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What Do Consumers Think Will Happen to Inflation?

Published by Anonymous (not verified) on Fri, 27/05/2022 - 11:08pm in



This post provides an update on two earlier blog posts (here and here) in which we discuss how consumers’ views about future inflation have evolved in a continually changing economic environment. Using data from the New York Fed’s Survey of Consumer Expectations (SCE), we show that while short-term inflation expectations have continued to trend upward, medium-term inflation expectations appear to have reached a plateau over the past few months, and longer-term inflation expectations have remained remarkably stable. Not surprisingly given recent movements in consumer prices, we find that most respondents agree that inflation will remain high over the next year. In contrast, and somewhat surprisingly, there is a divergence in consumers’ medium-term inflation expectations, in the sense that we observe a simultaneous increase in both the share of respondents who expect high inflation and the share of respondents who expect low inflation (and even deflation) three years from now. Finally, we show that individual consumers have become more uncertain about what inflation will be in the near future. However, in contrast to the pre-pandemic period, they tend to express less uncertainty about inflation further in the future.

The SCE is a monthly, internet-based survey produced by the Federal Reserve Bank of New York since June 2013. It is a twelve-month rotating panel (respondents are asked to take the survey for twelve consecutive months) of roughly 1,300 nationally representative U.S. household heads. Since the inception of the SCE, we have been eliciting consumers’ inflation expectations at the short- and medium-term horizons on a monthly basis. The short-term horizon corresponds to the year-ahead (with the survey question phrased as “over the next 12 months”), while the medium-term horizon corresponds to the three-year-ahead one-year rate of inflation (“0ver the 12-month period between M+24 and M+36,” where M is the month in which the respondent takes the survey). So, for instance, a respondent taking the survey in April 2022 is asked about inflation “over the 12-month period between April 2024 and April 2025.” Recently, we have on occasion elicited longer-term inflation expectations, by asking respondents to report their expected five-year-ahead one-year rate of inflation (“over the 12-month period between M+48 and M+60”). For each horizon, SCE respondents are asked to report their density forecasts by stating the percent chance that the rate of inflation will fall within pre-specified bins. These density forecasts are used to calculate the two measures that we focus on in this blog: the individual inflation expectation (the mean of a respondent’s density forecast), and the individual inflation uncertainty (measured as the interquartile range of a respondent’s density forecast).

The Median Consumer Expects Inflation to Fade over the Next Few Years

SCE respondents think the current high inflation environment will not fade over the next twelve months, but that it will taper off in the next three years and not persist beyond that. The chart below shows the monthly median individual inflation expectation at each horizon since January 2020. As can be seen here, inflation expectations in January 2020 were similar to the average readings during 2018-19 and are therefore representative of the period directly before the COVID-19 pandemic. Short- and medium-term inflation expectations increased slightly and at a similar pace during the first year of the COVID-19 pandemic. In the spring of 2021, as readings of actual inflation started to surge, short-term and, to a lesser extent, medium-term inflation expectations started to increase at a faster rate, reaching levels not seen previously in the nearly ten years since the inception of the SCE. Note that, unlike one-year-ahead inflation expectations which are still on an increasing trajectory, three-year-ahead inflation expectations have leveled off in recent months and even started decreasing slightly after reaching a peak of 4.2 percent in September and October 2021. Looking now at the few data points we have for the longer horizon, five-year-ahead inflation expectations have been remarkably stable in recent months and substantially lower than short- and medium-term inflation expectations.

Inflation Expectations at the Longer Horizon Are Stable and Much Lower

Source: Survey of Consumer Expectations.

