Fighting Inflation – What Would A Democratic-Socialist Government Do?
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 the “creative destruction” of “market forces”. 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” and “tax” 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 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 their 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.
We will never know, because the Labour Party is a neo-liberal outfit.
Big contribution to inflation? Fuel!
Yes, crude prices skyrocketed but not helping our cause is that NZ’s oil refinery was A, sold to private hands years ago and B, closed 3 months ago, something that appears trendy in the oil industry and has enabled oil companies to reap great profits. Plus we lost fuel supply security too. We are almost entirely reliant on Singapore for fuel at the whim of the oil companies now. They can do exactly what they want and the cold reality is our government is now utterly powerless. Oil companies, all foreign owned, could quite easily bring down a government too. And ironically the one talent Labour and its leader possess is playing politics and doing the numbers for self preservation but they missed the risk they placed themselves in.
No one in this government nor its vacant energy minister Megan Woods had the slightest clue how bad that would expose us and them to cost increases and other supply problems because no one in this government has any practical experience in anything.
Which simply highlights that the current government has a very very shallow talent pool, Wille Jackson being the sole the exception. Or at least the ones Jacinda picks fit the shallow pool theory, so I wouldn’t trust any of them otherwise to run a cake stall. And definitely some of their policies acted out as per their wishes have had some terribly perverse outcomes. Just ask Michael Hill Jewellers!
Unfortunately we don’t have the skills, intellect or the vision in Labour and definitely not the Greens to achieve what you suggest Chris. Good idea though!
And most certainly not in ACT or National.
There are certainly aspects of neoliberal austerity in Labour economic policy under Robertson but this pales to that of National or even worse, the ACT party. I agree that this Labour government are most unlikely to do lefty things.
Odd then that we don’t live in a neo-liberal society isn’t it? The state accounts for $1 of every $3 in NZ. Healthcare, education, infrastructure etc are all provided by the state. Largely, major assets are owned by the state although there has been partial privatisation to the point of those being like a bag of half sucked lollies.
NZ is a left of centre, social democracy with the occasional change in colour leading it from red to blue and back again, like the shuffling old vicar moving around the dead dried flowers in his church in an attempt to fool the half blind and dying parishioners that things are changing for the better.
As for Chris’ observation that none have had to ‘witness the expression on workers’ faces when they’re told that their employer is “letting them go’ it’s part of the problem that we have with this current lot of student and professional politicians in all parties. None of them have had to deal with the hard, unforgiving realities of life – life is tough and at times people have to make impossible decisions that have no good options, just less bad.
I’d rather an economic environment that’s well managed with stable inflation, like that delivered by Don Brash and carried on by Alan Bollard than this mess we’re in right now.
As for the idea that the state can get us out of this, it really seems laughable as where has that ever really worked without ending in disaster? Seems to me that this always ends up being the cliched road to hell, paved with good intentions.
We are headed to a recession, it will be destructive to some and many others will suffer. This isn’t entirely the fault of the RBNZ or Labour but both have more than enough culpability for the devastation that is tearing towards us like a dark, evil tornado of suffering. The forthcoming recession could have been softened had both parties done a better job so really it should be Grant and Adrian facing those who will lose homes, jobs and tragically in the occasional case, those whom they love.
They won’t be there to face those consequences though as they don’t actually care despite Chris’ forlorn hope that the state solve these problems. After all it’s always those old soldiers who’ve seen the brutal horrors of war that are the very last to agitate for a return to battle for they know the cruelty and terror that lies in wait for those who do fight. Whilst the analogy is clearly bombastic, it’s as true for economic and business management, sadly Grant hasn’t seen and doesn’t appear to understand the actual consequences of his decisions.
“It is not what democratic-socialists do.”
No it isn’t. They’d rather have death by 1000 cuts for everyone because “that’s fair” than treat the disease quickly the affected parts of the economy.
Muldoon drove the country into the debtor’s prison over the decade before Douglas told Lange “There Is No Alternative”.
At least the pain is shared fairly.
Workers had their wages screwed down throughout the 1990’s. How is that ‘Good’?
It’s good that it wasn’t a whole lot worse.
Because it would have have been had the 1980s economic reforms not been done. There is no free lunch, every public sector facility & socialist support benefit is ultimately provided by capitalist enterprise profits.
Save money by giving up the centralisation and task forces taking up money, left, right and centre that nobody wants like 3 Waters, Redundancy Insurance, Polytech reforms, health restructure, destroying freedom of speech.
Avoid confusion and save money by concentrating on getting existing dysfunctional government departments functioning first!
Waka Kotahi unit facing restructure deemed ‘no longer effective’, documents reveal
https://www.rnz.co.nz/news/national/469495/waka-kotahi-unit-facing-restructure-deemed-no-longer-effective-documents-reveal
Endless truck accidents in NZ roads now – what do you expect when you allow such light penalties for fraud and corruption and you can just pay $300 (car) or $2000 (truck license) for not turning up to your drivers license test! https://www.stuff.co.nz/auckland/114283545/bribes-for-driver-licences-deportation-order-issued-for-star-witness-and-youtube-sensation
Janet Wilson: Polytech merger’s ills a harbinger for Government’s other reforms
https://www.stuff.co.nz/opinion/129281573/janet-wilson-polytech-mergers-ills-a-harbinger-for-governments-other-reforms
If the government wants to tackle inflation they need to get some balls and start making all the bloated useless organisations get rid of their management – especially the top instead of those who actually have some skills – most of NZ’s issues are due to poor management at the top and middle – but it’s the people on the ground that pay for it.
