SYDNEY and KUALA LUMPUR, February 8 (IPS) – Calls, even shouting, to fight inflation above all else are getting worse. Thankfully, even The Economist (February 5, 2022) remind all, Fighting inflation could send the world into a slump.
There is no inflation consensus
Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva suspect The world faces a runaway inflation threat. She urged policymakers to carefully calibrate fiscal and monetary policies, with more “specificity”, as there is not “one size fits all”.
The reversal of widespread COVID-19 spending and low interest rates threaten the recovery. Similarly, Bank of England chief economist Huw Pill stressed that the central bank will not go all out to tighten monetary policy.
Instead, like Georgieva, he is more supportive nuanced approachreasoned, “As the pandemic recedes and the extent and composition of global supply and demand normalizes, These inflationary pressures will gradually decrease“.
US Inflation Obsession
Inflation hawk Larry Summers – Clinton’s last Treasury Secretary and Director of the National Economic Council during Obama’s first two years – declared it “wishful thinking“That the current inflationary pressures will subside.
The painful lesson of the 1960s, 1970s and recession of 1982 was that over-stimulation not only led to inflation, but also led to stagflation and, ultimately, recession, because inflation the final emission must be controlled”. But Summers’ economic history is partly, biased, and skewed.
The draconian policy regulations are said to cause ‘short-term pain for long-term gain‘, but has little interest in their division. Summers had nothing to say about the rate hikes in the early 1980s that pushed countries into default, triggering a debt crisis and more than a decade of stagnation in much of the Global South.
Most governments can’t do much to tackle rising commodities, especially fuel and food prices. Regular currency tightening reduce overall inflation, typically by causing a lot of unemployment, without affecting international sources of inflation.
Recent US salary increases
The recent U.S. wage growth that Summers obsess over is actually very different in cause and effect from the decades-old increase in wages that he disparages. Europeans are also quick to point out how different inflation on their continent was.
First, recent wage growth is not due to workers’ collective bargaining, as in the 1960s. Either ‘salary index‘, linking wage growth to inflation in the 1970s.
Workers’ bargaining power has greatly diminished since the 1980s, with labor market deregulation increasing.
Meanwhile, foreign direct investment has accelerated the outsourcing process, while technological changes have reduced labor demand. Many have turned to self-employment, informal employment and other jobs’non-book labor‘. By 2020, there are more than two billion informal jobsmostly in developing countries.
The pandemic has significant increase in ‘performer work’, especially in higher income countries. More work pay and illusions of independence barely make up for less bargaining power, and greater insecurity, work, and income. Working from home increases unpaid overtime work because ‘stealing salary‘ became more common.
Second, the obvious pay rise can be a statistical anomaly. One third estimate of total U.S. nonfarm labor forcemany underpaid – quit in 2021 for health and safety reasons while better paid workers still In the work.
Research by IMF also showed a drop in labor supply in the US and UK as older workers and mothers with young children quit their jobs due to challenges related to the pandemic. This change in employment composition has increased average wages.
Consider a job market with three workers – A, B, and C, with hourly wages of $10, $20, and $60, respectively. The average hourly wage is $30. If worker A quits, the average hourly wage – for workers B and C – will be $40. This increases the average hourly wage by $10 – not due to the increase in wages, but due to a change in the composition of the workforce.
The reported higher US wages reflect the one-time impact of the minimum wage increase, especially when paid by major employers with a nationwide presence such as Target, Southwest Airlines, CVS Health and Walgreens.
The outlook is bleak
IMF October 2021 World economic outlook sees bleak prospects for young and low-skilled workers. This seems consistent with why low-paid workers are reluctant to work for a job that poses a great personal risk to themselves.
Many young workers face special hardships, such as parents of young children due to inadequate childcare facilities and school disruptions due to the pandemic. The not suitable The gap between available jobs and what people want has also increased.
The current inflationary pressures are similar to the post-World War II situation, with pent-up demand for consumer goods unleashed before war-disrupted supplies are restored. Inflation reached nearly 20% in 1947 before crashing.
Current consumer demand still faces supply chain disruptions due to the pandemic. But such situations are very unlike the episodes Summers cites to make the alarming case for prioritizing inflation.
Conventional anti-inflationary policies – such as austerity, interest rate hikes and credit tightening – are not only unsuitable to deal with current inflationary pressures, but can also be very harmful – as the IMF director warned.
Understanding inflation
The pandemic has caused massive price increases – especially for food, clothing, fuel and communications. The mismatch between labor supply and demand in some industries has also become more acute.
Meanwhile, US government data shows US non-financial corporations posted their biggest profits since 1950 in the second half of 2021 despite rising labor costs. But summer refuse that monopolistic behavior contributed to price increases.
overall corporate profits up 37% year-over-year, while employee compensation increased only 12%, despite “the second year of the pandemic starting to wipe out 20 million jobs”.
US Senator Sherrod Brown (Democrat-Ohio) has assertive that “prices are high because companies are bullish – so they can continue to pay themselves bigger and bigger executive bonuses and share buybacks.”
Rising house prices and rents are also driving up the cost of living. After the 2008-2009 global financial crisis (GFC), governments prematurely abandoned fiscal recovery efforts in an ill-advised manner. Other monetary policies have often become the main policy tool ever since.
This has encouraged speculation in real estate and financial assets, rather than investing in productive capacity. Austerity and continued reliance on market solutions also prevent government actions to address key supply chain bottlenecks.
Lack of effective coordination between financial and monetary authorities – for example, in response to pandemics – has exacerbated such situations. Instead, speculation in commodities and real estate has been much activated.
Such negative incentives have undermined needed investments in information and communication technology (ICT), renewable energy, sustainable agriculture, health care and education. Businesses even paid dividends and bonuses with the COVID relief fund. So, Billionaires have billions than.
Nuance and specificity
Effective coordination between financial and monetary authorities is critical for a nuanced approach to ensuring a sustainable, inclusive and resilient recovery. Fiscal-monetary policy coordination is also needed for a series of long-overdue reforms aimed at addressing structural factors that have exacerbated inflationary trends and pressures.
But previous reforms aimed at ensuring central bank independence and strict ‘fiscal rules’ in favor of market solutions have weakened the government’s fiscal and monetary viability. to operate efficiently. Therefore, such policies and related policies – such as inflation targeting – must be irreversibly deposited in the policy trash.
The knee-jerk reactions to fear of being hit by inflationary hawks will derail the global recovery that the IMF considers “disruptive“. The Foundation is also interested in “different“Recovery between rich and poor nations.
Instead of preferring new economic sanctions during the Cold War on the slightest pretext, much better and more sustainable international cooperation and policy coordination is needed. They must address global supply chain disruptions, stabilize international commodity prices, and mitigate harmful policy spillovers.
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© Inter Press Service (2022) – All rights reservedOrigin: Inter Press Service
