the next three decades). But that doesn’t mean this will be easy. First, there’s the timing problem: the low overall cost is made up of big costs now and savings much later. Second, the distribution of those costs and benefits are difficult. Lower-income households must be protected from huge costs (such as new heating systems) and it’s clear savings won’t automatically flow equally across households, as this week’s chart shows. One of the biggest savings comes from electric cars’ lower running costs, but those will be greatest for households who can use cheap electricity (by charging overnight at their own home, rather than on-street charging via a private provider). But who has access to garages or off-street parking? The rich are 50 per cent more likely to do so than low-income families. It’s time for a whole new generation of policy thinking to address these timing and distribution challenges because we need the Net Zero transition to happen, and we need it to happen fairly.