Is an effective anti-inflation policy possible in a situation where the government is pursuing populist socio-economic policies?
Is it possible to have an effective anti-inflation policy in a situation where the government is pursuing a populist, short-sighted economic policy instead of a forward-looking, reliable policy of sustainable and realistically pro-social economic development?
Can this kind of policy mix based on contradictory goals and incompatible actions lead to an economic crisis under ad hoc state interventionism?
The liberalisation of the functioning of financial markets since the 1970s, the change in international exchange rate standards by moving away from the Bretton Woods monetary system and towards floating exchange rate regimes initiated changes that led to an increase in the scale of volatility and risk in financial markets. On the other hand, the rise of central banking in terms of active monetary policy-making and monetarist liberalism led to the creation of additional unbacked money as instruments for short-term activation of economic processes and interventionist anti-crisis economic policies. According to the Austrian school of economic liberalism, this kind of action can lead to an escalation of destabilising situations in the financial markets and/or to financial and economic crises. This kind of situation occurred at the beginning of the 21st century and became one of the key factors in generating the global financial crisis of 2007-2009. In some countries, a new mechanism is being used to create additional unbacked money and inject it into the economy. This involves the creation of government-controlled public institutions in which new earmarked funds are created for government support and subsidy programmes for the cost of more expensive fuels, energy, etc., subsidy programmes for selected social groups, sectors of the economy, types of economic activity and/or programmes to finance further economic ventures. Money is added by being offered by government agencies who, representing the Treasury, offer government bonds directly to the central bank, which buys them, and in this way additional money is introduced into the economy without being covered by new products and services. This is a key factor in the rise of inflation in countries where, since the SARS-CoV-2 coronavirus pandemic (Covid-19), this mechanism has been used on a historically large scale. In addition to this, public debt and the risk of destabilisation of the state's public finance system are on the rise, but in the official data provided by the government-controlled Central Statistical Office and other government think tanks, the published financial indicators do not present a complete picture of the state of the state's public finances. It happens that, in the context of a lack of ideas on how to reduce inflation and the prospect of a downturn in the economy in the coming quarters, this mechanism is the main instrument of populist economic policy of the government, for which the priority is first and foremost to win the next parliamentary elections. This is the situation in the country in which I operate and the next parliamentary and local elections are due to be held as early as 2023.
In view of the above, I address the following research question to the esteemed community of researchers and academics:
Is it possible to have an effective anti-inflation policy in a situation where the government is pursuing a populist, short-sighted economic policy instead of a forward-looking, reliable policy of sustainable and realistically pro-social economic development?
What do you think about this subject?
Please respond,
I invite you all to discuss,
Thank you very much,
Warm regards,
Dariusz Prokopowicz