If you're one of those pocket protector-wearing dweebs who follows economic trends like myself, you no doubt have heard by now that the Bureau of Labor Statistics put out its latest Consumer Price Index numbers this morning and the results were surprisingly positive. Inflation fell year-on-year to 4% — the lowest annual rate since inflation came roaring back into public consciousness almost two years ago and tantalizingly close to the Federal Reserve's 2% inflation target.
The stock market rejoiced and the Federal Reserve — which holds its regular interest rate meeting today and tomorrow — all but certainly is going to hit cruise control, at least for the next six weeks. It's too early to declare victory in slaying the inflationary beast, but it certainly seems like what the Fed has been doing is working and will continue to work.
But at nearly the exact same time, the UK's Office of National Statistics reported that wages had risen 7.2% in the first quarter — up from 6.6% the previous quarter. That's a worrying sign that Britain may be entering some variation on a wage-price spiral and all but assures markets that the Bank of England will have to continue raising interest rates to get things under control. So what accounts for these very different adventures in inflation-fighting?
First and foremost, comparing the United States to Great Britain in economic terms isn't quite fair. The U.S. is the biggest economy in the world with a Gross Domestic Product of $23.3 Trillion — the UK is the sixth biggest economy with a $3.1 Trillion GDP. What is more, the U.S. is a big country with a wide variety of natural resources and climates to grow things in; the UK is an island that must import what it cannot produce.
Those geographical and macroeconomic realities are a big part of why inflation has remained so stubbornly high over there while conditions have received a favorable bounce here — the U.S. produces most of its own natural gas, for example, and is a net exporter of food products, whereas Britain is dependent on wholesale natural gas prices and food imports, particularly in the winter.
But there are still some lessons that can be learned from comparing the U.S. and UK in their respective inflationary pressures. The most significant distinction is that the UK famously divorced itself from the European Union at the beginning of the current decade, and that has put it at a significant disadvantage in its ability to draw in much-needed labor from around the Eurozone and take advantage of the collective benefits of free trade on the continent.
When I said before that comparing the U.S. to Britain wasn't fair, comparing the U.S. and the EU is much more so. I'm not the first person to suggest that leaving the European economic bloc was, in hindsight, a colossal mistake, but consider for a moment whether the United States is poised to make the same one, albeit in less definitive terms.
We've written for years in these pages about the push in a number of states to align their banking relationships with their political values — the so-called Red Bank Blue Bank problem. That dynamic, while never limited to banking, has blown up in recent months to engulf red-blooded American brands like Disney, Bud Light and Cracker Barrel, with no real end in sight.
My point has been elusive thus far, so I'll state it here plainly: The economic strength of the United States is based on its ability to move and act collectively toward common ends, using our diversity of talent, ingenuity and resources to grow and prosper. Britain's impulse to take its ball and go home has isolated it economically, and it is now paying the price. To the extent that policymakers are willing to stall or complicate interstate commerce to satisfy a similar impulse, they should reckon with the fact that the road they're going down is a dead end.
