"Government reforms are projected to increase inequality", claims the IFS. But there's a big point missing from their analysis. If inequality is rising, it's not primarily because of fiscal policy. It's down to monetary policy.
One of the main reasons incomes have stagnated since the financial crisis is because interest rates have been kept artificially low.
The Bank of England's vast monetary stimulus kept up inflation even during the recession. That enabled employers to keep staff and maintain wages in cash terms – because they were falling in real terms.
The IFS notes that income inequality fell in the years following the financial crisis, because wages stagnated for all both high and low earners. But income inequality only tells part of the story.
The most pernicious effect of ultralow interest rates has been to stoke asset bubbles. As a result, those that already owned assets – e.g. houses – saw their value appreciate, while those who didn't were prevented from buying them.
In short, there was a huge transfer of wealth from the asset poor to the asset rich. And it happened with no public consent.
If you want a different taxation and spending regime, you can vote to turf out this government and elect a new one. But whom do you vote for if you want to raise interest rates?
As Moneyweek's John Stepek writes, the closest thing to a dictator in the United States – at least where the economy is concerned – isn't the elected Donald Trump. It's the unelected Chair of the Federal Reserve, Janet Yellen.
Central banks are artificially sustaining a fatally flawed monetary and banking system. The side-effects at the moment are unfair. But the consequences when the system finally collapses could be disastrous.
The world is going to need a new monetary model. It's time monetary policy stopped being the sole preserve of technocrats, and became part of public debate.
"A revolutionary text ... right up there with the Communist manifesto" - Dominic Lawson, Sunday Times
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