Consumers’ Medium-Term Inflation Expectations Have Become More Divergent

At the onset of the COVID-19 pandemic, respondents disagreed about what impact the pandemic would have on short-term inflation, but most of them now believe inflation will be high over the next year. The chart below shows the distribution of individual inflation expectations across respondents in a given month. The left panel shows the share of respondents with low inflation expectations in a given month (that is, with an individual inflation expectation below 0 percent, which corresponds to deflation). The right panel shows the share of respondents with high inflation expectations (that is, with an individual inflation expectation above 4 percent). Starting with the short-term horizon, the chart shows that at the onset of the COVID-19 pandemic in the spring of 2020, there was a sharp increase in the share of respondents who expected deflation (left panel) and, simultaneously, an increase in the share of respondents who expected high inflation (right panel). Hence, consumers’ short-term inflation expectations became more divergent at the onset of the pandemic, with some consumers expecting COVID-19 to be an inflationary supply shock over the subsequent twelve months, and other consumers expecting COVID-19 to be a large deflationary demand shock. Starting in the second half of 2020, the share of respondents with low short-term expectations declined, while the share of the respondents with high short-term expectations continued to increase, consistent with the overall increase in short-term inflation expectations discussed in the previous paragraph.

The divergence in inflation beliefs we observed for short-term expectations at the onset of the pandemic has shifted to medium-term expectations during the past eight months. The chart below shows little change in the share of respondents with extreme (high or low) medium-term inflation beliefs at the onset of the pandemic. This suggests that consumers initially thought the pandemic would not have a strong persistent effect on inflation. After the fall of 2020, the share of respondents who expect high inflation in the medium-term started to increase steadily (see right panel). However, the rate of increase over the past year was slower than at the short-term horizon. Furthermore, after reaching a plateau last fall, the share of respondents who expect high inflation has declined slightly in the past few months. Perhaps more surprisingly, the left panel of the chart below shows that the share of respondents who expect deflation in the medium-term started to increase sharply in the fall of last year, moving from about 10 percent in August 2020 to nearly 20 percent in March and April 2022.

Although we caution against drawing strong conclusions from only a few data points, it seems that the distribution of longer-term inflation expectations has shifted to the left (toward lower inflation outcomes) in recent months. The chart below indicates that the recent increase in the share of respondents with low inflation expectations is similar at the medium- and longer-term horizons. In contrast, the share of respondents who expect high inflation five years from now is substantially lower than at the short- and medium-term horizons and it has remained mostly stable over the past eight months.

The Distribution of Longer-Term Inflation Expectations Has Shifted toward Lower Inflation Outcomes

Source: Survey of Consumer Expectations.
Note: An inflation expectation below 0 percent (as in the left panel) corresponds to deflation.

Individual Consumers Have Become More Uncertain about Future Inflation

Finally, we find that consumers have become more uncertain about future inflation, especially at shorter horizons. The final chart shows the median of individual inflation uncertainty across respondents in a given month. As can be seen in this staff study, inflation uncertainty exhibited two main patterns prior to the pandemic. First, inflation uncertainty at both the short- and medium-term horizons had been declining slowly and steadily since the start of the SCE in 2013. Second, SCE respondents almost always expressed more uncertainty for three-year-ahead inflation than for one-year-ahead inflation, perhaps reflecting the fact that predicting inflation further into the future tends to be more difficult. The chart below shows a complete reversal of these two trends after the World Health Organization declared COVID-19 to be a pandemic in March 2020: inflation uncertainty at both horizons has since increased steadily to record levels, and short-term inflation uncertainty has generally been higher than medium-term inflation uncertainty. The few observations we have for longer-term inflation uncertainty seem to confirm these trends. Indeed, five-year-ahead inflation uncertainty has increased over the past eight months, but has remained substantially lower than at the one- and three-year horizons.

Inflation Uncertainty Is Lower at a Longer-Term Horizon

 Inflation Uncertainty Is Lower at a Longer-Term HorizonSource: Survey of Consumer Expectations (SCE).
Note: The SCE measures individual inflation uncertainty as the interquartile range of a respondent’s inflation density forecast.

