Wherever you live, there's a high chance that your grocery shopping is digging a hole in your savings. After a significant spike in energy costs across the planet, now it's confirmed: high inflation is back (and in our pockets).
Read in this newsletter how prices are skyrocketing across the planet and how an equitist economic policy would help us all.
WAIT: WHAT'S INFLATION AGAIN?
Inflation is one of those terms you always hear in the news, but you might struggle to remember what it means. From the almighty Wikipedia: "inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." So bottom line: in high inflation things cost more, so with your current savings you can buy less.
Many countries witnessed high levels of inflation until the 1970s. However, since then, most of the planet has been experiencing decreasing levels of inflation. The consensus among economists is that low, steady inflation is best (because it reduces uncertainty, stimulates investments, and it does not eat your savings: more here). For instance, both the US Fed and the European Central Bank have long-term inflation targets of 2%. What does it mean? Well, if the cost of a £1 jar of jam rises by 2p, then jam inflation is 2%.
SO WHAT'S GOING ON IN THE WORLD?
After a decade of low inflation following the global financial crisis, COVID-19 hit our planet. We are now in the middle of soaring price levels. Why?
- The pandemic caused unemployment & suffering and put a strain on the global supply chain of products and services. Difficulties in moving goods, delaying in delivering micro-chips, and lack of workforce took our governments by surprise driving up global food costs (and more);
- Mix this with a global energy shortage causing spiraling heating bills and similar
- Add a "covid bounce" where people are starting to buy stuff again, going out and "hoarding goods" - and
You get the perfect storm: less (access to) goods and more demand = inflation.
Numbers are scary: US inflation rose to 6.2% - the highest level in 31 years -, the UK to 3.1%, Germany to 4.5%, China doubled its rate too, and so on. And as you can imagine, wages are not moving along, so we - and especially those already vulnerable - lose out on this deal.
WHAT SHOULD AN EQUITIST GOVERNMENT DO TO CHANGE THIS COURSE?
Traditional governments bring down inflation by increasing interest rates. “More expensive borrowing generally means lower levels of disposable income, followed by lower levels of household spending. The lower demand for goods then lowers prices, which leads to a decrease in inflation.” (source) We started from the understanding that with high inflation we have less power to buy. Reducing income to drive down prices? How does this impact those most in need? Yeah, Badly. And following months of COVID-19, people are already doing pretty badly.
Instead, what an equitist government would do is support with all its means those who will suffer more from inflation: those with low income or little savings. A precondition is to avoid phasing out the social benefits given during the pandemic until the economic situation stabilizes. Then, exploring stronger, more modern social policies such as Youth Basic Income increased progressive taxation at the top or introducing rent caps.
In addition, an equitist government should use this time to invest in the future, by focusing on digitization & sustainability. It isn’t just the right thing to do, but also the smart one: it will create jobs which will be critical as unemployment benefits will be stretched, and investments in the "digital and green" future will always payback.
Lastly, an economic downturn brings one positive factor to the table: the political capital to tackle corruption and inefficiencies. Wherever you are from, there is a high likelihood that public money is routinely wasted due to bad faith or inefficiency of the institutions: 5% of global GDP is taken by corruption. And we dearly need public money for what we outlined. An equitist government would focus on leveraging public discontent to once and for all put an end to corruption.
However, I am certainly more of a politician than an economist nor an anti-corruption expert, so let me know your ideas by replying to this email!
- Ways to contribute: join the Atlas Policy Team, pressure your representative to keep subsidies up (no link here, depends on where you live as sadly we don't have a supranational institution fighting poverty)
- Interesting sources: The Economist forecasting lower inflation for 2022!
THE EQUITIST CORNER
From our Equitist manifesto: "An Equitist economy controls and steers market forces to decrease inequalities among its members. The paramount indicators of the health of an Equitist economy are high living standards of the population and a low level of economic inequalities provided that this is mostly achieved through the uplifting of those previously disadvantaged. "
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The world will not be changed by those who smile and carry on but by those standing tall and acting in the face of adversities. For Equity.
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