this post was submitted on 21 Aug 2023
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We won’t fix inflation while economists stay in denial about its causes (www.smh.com.au)
submitted 1 year ago by Zagorath@aussie.zone to c/australia@aussie.zone
21 comments fedilink hide all child comments
 

Non-paywall link.

TL;DR: economists are still stuck in the idea of the market as a perfect force for reaching optimal outcomes. They're ignoring the simple fact that businesses are putting prices up purely to increase profits. And that they can do this because the economic ideal of perfect competition (where many small firms compete with near-identical products) does not exist. We have a small number of very powerful businesses—oligopolies—in nearly every market for consumer-facing goods.

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[–] macrocephalic@kbin.social 16 points 1 year ago (1 children)

We are generally taught that there's a balancing act going on between inflation and interest rates, but that's not really true. There's a balancing act going on between inflation and unemployment - and interest rates are the way to control unemployment. When the government says that inflation is too high what they're saying is that too many people have money and the way to fix it is to get a few tens or hundreds of thousands of them fired.

[–] DavidDoesLemmy@aussie.zone 9 points 1 year ago (1 children)

I don't know if that's true. They want to get people spending less. Being unemployed is one reason you might spend less. Having high mortgage repayments is another reason.

[–] macrocephalic@kbin.social 8 points 1 year ago

https://www.abc.net.au/news/2023-06-25/the-rba-wants-more-unemployment-lets-applaud-it/102506500

It's well known that interest rates cause the unemployment level to rise, the RBA governor even covered it in a speech recently (https://www.theguardian.com/business/2023/jun/22/rba-reserve-bank-australia-unemployment-inflation) and they have a page explaining it (https://www.rba.gov.au/education/resources/explainers/nairu.html).

Even though it's been suggested and documented that our current inflation issues are driven by corporate price rises and lingering pandemic supply issues, the government outsources the responsibility for interest rates to the RBA - but the only tool they have is monetary policy.

Related: it's shown that full employment benefits everyone, but it benefits the least advantaged most https://grattan.edu.au/news/when-unemployment-falls-disadvantaged-workers-benefit-most/ so there really is a dichotomy between corporate profits and social wellbeing.