TIM HAZLEDINE is Emeritus Professor of Economics at the University of Auckland. He has written an angry column this week that attacks the Reserve Bank's efforts to suppress inflation. He suggests that 'Anyone who recommends unemployment as the solution to our problems should themselves be the first to be made unemployed."
Hazledine, of course, is making the point that attempting to defeat inflation by plunging the country into recession will impact most on those least able to take such a severe economic hit. Neither the Reserve Bank Governor nor the finance minister will be joining working class New Zealanders down at the food banks anytime soon.
Last year the NZ Herald reported that inflation was helping the corporate sector to post huge profits. In July the Treasury noted that company profits were already up a massive 39 percent. This year it has been reported that New Zealand's banks made a record $7.18 billion in 2022 - a net profit after tax that was a billion dollars higher than the year before. It has been these eye-watering figures that have led to calls for the introduction of a windfall tax and which the Labour Government has rejected.
But if the corporate sector is currently setting record profits, does it have to raise prices? The fact that it does so reveals that inflation is a question of class politics - which class gains at whose expense - rather than just a question of technical monetary policy.
Right now, the working class is losing. Hazledine observes that the Reserve Back's intent on 'slowing spending' is simply 'monetarist-speak for throwing people out of work and bankrupting businesses.'
High interest rates help to restrict demand and put downward pressure on wages and undermine stable employment. It is estimated that as many as 70,000 people will lose their jobs this year. The threat of unemployment is designed to discourage workers from making a fuss about their plight with a conservative trade union bureaucracy set the task of mopping up the dissenters. As Karl Marx observed, capitalism depends on unemployment - a 'reserve army of labour' - to keep workers desperate enough to agree to whatever terms of work they can get. Unemployment, in other words, is a means to prevent wages from growing so far that they threaten profitability.
Even so, both the Reserve Bank and the Labour Government are still gambling that further economic hardship will not be met with political resistance. Many people are struggling to simply put food on the table each day and they may well decide that they no longer have anything to lose.
It is obvious that the Liberal Establishment (because this is who we are dealing with) has failed to come to terms with the waning appeal of the free market model. Even the declaration by Prime Minister Chris Hipkins that Labour was returning to 'bread and butter issues' has no serious political intent behind it. It is an exercise in political rebranding in an attempt to stave off an election defeat.
Labour's divorce from its traditional working class base has become permanent. Labour is now dominated by what economist Thomas Piketty describes as 'the Brahmin left' - the educated liberal elite who benefit from a status quo that has failed so spectacularly to meet the basic needs of so many.
There is a mood for change but one that continues to be thwarted by the liberal establishment. Jacinda Ardern promised change in 2017 and then promptly became the handmaiden of capital. As we head toward another general election the parliamentary parties remain locked within the 'logic' of neoliberalism. But as the country dives deeper into recession more people may forcibly insist that the pampered elite, rather than strapped working people, should foot the bill for the country’s economic problems. And that's a demand the liberal establishment will never countenance.
