SYDNEY and KUALA LUMPUR, May 24 (IPS) – A class war is being waged in the name of fighting inflation. All central banks are raising interest rates at the expense of working families, supposedly to check price increases.
Forced to deal with rising credit costs, people are spending less, thus slowing down the economy. But it doesn’t have to be. There are less sophisticated alternative approaches to dealing with inflation and other contemporary economic ills.
Short-term pain to achieve long-term?
Central bankers agree that inflation is their biggest challenge, but also admit there is do not control the factors the basis of the current increase in inflation. Many people are increasingly worried about the possibility.”double whaleOf inflation and recession.
However, they defended raising interest rates when necessary.”preemptive warning“. These are said to prevent”second round effect“Workers’ demands for more wages to cope with the rising cost of living, caused”Wage-price spiral“.
They emphasize that the resulting employment and output losses are short-term – temporary sacrifices for long-term prosperity. Remember: central bankers are never punished for causing a recession, no matter how deep, long, or painful.
But raising interest rates will only make the recession worse, especially when it’s not due to surging demand. The latest inflation spike is clearly due to supply disruptions due to pandemics, wars and sanctions.
Increasing interest rates only reduces spending and economic activity without reducing ‘imported’ inflation, such as rising food and fuel prices. Recessions will further disrupt supply, exacerbate inflation, and worsen stagnant inflation.
Wage price spiral?
Some central banks take the recent cases of wage hikes as a signal “anchor“Inflation expectations and threats of the ‘wage-price spiral’. But this paranoia ignores changed labor relationships and the pandemic’s impact on workers.
With real wages stagnating for decades, the threat of a ‘wage-price spiral’ is greatly exaggerated. In recent decades, most workers have lost their bargaining power to deregulation, outsourcing, globalization, and labor-saving technologies. As a result, the share of labor in national income has declined in most countries since the 1980s.
The labor market recovered, even tightened in some industries, masking the negative effects of the pandemic on workers. Meanwhile, millions of workers have gone into informal freelance work – now considered ‘contract work’ – increase their vulnerability.
Pandemic infections, deaths, mental health, education and other impacts, including restrictions on migrant workers, have all left many people vulnerable. The epidemic is particularly painful for vulnerable workers, including young people, migrants and women.
Thought Central Bankers
The economic policies of the technocrats are said to be independent and the better informed. But such naive beliefs ignore superficially academic, ideological beliefs.
Typically biased, though in less obvious ways, policy choices are bound to favor some interests over – even against – others. So, for example, a focused anti-inflation policy benefits owners of financial assets.
Politicians like the concept of central bank independence. It allows them to easily blame central banks for inflation and other ills – evensleep at the wheel” – and for unpopular policy responses.
Of course, central banks deny their own roles and responsibilities, blaming other economic policies instead, especially fiscal measures. But politicians who blame central bankers after empowering them simply shirk responsibility.
In the rich West, governments that have long tightened fiscal austerity have left the burden of recovery from the 2008-2009 global financial crisis (GFC) on central banks. Of them ‘unique monetary policy‘regarding keeping policy rates very low, allow the company damn and zombie business longevity.
This allowed most debt, including private credit to speculate and maintain ‘zombie’ businesses, to rise to unprecedented levels. As a result, recent monetary tightening – including rate hikes – will trigger more defaults and recessions.
German social market economy
Inflationary and policy responses inevitably involve social conflicts over economic distribution. In Germany ‘Free collective bargaining‘, trade unions and business associations engage in collective bargaining without state interference, promote cooperative relations between employees and employers.
The German Collective Bargaining Act does not require ‘social partners’ to participate in negotiations. The time and frequency of such negotiations are also assigned to them. Such a flexible arrangement is said to have helped small and medium-sized businesses.
Although of Germany’social market economy‘Without a national tripartite social dialogue institution, labor unions, business associations and the government have not hesitated to democratically debate measures and policy responses to the crisis. aimed at stabilizing the economy and protecting jobs, such as in the GFC.
A similar ‘social dialogue’ approach has been developed by Australian Labor Prime Minister Bob Hawke since 1983. This is in contrast to the more confrontational approaches pursued in the UK by Margaret Thatcher and Ronald Reagan’s America – where penalizing interest rates caused a protracted recession.
Although Hawke has been a successful union leader, Hawke began by convening a national summit of workers, businesses and other stakeholders. Result Price and Income Agreement between government and unions adjusted the demand for wages in return for improved “social wages”.
This includes providing better public health, improved pensions and unemployment benefits, tax cuts and ‘superannuation’ – which involves a mandatory worker’s share of income and contributions from the employer to the employee’s retirement fund.
Although business groups are not full members of the Agreement, Hawke has included large businesses in other new initiatives such as the Economic Planning Advisory Council. This consensus approach has helped reduce both unemployment and inflation.
Such consultations have also facilitated tough reforms – including floating exchange rates and lowering import duties. They also contributed to the developed world’s longest uninterrupted streak of economic growth – no recession in nearly three decades, ending in 2020 with the pandemic.
Many such approaches exist. For example, of Norway kombiniert oppgjiorsince 1976, not only with regard to industrial wages, but also with regard to taxes, wages, pensions, food prices, child support, farm support prices, etc.
‘Social partnerships’ are also important in Austria and Sweden. A series of political understandings – or ‘bargaining’ – between successive governments and major interest groups produced national wage arrangements from 1952 until the mid-1970s.
Unanimous approaches certainly underpinned the post-World War II reconstruction and progress of the so-called ‘Golden Age’ of Keynes. But it is also claimed that they have created meaningless stiffnesses to further progress, especially with rapid technological change.
In response, economic liberalization has included deregulation to achieve more market flexibility. But this approach also creates a lot of economic insecurity, inequality and crisis, in addition to stagnant productivity.
Such changes have also weakened democratic states, and facilitated more populist and even nationalist regimes. Meanwhile, rising inequality and more frequent recessions have strained social trust, jeopardizing security and progress.
Policymakers should consult with all key stakeholders to develop appropriate policies regarding fair burden sharing. Then there is a real need to design alternative policy instruments through social dialogue and complementary arrangements to address economic challenges in more equitable cooperative ways.
IPS UN Office
© Inter Press Service (2022) – All rights reservedOrigin: Inter Press Service