英国经济学家批多国抗通胀政策：饮鸩止渴

Marshaled by the U.S. Federal Reserve, central banks around the world have had a unifying philosophy over the past year: Bring down inflation no matter the cost, even if it means risking pain for people and businesses. But that approach has been questioned more than ever March in the wake of several high-profile banking collapses in the U.S. and Europe. Now a British economist who predicted the 2008 global financial crash has escalated the issue, saying central banks prefer “class war over financial stability.”

The Fed and other central banks have underlined tight labor markets and high wages as key underlying causes behind inflation. But while loosening job markets might help cool down the economy, it also means layoffs, joblessness, and a potential recession—an unacceptable and risky trade-off for some critics.

“[C]ivil servants that head up central banks seem willing to sacrifice private banks and global financial stability in their rush to raise rates, crush demand, discipline workers and shrink the nation’s income,” Ann Pettifor, a British economist and frequent economic adviser who predicted the 2008 global financial crash with a prescient 2006 book on mounting debt worldwide, wrote in her Substack newsletter on March 19.

“In other words, their effective preference is for class war over financial stability.”

“Hard to face up to what central bankers are doing”

Silicon Valley Bank has taken its fair share of criticism for its collapse earlier this month, with many slamming its management, but the Fed also had a role to play in its downfall.

The Fed has been accused of blocking any phrasing about regulatory blunders that may have led to the bank’s collapse when the government announced SVB’s rescue. SVB’s failure was also tied to its assets losing value over the past year as the Fed abruptly shifted away from a near-zero-interest rate environment. That made SVB particularly vulnerable to a liquidity crisis, and other banks are in a similar position.

“The fact is I found it hard to face up to what central bankers are doing, not just by raising rates, suppressing demand, and lowering wages,” Pettifor wrote. “Through lack of analysis, regulation, oversight and foresight—central bankers have shown this last week they were prepared to use high rates to risk and even precipitate bank failures and global financial instability.”

She also criticized the European Central Bank for sticking to large rate hikes in mid-March despite the recent bank collapses in the U.S. Credit Suisse failed just days later, and was bought by USB in an emergency deal brokered by regulators.

Pettifor went on to reference an interview between former Treasury Secretary Larry Summers and comedian and political commentator Jon Stewart aired last week. Summers insisted that raising rates and tackling inflation at all costs was the right way forward, while Stewart challenged him on the outsized role corporate profits have played in fueling inflation, which has received comparably little attention from the Fed.

Pain to workers and lower-income groups has been depicted as a necessary evil in the battle to reduce inflation by Fed Chair Jerome Powell and other prominent economists, like Summers. But the approach of targeting the labor market to reduce inflation has also been widely criticized around the world. The Bank of England’s governor Andrew Bailey was slammed last year for asking British businesses to practice “restraint” in pay raise negotiations. More recently in the U.S., Powell’s method has been blasted for causing financial instability with this month’s banking crisis and ultimately placing the burden of reducing inflation on workers’ shoulders.

Pettifor isn’t the only voice critical of central banks’ policies. Political figures in the U.S., mainly on the progressive left including Sens. Elizabeth Warren and Bernie Sanders, have also criticized Powell and the Fed for risking driving the economy into a recession and casting millions into unemployment. Warren has been at the forefront of attacks, saying on March 19 that Powell had “failed” at his job and should no longer be chair. She has long been critical of Powell for the risks high interest rates pose to the labor market, warning earlier March that the Fed could put as many as 2 million Americans out of work by the end of its current tightening cycle.

Raising interest rate hikes and slowing down the economy tends to hit employees the hardest, especially low-wage ones, by triggering layoffs and slowing down wage growth. “Higher interest rates will harm millions of workers who will be involuntarily drafted into the inflation fight by losing jobs or long-overdue pay raises,” Robert Reich, former U.S. Labor Secretary, wrote in an op-ed for The Guardian last year shortly before the Fed began its tightening cycle.

To be sure, inflation has been a driving concern for Americans since 2022, often more so than any other issue. In February, 13% of Americans cited inflation as their biggest current concern, while only 1% mentioned wage issues, according to Gallup.

Inflation has been a heavy burden for Americans of all income levels since prices began creeping up in 2021. It’s been particularly painful for low and middle-income Americans, who have had to dip deep into their savings to cope with soaring food, energy, and housing prices. Inflation has been hard for high earners too, as more than half of high-income Americans are now living paycheck-to-paycheck.

But the Fed’s focus on inflation—and especially on labor market tightness which Wharton professor Jeremy Siegel earlier this month called “monomaniacal”—may be ignoring some important points behind rising prices. A 2022 study from the left-leaning Economic Policy Institute found that over half of price increases for goods and services could be attributed to larger profit margins among corporations, while only 8% of inflation was tied to higher labor costs.

Siegel told CNBC this month that since the beginning of the COVID-19 pandemic, worker wages have been rising more slowly than inflation and it was “hard to argue” that labor costs were the main contributor to inflation.

On the Fed’s larger inflation vision, some economists including Mohamed El-Erian have argued that its 2% goal is outdated and reaching it would lead to severe economic harm, while a “higher stable inflation rate” around 3% to 4% might be more appropriate.

It is unclear if the recent banking failures and pleadings from the left have swayed Powell from his commitment to bringing down inflation no matter the cost.