A recent post by the famed Financial Times reporter Louis Ashworth has this rather provocative title – “Andrew Bailey vs the renters?”. Even more provocative is a photograph of the Bank of England’s Governor Mr. Andrew Bailey, allegedly making the rather counterintuitive statement – “The rent is too damn low!”

The piece explains that in its crusade on inflation, London Central Bankers have stumbled upon a new antidote which is to take a series of cascading financial measures with the intended consequence of drying up the spending power of British households. Simply raising interest rates on bank loans is apparently no longer enough to slay the inflation villain. So Bailey and his team see inflation as “a monetary phenomenon” and thought that by triggering a rise in monthly rent, people would be left with so little disposable income to spend that demand would vanish and prices would come down across the entire economy. It would not be an exaggeration to call this the “controlled demolition theory of inflation.” 

This is emblematic of what Henry George would call “insufficient remedies,” the ones that avoid the root causes of the economic disease and instead focus on its symptoms. London’s households already spend on average more than 43% of their income on housing. So, to expect that a higher rent bill would force them to cut their spending on other necessities shows how disconnected Central Bankers are from reality. Instead of putting up with higher rents and forgoing other important expenses such as medical and educational, people may just respond with a rent strike, or move out of large cities or just develop “tent cities” all around. Actually, the policy proposed by Bailey could worsen inflation as rent hikes are reflected in the cost of goods and services. The cure may end up hurting the patient more. Instead of bailing out landlords at the expense of renters, the real solution to inflation may actually reside entirely outside the domain of monetary policy. This would be a tax reform that lifts the burden of taxation on production to respond to rising demand pressures and places it on economic rent, just as Henry George had theorized more than a century ago.