
Our inflation post-Covid, the right tries to blame welfare and deficit policy. Just like in the 1970s. Wall Street Journal says that the national economists will now have to reassess their view of the national economy after Covid. Just like after the financial crisis of 2008. But this is calm according to the right because the crisis today with higher inflation is reminiscent of the one in the 1970s and therefore the economists know what the solution is. What a mumbo jumbo!
The 1970s economy crashed and got too high inflation when there was a shortage of oil which is one of the most primary production resources. The right used this to trick the world into abandoning Keynesianism. Keynesianism believes in deficits to drive the economy. When the government runs a deficit, it means that there is money to trade and produce with in society. So production- and utility-oriented governmental budget deficit is good. Money is only created through loans. If the state does not run a deficit by printing money, private individuals and companies must borrow from private banks so that there will be money to trade and produce with in society.
The fear of inflation led to a loan carousel
The 1970s led precisely to the fact that the state stopped printing money so much and private individuals and companies had to borrow more and more from banks. The borrowing requirement was kept up in i.a. Sweden by the state stopping subsidizing the construction of cheap, good rental properties and by keeping wages down so that the companies' profit share would increase.
Sometimes the private sector reached the limit of its creditworthiness. Then they were not allowed to borrow more money or, even worse, they began to pay back their loans. Because the value of money is a mortgaged labor input. Money is therefore a credit. So when people paid off their loans, that money ceased to exist. The biggest such crisis was in 2008.
The politicians solved this by pursuing the same policy that led to 2008, except that the states printed money to save stock prices. So after 2008, we have largely had a recession in real output but a falsely overvalued stock market and real estate sector.
The government learned very little from the 2008 crisis
The fact that nothing fundamental changed in 2008 led to:
- the global just-in-time production, which is very sensitive to disturbances such as e.g. the covid pandemic or the Ukrainian war continued until it crashed as it has now
-many countries i.a. Sweden had closed down its drug development resources, which is why the pandemic was extra protracted
-people saved their money during covid while production in society was shut down. If the amount of money is greater than the production capacity, then there will be inflation
-certainly oil has gone up, but even more important is that there is a shortage of semiconductors after the pandemic. Semiconductors are important for the production of other goods and services
So, just like in the 1970s, this is not a crisis of welfare-induced inflation and excessive deficits.
The causes of inflation in 2022
Instead, it depends on:
– the aggregate disadvantages of neoliberalism introduced to replace Keynesianism in the 1970s. The neoliberalism that became austerity and save-in-the-barns is what I described above that replaced Keynesianism.
- gigantic cuts in the production chains due to covid and the Ukraine war
Welfare and Biden's deficit budget are not the villain behind our high inflation. Repeating, as the Wall Street Journal suggests, the solution to the 1970s crisis would only introduce same old, same old, and a new investment in the neoliberalism/austerity/save-in-the-barns that led to where we are now.
No, instead the state must use its opportunity to join deficit to speed up production again and likely to reform the social economy according to what Modern Monetary Theory and Positive Money learn.
Good description
Thanks
I am not surprised that the right is taking this position. On the contrary, completely expected.
Unfortunately, it is a successful argument for the right. It is because of it that we have dismantled welfare and the good jobs since the 1970s.
A good description and food for thought.
Thanks!
That's how it was during the 70s with the oil crisis. Then the culprit was welfare, which was too expensive. Cutback begins
National Economist Sven Grassman reviewed the state finances.
From 1977 onwards, Sven Grassman showed that the foreign debt was exaggerated by 400 percent, the current account deficit by 300 percent
He stated that oil prices and because of that inflation through it were the very cause.
It was not allowed to be said and lost his position and he met an early death in 1992.
He was 52 years old.
The neoliberal era spreads and echoes yet!