NZ society is so dysfunctional that they seem to virtue signal about letting all these high needs people into NZ to reside and become resident here!
Fraudsterers, drug smugglers, animal abusers, people buying up NZ assets and running them into the ground, drink drivers, rapists, ‘retail & fast food’ managers or high end fraud managers like Joanna Harrison getting their hands on government departments ….
Overstayer can’t be found as bankers seek to serve a $1m bankruptcy notice on his wife
https://www.nzherald.co.nz/nz/overstayer-cant-be-found-as-bankers-seek-to-serve-a-1m-bankruptcy-notice-on-his-wife/A5TUYIGADONU4YG6JCTY6DVORI/
Ministry of Transport fraudster Joanne Harrison’s criminal history
https://www.stuff.co.nz/national/stuff-circuit/113601464/ministry-of-transport-fraudster-joanne-harrisons-criminal-history-revealed
Investors who don’t know what they are doing but just buy their way in, they are destroying NZ livelihoods, communities and jobs!
‘Rack and ruin’: Foreign investors forced to sell vineyard for huge loss
https://www.newstalkzb.co.nz/news/business/oio-forces-wealthy-foreign-investors-to-sell-boutique-karaka-point-vineyard-for-huge-loss/
The troubled redevelopment of the Waiwera Hot Pools complex by Russian billionaire Mikhail Khimich has ended in liquidation
https://www.interest.co.nz/property/98194/troubled-redevelopment-waiwera-hot-pools-complex-russian-billionaire-mikhail-khimich
We have ex police from the Asian unit, now working for convicted murderers and planting illegal trackers, interfering with a crime scene and not prosecuted in NZ by their mates at the police force. Crime does pay more and so does working and supporting deep pockets with few ethics.
Auckland police won’t prosecute ex-detective turned private eye over illegal surveillance
https://www.nzherald.co.nz/nz/auckland-police-wont-prosecute-ex-detective-turned-private-eye-over-illegal-surveillance/SQXRDDXZEKXHS6QDGKG3OFGXTE/
Bums on seats and zero enforcement or even interest and proof (over years) of good character of residents coming to NZ. Again start by focusing on NZ criminals before adding more from overseas in and then putting them into government departments!
People hear of NZ residency and immigration and think…..suckers!!! Most of those convicted can then spend 20+ years refusing to leave and being supported by our wokester legal system while more and more resources are poured into them and not into NZ citizens!
In Rob Muldoon’s time the Reserve Bank was not independent, and Muldoon was able to exercise greater control of the money supply by manipulating the “reserve ratio”, keeping it within the low twenties percentage wise. This probably helped maintain a strong dollar – many complained that the dollar was overvalued – and keep import prices down.
A democratic socialist government might also nationalise the banking system. This, I believe , was part of the first Labour government’s agenda but, apart from nationalising the BNZ, and setting up the RBNZ, they failed to carry through on it.
Here here. The money system should be run for the people, not the people for the money system.
How’s about not spending 25 million on an office fit out for ‘Waka Kotai’?
I don’t think we should worry about what democratic socialists would do. What would any socialist do? Hell, what would an economic moderate like Richard Nixon or Robert Muldoon do? Anything is better than what’s on offer from the two cheeks of the neoliberal a**.
Imposing cruelty in the name of kindness has only ever left humanity with more that is cruel, and less that is kind.
Oh I don’t know Chris; “Baroness” Thatcher was ‘kinda’ bitch…
This column reeks of socialism. Thank you Chris for putting forward such a coherent argument against the forces of neo-liberalism.
Well said about Rob Muldoon he at least tried evn if he was a hard nosed bugger with his wage and price freezes in the 1970s and 80s.
Did you discover this Bill Sutch utopia in your NLP archives Chris?
NZ is a neo-colony of the Anglo-American empire now caught in the coming war between it and the newly imperialist China.
NZ’s state is a Muppet transfixed in the headlights of these imperialist powers.
The only state that can make the changes you want is the one that smashes the Muppet state and unites with the workers in the imperialist powers who smash their states.
It’s called a workers’ state where the majority that creates the wealth rules in a socialist world.
Communism’s never worked anywhere else in the world ever.
Great stuff Chris – but how ironic that, if given the choice of who might best steer us through this mess, people would consider Muldoon over either of the current alternatives. But, if picking from politicians past was possible, they’d probably prefer Mickey Savage.
‘When the instinct of both their 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?’
Wouldn’t it be interesting to know how many times the Pentagon’s death-denying phrase ‘collateral casualties’ might have been heard in New Zealand’s polished boardrooms, let’s say since Bob Jones launched his NZ Party off the deck of Ayn Rand, Thatcher and Reagan in 1980.
Another excellent thought stream Mr Trotter. Thank you.
“CONFRONTED WITH THE CHALLENGE of a worsening cost-of-living crisis, what would a democratic-socialist government do?”
Exacerbate it?
Typically the left’s playbook is to interfere in markets, creating ever worse distortions until the whole thing folds.
I think the word that you might have been looking for Andrew is ‘excoriate’ it, ie find it very unsatisfactory and set about cleaning it up. They would give the market good medicine in just the right amount of drops!
And the typical right’s playbook is for the free market, which means exorbitant food, power prices and well, everything.
A: Not cause the inflation by printing all that money in the first place.