NICE … non-inflationary consistent expansion
When Bank of England Governor Mervyn King referred to the end of ‘the NICE decade’ this week he was referring to more than just the good times being behind us. ‘Nice’ is one of those handy little acronyms economists coin … in this case referring to the period of ‘non-inflationary, constant expansion‘ that has been the norm under Labour (and which to Gordon Brown’s chagrin no doubt promptly ended as soon as Prudence got the keys to Number 10.
NICE … non-inflationary consistent expansion … it’s the Holy Grail of economic policy, as growth invariably goes hand in hand with inflation. Growth means more demand for raw materials, for services, for goods – all good stuff but increased demand means prices can and will rise. The only way to combat that is to increase supply, which is good again for suppliers and the economy as a whole. Oversupply, of course, means prices fall neatly back – supply equals demand and we have equilibrium. Basic economics, but oh so hard to maintain … and of course nobody is actually running the economy, that’s the ‘invisible hand’ of millions of individual companies and purchases working together to somehow keep things in stasis.
In practise of course, with a growing economy, supply never quite chokes off prices, and burgeoning economies tend to have inflation – bad for central planning and bad for our savings (though very useful for eroding our debts!). Yet for a decade Gordon Brown pulled off the ‘nice’ trick. That, alas, was due more to an avalanche of cheap imported goods and the swiftly diminishing price of the technological baubles we lBrits ove to spend our cash on (often liberated from our homes through equity release). Computers, TVs, DVDs, iPods and the rest were all swiftly maturing technologies, dropping swiftly in price as production increased and economies of scale (and new cheaper manufacturing processes kicked in). But DVD players, cars and Plasma tellies just aren’t going to get that much cheaper. And that leaves us with a big debt. Irony of ironies, we’ve used the inflation of our house prices to fund purchases of cut price goods. Now deflation hits the housing market and the spending party is most definitely over.
Read more about the end of the Nice times at ‘What does stagflation mean?’
