WORLD

Inflation Boji Blocking Recovery – Global Issue


  • Feedback Jomo Kwame Sundaram, Anis Chowdhury (Sydney and Kuala Lumpur)
  • Inter Press Service

The International Monetary Fund (IMF) has revised its latest global growth forecast to the bottom. Its the latest World economic outlook (WEO) warns of a “dangerous divide” between rich and poor countries. It has exacerbated, but worsened national financial inequality and the ‘great vaccine divide’.

Inflation revived the bogie

Meanwhile, there is growing talk of ‘stagnation’ – a slowdown like in the seventies and rising inflation with high unemployment. Meanwhile, Economist Rising inflation and wage demand warnings about the harmful “wage-price spiral”.

But more than 70%, or 152 out of 209 economists, believe that global inflation continues to disrupt supply chains. Heads of major central banks – such as the US Federal Reserve, the Bank of England and the European Central Bank – agree.

While the IMF agrees, it also urges policymakers to be “vigilant and ready to act, especially if … long-term supply disruptions, rising commodity and housing prices, permanent and meaningless financial commitments, a non-anchoring of expectations, abuse Combined with the output gap [materialise]”

October 2021 of the IMF Financial Monitor He called on the government to take all necessary steps to restore the confidence of the capital market and donors, including reducing the budget deficit. But it warns against ‘self-defeating’, prematurely shutting down necessary recovery measures. Thus, ‘two-handed’ IMF economists provide conflicting policy guidelines.

Misdiagnosis

But inflation is unlikely to continue. First, labor market regulation has long diminished workers’ bargaining power since the 1900s. Therefore, workers who have been badly degraded in recent decades are now more concerned about job security.

Second, despite decades of ‘off-shoring’ and labor-saving innovations, ‘rich’ employment remains weak in most rich countries. Surprisingly, the share of labor in the national income has been declining since the mid-1970s.

Although jobs are usually behind the recovery, the IMF notes that the current lag is “more serious” than ever before. Worldwide, labor force participation and employment are below pre-epidemic levels, especially for young people.

The WEO notes that private investment declined in the second quarter of 2021, due to a number of new uncertainties. Slower investment and growth mean lower tax revenues and higher debt-to-GDP ratios. Cutting costs will only make things worse.

Accurate diagnosis should be the basis of drug choice. Contrary to economic belief, inflation is not just due to excess money supply. But if supplies are cut off – e.g., due to disasters, conflicts, curfews or transportation restrictions – demand easily becomes ‘excess’.

Inflation is often caused by large suppliers abusing their market power, with strong firms raising prices with high ‘mark-ups’. Privatization and control over the last four decades have strengthened this monopoly or oligopoly.

Blunt instrument

Interest rates are a vague tool. Inflation is reduced by raising interest rates, reducing growth and raising unemployment – the “hard drugs”. Hawks emphasizes how inflation reduces the purchasing power of the poor, but denies that their prescriptions make it worse.

One must wonder how rising interest rates will solve the real problem. For example, in September 2021, a severe drought in global food prices affected hydropower generation in Brazil.

High interest rates cost both the private and public. Thus, rate hikes will likely trigger a vicious circle of further rate hikes and general austerity, slowing recovery and increasing the debt-to-GDP ratio.

Increasing interest rates in rich countries will result in more capital flights from developing countries and lower exchange rates. Already worsened by vaccine inequality and limited financial space due to disability, moderate debt relief and epidemic support from rich countries, raising interest rates will push them further back.

T has been misinterpreted

The level of rising debt is understandably a matter of ongoing concern. In 2019, the World Bank warned that the post-200 global financial crisis (GFC) was dangerous, noting that all previous debt waves had ended in crisis.

With the epidemic, the fear was that “governments around the world are testing new limits on record debt.”

The IMF’s October World Bank findings suggest exaggerating the debt limit.

Rather, attention should be paid to “the impact of public spending and the potential increase in tax levels, structure and efficiency”. Rather than determining the level of overall debt, its structure – domestic versus external, public versus publicly guaranteed – demands more attention.

Indeed, debt-financed infrastructure, education, skills development and retraining programs all increase. IMF research has shown that investment in such infrastructure has the effect of large growth without increasing the growth-GDP ratio.

Deep sitting challenge

The predictable recommendation is that ‘belt-tightening’ – through ‘austerity’ and ‘high interest rates’ – is bringing further economic contraction. Prescriptions for general structural reform – such as more liberalization of labor markets, deregulation, privatization, and tax cuts – only make things worse, while regressive tax cuts rarely produce the promised growth.

Buybacks, real estate, mergers and acquisitions. As a result, the real economy has suffered, while productivity growth has slowed as inflation has risen.

But inflation was kept under control by cheap imports and cheap labor, even as profit margins and executive wages increased. But neo-liberals did not hesitate to demand credit for controlling inflation during Great Moderation through fiscal austerity, debt ceiling and inflation targets.

Despite the financial austerity, debt has risen, especially from the GFC. Slower growth also means less revenue, more financial space. Declining public investment – especially for services, infrastructure, research and development – has also hit productivity growth.

Roll forward, not backward

Each economic crisis is different in its own way. The Covid-1 recession involves pushing both supply and demand. Output decreased due to lockdown and disruption of value chain. Demand has also declined with lower incomes, lower spending, more job losses and greater uncertainty.

When supplied, the relief system maintains some demand. Epidemic limitations have accelerated digitization, but other changes are also needed. For a better future, reforms must be made on the Covid-1 trans conversion, for example, through job-intensive green investment, staff retraining and retraining.

The Covid Recession thus provides an unexpected opportunity to ‘build better’ to address the problems that sit deeply in order to build a better world. These include reducing biased and ineffective measures, managing markets, managing private investment, retraining workers, and investing in education, health, and social security.

© Inter Press Service (2021) – All rights reservedOriginal Source: Inter Press Service



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