To conclude, the results presented in this blog post provide fresh evidence that consumers still do not expect the current spell of high inflation to persist long into the future. While median one-year-ahead inflation expectations have continued to rise over the past six months, three-year-ahead expectations have declined slightly, and five-year-ahead inflation expectations have remained remarkably stable and at a level well below recent inflation readings. However, there is now a divergence in consumers’ medium-term inflation expectations: a larger share of consumers expects high inflation three years from now, while simultaneously a growing share of consumers expects low inflation and even deflation. Finally, we have shown that consumers have become increasingly uncertain about future inflation, especially at shorter horizons. We are now conducting new research aimed at better understanding the factors driving these changes in consumer beliefs.

Chart Data

excel icon

Olivier Armantier is head of Consumer Behavior Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Fatima Boumahdi is a senior research analyst in the Bank’s Research and Statistics Group.

Gizem Kosar is a research economist in Consumer Behavior Studies in the Bank’s Research and Statistics Group.

Jason Somerville is a research economist in Consumer Behavior Studies in the Bank’s Research and Statistics Group.

Giorgio Topa is an economic research advisor in Labor and Product Market Studies in the Bank’s Research and Statistics Group

Wilbert van der Klaauw is an economic research advisor on Household and Public Policy in the Bank’s Research and Statistics Group.

John C. Williams is the president and chief executive officer of the Bank. 

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Australia – business capital expenditure declines in March-quarter but outlook remains positive

Published by Anonymous (not verified) on Thu, 26/05/2022 - 6:47pm in



The Australian Bureau of Statistics released the latest version of – Private New Capital Expenditure and Expected Expenditure, Australia – today (May 26, 2022), which is part of several releases leading up to the publication of the March-quarter National Accounts next Wednesday. Today’s business investment data shouws that private new capital expenditure in Australia fell by 0.3 per cent in the March quarter but was up by 4.5 per cent on the year. With the uncertainty continuing about the extent and duration of the current supply-side disruptions, the decline in business investment was, in fact, modest. And the expected investment plans signal that there is still no sense of crisis among those responsible for capital expenditure. One of the challenges facing the new Federal government is to maintain optimism in the economy in order to avoid the current-quarter decline in business investment becoming consolidated. If the new Treasurer keeps harping on about the $A1 trillion debt and the need to cut the fiscal deficit, they will fail that challenge and business will get spooked and we will head towards recession with on-going inflationary pressures.

The ABS data shows that for the March-quarter 2022 (real and seasonally-adjusted):

  • Total new capital expenditure fell by 0.3 per cent over the quarter but increased by 4.5 per cent over the year.
  • Buildings and structures investment fell by 1.7 per cent over the quarter but grew by 7.1 per cent over the year.
  • Equipment, plant and machinery rose by 1.2 per cent over the quarter and by 1.8 per cen over the year.
  • Mining investment fell 0.3 per cent for the quarter but was 2.48 per cent higher on the year.
  • Manufacturing investment fell by 1.5 per cent for the quarter and 6.9 per cent on the year.
  • Non-Mining investment fell by 0.3 per cent for the quarter and 9.7 per cent on the year.

The first graph shows the scale of Australia’s problem with respect to investment in productive capacity. It shows total real capital formation from the September-quarter 1987 (start of sample) to the March-quarter 2022.

The huge hump relates to the once-in-a-century mining boom (see below).

The next graph shows real private capital expenditure by broad sector.

The boom and bust in the Mining sector is quite extraordinary in historical terms.

The next graph shows the quarterly percentage change in Total and Mining private capital expenditure in real terms from the December-quarter 2007 to the March-quarter 2022.

The damage to capital formation from the GFC is clear.

It was also the case that there was some sporadic recovery in investment expenditure leading into the pandemic but the fortunes turned in 2020 as the pandemic impacts dampened sentiment.

Expected business investment

The ABS – Explanatory Notes – help us understand their expected investment expenditure series.

We read that:

Surveys are conducted in respect of each quarter and returns are completed in the 8 or 9 week period after the end of the quarter to which the survey data relate (e.g. March quarter survey returns are completed during April and May).

– Businesses are requested to provide 3 basic figures each survey:

– Actual expenditure incurred during the reference period (Act)

– A short term expectation (E1) and a longer term expectation (E2).

