The inflation debate

“The hardline monetarists call for sharp rises in interest rates to curb demand while the Keynesians worry about wage-push inflation as rising wages ‘force’ companies to raise prices. But inflation rates did not rise when central banks pumped trillions into the banking system to avoid a meltdown during the global financial crash of 2008-9 or during the COVID pandemic. All that money credit from ‘quantitative easing’ ended up as near-zero cost funding for financial and property speculation. ‘Inflation’ took place in stock and housing markets, not in the shops. What that means is that US Federal Reserve’s ‘pivot’ towards interest rate rises and reverse QE will not control inflation rates.

There is an alternative to monetary or wage restraint, these policy proposals of the mainstream, acting in the interests of bankers and corporations to preserve profitability. It is to boost investment and production through public investment. That would solve the supply shock. But sufficient public investment to do that would require significant control of the major sectors of the economy, particularly energy and agriculture; and coordinated action globally. That is currently a pipedream. Instead, ‘Western’ governments are looking to cut back investment in productive sectors and boost military spending to fight the war against Russia (and China next).”

Michael Roberts Blog

The inflation debate among mainstream economists rages on. Is the accelerating and high inflation rate of commodities here to stay for some time and or is ‘transitory’ and will soon subside? Do central banks need to act fast and firmly to ‘tighten’ monetary policy (ie cut back on injection credit into banks through purchases of government bonds (QE) and start hiking policy interest rates sharply? Or is such tightening an overkill and will cause a slump?

I have covered these issues in several previous posts in some detail. But it is worth going over some of the arguments and the evidence again because high and rising inflation is severely damaging to the livelihoods and prosperity of most households in the advanced capitalist economies and even a matter of life and death for hundreds of millions in the so-called Global South of poor countries. Being made unemployed is devastating for those…

View original post 2,011 more words

%d bloggers like this: