Wednesday 27 July 2022

Fighting Inflation – What Would A Democratic-Socialist Government Do?

Think Big: A democratic-socialist government could remove GST from basic food items. It could re-nationalise and centralise the generation and distribution of electric power, and then retail it to citizens at an affordable price. A democratic-socialist government could nationalise the public transportation system and make it free for everyone. A democratic-socialist government could even impose a “Carbon Footprint Tax” on imports. Only among neoliberals are “subsidy”, “tax”, and “tariff” dirty words.

CONFRONTED WITH THE CHALLENGE of a worsening cost-of-living crisis, what would a democratic-socialist government do? Right now, answering that question coherently and believably is the Left’s most important assignment.

The Right’s response to this challenge is relatively clear: throw the economy into recession, maintain strong downward pressure on aggregate demand; reduce public spending. The Centre-Left’s approach to the crisis differs in no serious respect from the Right’s. It hopes to achieve the same goals, using the same methods, but in such a way that their inherent social violence is masked by the rhetoric of “kindness”.

Unfortunately for Jacinda Ardern and her Cabinet, there is no “kind” way of bringing inflation under control while remaining within the ideological parameters of neoliberalism. The classical definition of inflation: too much money chasing too few goods; more or less writes the neoliberal government’s policy for it.

The first and most important objective is to reduce the amount of money in circulation. Neoliberals achieve this key goal by raising the cost of borrowing money. Those with mortgages are required to pay more, leaving households with less to spend. The price of capital also rises, applying the brakes to business expansion and investment. In the face of these developments the labour market contracts: raising the level of unemployment, increasing workers’ fear of “the sack”, and setting off a steady decline in real wages.

In short order, the problem of too much money in too many people’s pockets simply disappears – along with their cash and credit. But wait, there’s more. If a farmer cannot make a dollar by supplying the market with one cabbage, then he will supply it with two. There will be more cabbages to buy, and at a lower price.

And there you have it! The cost of living falls. The inflationary tide recedes. The problems confronting neoliberal economists and politicians are solved.

All well and good for the neoliberal economists and politicians, but not in any way good for the human-beings on the receiving end of their decisions. The great virtue of these macroeconomic measures, from the neoliberals’ perspective, is that they save them from having to deal with the devastating micro effects of their policies.

They don’t have to witness the expression on workers’ faces when they’re told that their employer is “letting them go”. They don’t hear the sobs of the young couple leaving the house they struggled so hard to buy, but whose mortgage they can no longer afford. The small businessman who cannot make the numbers add-up, no matter how hard he tries, suffers alone – a casualty of capitalism’s “creative destruction”. The real-world effects of a neoliberal government’s economic policies occur in places where the politicians who set them in motion seldom visit.

In the long run, though, everyone is better-off for having helped to beat inflation and bring the cost-of-living under control. Such is the refrain of the neoliberal decision-makers. It is a bleak sort of consolation, akin to that of the General who praises the sacrifice of thousands of conscript soldiers – all of them killed by the murderous ineptitude of his military tactics. There are ways to win battles that do not necessitate slaughter. There are ways to beat inflation that do not depend on simultaneously beating-up the nation’s poorest and most vulnerable citizens.

But, what are these ways? How can inflation be beaten without inflicting economic pain on the weakest members of society?

For democratic-socialists, the answer lies in using the enormous power of the state to regulate the economy. Exactly the same power that neoliberalism currently uses to entrench the power and privilege of the capitalist elites.

Because the power of the state does not have to be used to keep the private sector profitable. The power of the state could just as easily be used to freeze mortgage rates, cap the prices of necessities, and control rents; to raise appreciably more revenue from its wealthiest citizens; and to levy “windfall” taxes on all those corporations guilty of racking-up excessive profits during the Covid-19 pandemic. (Even Boris Johnson’s Conservatives did that!)

At the same time, a democratic-socialist government could remove GST from basic food items. It could re-nationalise and centralise the generation and distribution of electric power, and then retail it to citizens at an affordable price. A democratic-socialist government could nationalise the public transportation system and make it free for everyone. A democratic-socialist government could even impose a “Carbon Footprint Tax” on imports. Only among neoliberals are “subsidy” “tax” and “tariff” dirty words.

To be fair to Jacinda and her Finance Minister, Grant Robertson, they have made a modest effort towards subsidising petroleum and public transport. They have also provided many New Zealanders with a “Winter Energy Payment”. These are good moves, but they are nowhere near enough.

Sadly, the full mobilisation of the state’s powers to bring down the cost-of-living, tax excess profit and  wealth out of circulation, and reconfigure the ownership of what are, in truth, “social” industries for the benefit of the many, not the few, is still beyond the range of this Government’s political imagination. Nearly 40 years of neoliberalism has robbed Labour of the courage and creativity that, in the 1930s and 40s, made New Zealand a model democratic-socialist state.

Conservatives reading this post will shriek “Muldoonism!” And, they will be right. But there is another way to look at Rob Muldoon’s economic management, apart from using it as shorthand for everything that was wrong with New Zealand in the 1970s and 80s.

It is possible to recast Muldoon’s policies as proof of how deeply ingrained the determination to look after the interests of ordinary people had become in the New Zealand political system. Muldoon subsidised and regulated and controlled because the alternative – letting “market forces” rip – would leave far too many casualties in its wake. When Rob Muldoon promised “New Zealand the way YOU want it” – he meant it.

That the Labour Party was willing to inflict those casualties; that to keep the good opinion of Treasury and The Business Roundtable it was willing to abandon its democratic-socialist principles; and that, to this very day, its political creativity remains stunted by the neoliberal dogma it cannot seem to abandon; strikes me as a far greater crime than any Rob Muldoon may have committed. In the end, even the Springbok Tour made New Zealand a stronger country.

But, neoliberalism has not made New Zealand a stronger country, it has made it weaker. When the instinct of both its major parties is to use the nation’s weakest citizens as economic cannon-fodder, then surely it is time New Zealanders made “neoliberalism” a dirty word? Imposing cruelty in the name of kindness has only ever left humanity with more that is cruel, and less that is kind. It is not what democratic-socialists do.

This essay was originally posted on The Daily Blog of Friday, 22 July 2022.


Archduke Piccolo said...

"The Right’s response to this challenge is relatively clear: throw the economy into recession, maintain strong downward pressure on aggregate demand; reduce public spending. "
In other words, the Right's response is simply to make the situation worse, to insulate themselves, make it harder for everyone else to bear. Watch your civil liberties get even further eroded by these self-interested 'leaders'.

The health of an economy is predicated not upon the amount of money so much as it's activity, mobility - it's velocity, if you will. I believe the actual author of FDR's 'New Deal' used the word 'velocity' in this context. The Right's 'solution' is just about guaranteed to slow this 'velocity' right down.

I am reminded of a cartoon I once posted on Facebook. In a big company's top-floor boardroom, an executive stares out the window to the street below. 'Look at them,' he chortles to the CEO sitting at the table, 'Poor schmucks. Soon they won't be able to afford our product!' The punchline is the look of horror dawning on the CEO's face.

Ion A. Dowman

greywarbler said...

That's rocket science Chris. And rockets is all the PTB want. The poor magical schmucks that have immense powers in their brains and muscles, but often are guided away from using it, are not anted. As Nick Drake RIP sings sadly, 'But you all lost that magic'. But there is good magic and bad. Those that are caught up in the symbolic money-sliding-scale and the economic recipe division, guaranteed not to rise (for very long), are into 'bad magic' and are actually wicked wizards. How's that for a grim fairy tale.
Magic -

Barry said...

Chris - it looks like youve been drinking from Greens cup of knowledge.! !
The trouble of the scenario you suggest is that at the same time as the Govt spends $zillions on subsidies and support programmes, we have Dr Carr demanding the country reduce GDP by such things as reduced - or practically no - agricultural production and very constrained use of fossil fuels.. These two scenarios are incompatible.

Im afraid the statement "This our nuclear free moment" was made without ANY forethought.

oneblokesview said...

Did I miss it somewhere in your article???
This Nirvana Government of which you speak would put income tax back to 69 cents in the dollar.
Just to be able to afford all this largess...69cents kicking in at $48,000 or the minimum wage?

But dreams are free, because that is all this is about..dreams.

Patricia said...

The New Zealand currency is not tied to anything and so a NZ government can invest the NZ$ in what ever it wants. The tax intake does not run the Country. The tax intake is designed for many things amid which was to reduce inequality. Think of the old estate and gift duties. I think we need a new party - a Social Democratic Party. The Labour Party of old has lost its way.

greywarbler said...

Patricia hear, hear. I hope you feel the urge to write your thoughts regularly. The people with light thoughts to bear find it easy and quick to pass them, but those with heavier ones with more substance, can be smothered. Please find time to work your way to the top! This reminds me of fruit cakes. The richest fruit cakes may be a bit collapsed in the middle with lots of good ingredients, and I am partial to a rich, moist, heavy cake. Nice analogy?

greywarbler said...

Barry 15.09
What you state was suggested by government has a hint of what they jumped into in Sri Lanka with bad effects. So I think we'll have to think that out again - NZ needs to adopt Fagin's suggestions as we are almost in his situation.

Loz said...

Wolfgang Rosenberg outlined that we need to address full employment, growth, price stability and the balance of payments simultaneously. You can't deal with one element of the “magic square" in isolation.

Our increasing prices impact both a government's and a household's ability to consume. From a government economic perspective, it's forced to either increase revenue to maintain the level of services it provides, cut services, or increase debt. All three options are likely to compound economic problems for households and businesses that are also struggling. From a household perspective, the reduction of disposable income has a knock-on effect to the multitudes of small businesses that service the domestic population.

There seem to be three factors behind the inflation the western world is currently experiencing. The cost of production and distribution with international commodities, especially fuel. The impact of endless credit creation from western countries synchronising monetary policy with the US Fed since 2008. The third factor is simply multinational profit taking. Soaring fuel costs are the most significant factor to CPI increases while energy suppliers are posting eye-watering profits that are breaking all records. These corporations tend to pay no tax at all on the wealth they extract from the economy.

Clearly, a Democratic Socialist government must increase the realy disposable income of households. After the Depression that was done with the "social wage" through nationalisation of core services (eg. electricity, water, transport) and running them at cost to reduce the profit taking burden that's transferred to household budgets.

The tax burden needs to be shifted off small business and wage earners and onto the waterfall of profit extraction that's occurring through multinational corporations. The easiest way to stop the charade of corporations pretending they make no taxable profit would be to shift business off "profits tax" to "income tax" but with a broad tax deduction. I'd make all expenditure on NZ wages and all payments to other NZ firms for goods and services fully tax deductable - which would reduce tax for almost all small business, incentivise onshore supply and make it impossible for multinationals to avoid paying the same tax small business and individuals do. If any business faced a choice between international supply or purchasing local goods and services that carried tax deductions it would be a major motivator to bring call centres and production back onshore.

I also believe that the rise of BRICS in recent months is the end of the US dollar hegemony. If we wish to continue a synchronisation with the US Fed, locked into a US dollar global reserve, we are fated to declining export demand and eroded asset values. BRICS countries are rapidly establishing trading mechanisms outside of the US dollar system, which can only accelerate the demise of the Global Reserve currency value. The new internal digital currencies are resource backed (Gold for Russia and China) to control inflation and allow central government to invest in its own economy without capital flight. This is the basis for the new BRICS trading system and a capability needed by all countries that want to avoid being sucked down with imploding Washington consensus. Nearly all of the BRICS countries are racing to have Central Bank Digital Currencies in operation by Christmas and the trading block is adopting a fixed exchange rate to isolate their economies from the US economic system.

Europe has now entered a permanent energy crisis while BRICS nations are cooperating through supplying each other with discounted goods and services, experiencing falling commodity costs and real growth as a result. What was once called the "First World" is increasingly looking like a sinking ship. It's highlighting how many of the faux left are simply neoliberals, without answers for what's unfolding.