The monetary policy-makers have met the enemy. | Unpublished

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Vancouver, British Columbia
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Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.

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The monetary policy-makers have met the enemy.

June 20, 2022

     Re: Think our economic recovery will be tough? You might be part of the problem,

    Heather Scoffield, June 9, 2022


    Many inflationary drivers  - caused by Covid-19 supply chain disruptions and the war in Ukraine - are beyond our control.

    However, some price increases have domestic sources: Canadian corporations almost doubled their profit margins in 2021, and the FIRE sector (finance, insurance, real estate) had the largest increase, rising to 21.8%. Regulations forbidding price-gouging or an excess profit tax with proceeds distributed to those in need would provide some inflation relief. 

    However, the mainstream tool is "managing expectations", not the expectations of bankers and corporate executives, but dashing the hopes of workers who would like pay raises in line with inflation and indebted consumers who will have to face even higher interest payments. 

    The monetary policy-makers have met the enemy. 

    And it is us. 



    1. The desperate need for a paradigm shift in establishment macroeconomics, Prof. Mario Seccareccia

        "How can central bankers morally justify raising the income of one group, the rentiers, in order to constrain the growth of another social group, the wage earners, in the name of combatting inflation? This begs the obvious question of “combatting inflation for whom?” Because of its contradictory nature, a monetary policy instituted by central banks that is concerned uniquely with fighting inflation has a permanent bias against wage growth." 

    2. The last thing policy makers should be thinking about right now is creating a recession

          Economist William Mitchell:

        The last thing any policy maker should be aiming for at present is a recession or even a “sharp slowdown”. You can be sure that the only ones damaged by that sort of strategy will be the workers, while the banksters will get away with millions.

        And, a recession will not ease the supply constraints.

        It would just bring the demand side down in line with the reduced supply capacities at present, cause massive income and job losses, and then, sometime in the future, as the pandemic eases, and ships and trucks start moving again, we would all wonder what the hell it was all for.

        Well, it would be clear what the motivation would have been.

        Continue the transfer of national income to the top-end-of-town and keep the workers from gaining some much needed real wages growth. 

    3. Rising Interest Rates Intended to Create Unemployment

        "So effectively, the Federal Reserve’s policy of raising interest rates to fight inflation is effectively a policy of raising the unemployment rate and weakening worker bargaining power. This is stated explicitly.


        ..the workers made $50,000 in 1970, and the CEOs made $2 million. The workers make $50,000 now, and the CEOs make $20 million. That’s the reality .. Gains from productivity go entirely to the ownership class, whether it’s CEOs or whether it’s coupon clippers on Wall Street." 

    4. RBA rejects theory that interest rate rises cure Covid and make trucks go faster

        "Remember the ‘markets’ is just a collection of economists who work for financial institutions that make more profits when interest rates are higher. It is no wonder they are always demanding higher rates. That is what vested interests are about. And for the media to just continually give them a a disgrace.


        Remember, that when the ‘market’ says it is ‘pricing in’ rate rises, what they are actually doing is placing bets on the central bank increasing rates and then running a propaganda campaign that says rate rises are inevitable."

    5. IMF and World Bank at odds with each other over interest rate hikes

        "The World Bank President said recently that central banks should not be relying on interest rate hikes:

        The inequality gap has widened materially, with wealth and income concentrating in narrow segments of the global population. Rate hikes, interest rate hikes, if that’s the primary tool, will actually add to the inequality challenge that the world is facing."

    6. Raising the policy interest rate: a false economic consensus

        "Today, tightening the access to credit is not the most effective way to fight inflation. It is time to put forward interventions that really help those affected by the rising cost of living."


        The use of monetary policy to fight inflation roughly corresponds to a transfer of funds from the pockets of households to banks vaults and their shareholders. This solution entails a class bias." 


    7. The Rise of Corporate Profits in the Time of Covid, DT Cochrane, 6 April 2022

        "in 2021 corporations brought in unprecedented levels of profit largely by increasing what they charge for their goods and services. This allowed corporations to almost double profit margins in 2021 to 16%, compared to the 9% average for 2002 to 2019.



        When corporations choose to raise their prices in order to boost their profit margins, they drive up inflation.

        The profit margin for FIRE companies was the highest for 2002 to 2019, and the sector had the largest percentage point increase in 2021, rising to 21.8% from an average of 14.4%. However, the profit margin of service & retail almost tripled, rising from an average of 4.4% through 2019 to 11.1% in 2021."


    8. Inflation, wages, and profits

        "corporations are taking advantage of current conditions to raise prices, both to increase their profits and to lower workers’ real wages..traditional attempts to contain inflation through monetary policy will hurt workers but not their employers or the tiny group that sits at the top of the economic pyramid."

     9. Fighting Inflation Excuse for Class Warfare

        "Raising interest rates only reduces spending and economic activity without mitigating ‘imported’ inflation, e.g., rising food and fuel prices. Recessions will further disrupt supplies, aggravating inflation and worsening stagflation."



    Modern Monetary Theory in Canada


June 24, 2022