• fiasco
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    1 year ago

    And it isn’t actually clear if rate hikes affect inflation anyway. Since the interbank rate also benchmarks the Treasury yield, for example, higher interest rates will cause the government to spend more on debt service. If inflation is supposed to be related to the amount of money, then why is increasing public spending the preferred way of decreasing the availability of money?

    Interest rates for inflation targeting are in fact pure class war. The fear is something called a wage-price spiral. Basically, inflation erodes real incomes, and the question is, whose income should be eroded? Workers or owners? In the presence of strong labor unions, inflation becomes an intense battlefield, of whose income gets eroded. Labor negotiation raises wages, which maintains higher demand, which raises inflation, so unions demand yet higher wages. But this is also because the companies aren’t willing to take the hit to prices, so they ratchet prices up in tandem with wage increases. The result is a feedback loop: unions score higher wages, businesses raise prices to compensate, unions need to push for higher wages to compensate, and so on.

    This is what the interest rates are about. The goal is to create a recession, by making both investment and debt-financed consumption more expensive, to kill off workers’ ability to negotiate higher wages.

    This form of class war gets masked behind economic terms like the Phillips Curve and the Nonaccelerating Inflation Rate of Unemployment, since after all, that sounds a lot better than Get Fucked, Workers.

    • fiasco
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      1 year ago

      In case it isn’t obvious, this is almost certainly Galbraith’s justification for price controls. I mean, I can’t speak for him, but I’ve read his stuff; this is the kind of reason he would have. Since someone has to take the losses from inflation, price controls are a way of forcing owners to own their risks.