Raising Interest Rates Is About Screwing Workers
Today’s right-wingers hope to solve the inflation crisis like they did in the 1970s: through hiking interest rates, suppressing wages, and defeating already-hurting workers. That’s how economists wage class war.
Margaret Thatcher may have put an end to the crisis of the 1970s, but she did so by plunging millions of people into poverty and creating an economy that worked for a tiny elite in the South of England. (Levan Ramishvili / Flickr)
With inflation running at above 5 percent for the first time since the financial crisis, policymakers are stumped. The orthodox response to high inflation is to raise interest rates. Increasing the cost of borrowing is supposed to curtail spending and investment, reducing the pressure on resources that can drive up prices when the economy is growing quickly.
But inflation is not always caused by high rates of economic growth running up against resource limitations. It can be caused by anything that generates a sudden disequilibrium between demand and supply for a particular commodity. Today, those commodities are fossil fuels.
Rising oil and natural gas prices — the legacy of a pandemic in which economic activity, and therefore fuel consumption, fell to very low levels leading to a reduction in supply — impact the prices of almost all other commodities. This domino effect has been particularly clear when it comes to food because of the important role of fertilizers derived from natural gas.
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