Policies Must Change to Curb Global Inflation
Within the space of a year, the West has moved from a world awash with money, high employment levels and ultra-low interest rates, to one of rising interest rates, lower growth and predicted high unemployment.
This can be seen across North America, Western Europe and Asia, as well as Australia.
Central banks around the world — from the Bank of England, the United States Federal Reserve and the European Central Bank, as well as Australia’s Reserve Bank — have all responded in exactly the same way: by sharply lifting interest rates, a measure which seems certain to push much of the developed world into recession in 2023.
There is a real danger that, just as the central banks’ previous loose money policies and low interest-rate policies triggered the inflationary spiral, their new policy will lead to high interest rates and low growth, the dreaded stagflation that crippled much of the Western world in the late 1960s and 1970s.
Their past record provides little confidence that the “short, sharp shock” treatment will work, when the shift to alternative energy will cause energy prices to soar for years to come, forcing up prices of transport, food, clothing, fuel and electricity, while OPEC will limit global oil production to keep prices high.
It would be a mistake to think that the world’s economic woes are simply the result of the Russian invasion of Ukraine. The rise in global inflation was already under way before February 24 this year, when Russia invaded Ukraine. But it has exacerbated the problem by forcing up the price of gas, coal and electricity across Europe, adding to inflationary pressures around the world.
Short-Sighted Policies
Kenneth Rogoff, former chief economist at the International Monetary Fund, recently wrote an article in Foreign Affairs entitled, “The Age of Inflation”, in which he blamed central banks and governments for creating the tidal wave of inflation that is sweeping across the world.
“Well into the covid19 pandemic,” he wrote, “Most [economists] regarded a return to the high inflation of the 1970s as implausible.
“Fearing a pandemic-driven recession, governments and central banks were instead preoccupied with jump-starting their economies; they discounted the inflationary risks posed by combining large-scale spending programs with sustained ultralow interest rates.
“Few economists saw the dangers of the enormous stimulus packages signed by U.S. Presidents Donald Trump, in December 2020, and Joe Biden, in March 2021, which pumped trillions of dollars into the economy.
Professor Rogoff also said that once the inflation genie has been unleashed, it will be difficult to put it back into the bottle. He argued that the powers of central banks need to expand to let them deal with a problem which they had created.
Underlying Causes
It is instructive to look at the factors that are driving inflation, particularly the rising costs for consumers and businesses.
One central element of this is the surging cost of energy, which, as Professor Rogoff said, is directly linked to “the green energy transition”; in other words, the abandonment of use of coal, gas and petroleum in favour of wind and solar power.
The repeated claims that wind and solar are the cheapest forms of energy is contradicted by the fact that around the world, the rising use of renewables and the closure of baseload coal-fired power stations have led to surging power prices for years.
As Franklin D. Roosevelt said (in a different context), repetition does not turn a lie into the truth.
Computer models may have predicted that rising carbon dioxide in the atmosphere will lead to rising temperatures, but their predictions over the past 30 years have been consistently far above actual temperatures and these models have never been subject to independent verification.
One of the world’s leading meteorologists, Dr Roy Spencer, who has been posting global satellite temperature data online for many years, recently wrote that all 36 climate models of U.S. temperatures over the past 50 years predicted temperatures well over those actually recorded.
The IPCC’s predictions, on which the projections of catastrophic climate change are based, use the same computer models.
If the weather bureau’s models are accurate only for up to a week ahead, why should we take seriously claimed temperature trends a year, five years, 10 years, or more implausibly 50 years ahead?
We are not powerless in this situation. Re-establishing our energy independence – by using fossil fuels for power generation, fuel and gas – is a necessary step in the process of ending the destructive inflationary spiral that threatens the economic foundation of families, employment and the future of Australian industry.
If it is good enough for Australia to export huge volumes of coal and natural gas overseas, it is good enough to use at home, to deal with inflationary pressures in our own country.
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Originally published at News Weekly.
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