In relation to this pattern, the ABS say that for 2022-23:

  • the first estimate was available from the December 2021 survey as a longer term expectation (E2)
  • the second estimate was available from the March 2022 survey (again as a longer term expectation)
  • the third estimate was available from the June 2022 survey as the sum of two expectations (E1 + E2)
  • in the September 2022, December 2022 and March 2022 surveys the fourth, fifth and sixth estimates, respectively, are derived from the sum of actual expenditure (for that part of the year completed) and expected expenditure (for the remainder of the year) as recorded in the current quarter’s survey
  • the final (or seventh) estimate from the June quarter 2023 survey is derived from the sum of the actual expenditure for each of the four quarters in the 2022-23 financial year.

As a result we get the following graph of Total Capital Expenditure in the year to date (solid columns) and Expected full year capex (clear columns), which allows you to trace the shifting expectations of expenditure (the plans) and what actually transpires.

It is clear that expected (planned) private investment expenditure for 2022-23 is higher than it was in the current year, which has one-quarter to go.

The ABS note that:

Estimate 6 for 2021-22 is $142.8b

This is 1.4% higher than Estimate 5 for 2021-22

Estimate 2 for 2022-23 is $130.5b

This is 11.8% higher than Estimate 1 for 2022-23

In other words, investment plans by corporations are pointing to an expansion in spending over the next 12 months, which is suggests that businesses are not thinking that the inflationary period will turn into an extended period of stagflation and that there will sufficient demand in a year’s time to absorb the extra capacity.

The next graph shows the expected investment for the next 12 months (Estimate 3), which is the most recent we have for 2021-22.

After contracting by 11.9 per cent in 2021, it has risen by 17.3 per cent in the most recent up to the current period.

Why does this matter?

A basic insight to come out of the economic growth literature (Harrod-Domar approach) is that any notion of a steady-state (where the economy is at rest) will be transitory because of the dual characteristic of investment spending.

1. Investment adds to aggregate spending in the current period (demand-side effect) and stimulates income growth.

2. It also adds to the productive capacity of the economy (supply-side effect) and increases potential income and output in the future.

To fully utilise the growing productive capacity the economy must also experience appropriate aggregate demand growth to absorb the increased output levels made possible by the increased productive capacity.

This means that the income level that might be consistent with full employment of capital and labour in the current period will be deficient over time as the productive capacity grows via investment expenditure.

Thus, aggregate demand has to grow in the next period to ensure the extra capital is fully utilised. The expenditure side of the economy can be seen as always chasing the growth in capacity that it creates.

The dual nature of investment raises the possibility of crises occurring where capital and labour resources lie idle as a result of aggregate demand failing to keep pace of the growth in productive capacity.

The problem is different when investment spending falters.

Then the growth of productive capacity slows and the inflation ceiling falls.

What does that mean?

It means that potential GDP (the capacity of the economy to produce output) falls at the same time as actual output is falling due to a lack of current expenditure driving firm cutbacks but also cutting their forward-looking investment expenditure plans.

Which means that the economy can support only lower rates of overall GDP growth (and employment creation) without coming up against capacity constraints.

That becomes a major issue for nations after prolonged recessions.

Another aspect of investment behaviour that we observe in the real world is asymmetry. Investment in new capital stock usually requires firms to make large irreversible capital outlays.

Capital is not a piece of putty that can be remoulded in whatever configuration that might be appropriate (that is, different types of machines and equipment). Once the firm has made a large-scale investment in a new technology they will be stuck with it for some period.

In an environment of endemic uncertainty, firms become cautious in times of pessimism and employ broad safety margins when deciding how much investment they will spend.

Accordingly, they form expectations of future profitability by considering the current capacity utilisation rate against their normal usage.

They will only invest when capacity utilisation, exceeds its normal level. So investment varies with capacity utilisation within bounds and therefore productive capacity grows at rate which is bounded from below and above.

The asymmetric investment behaviour thus generates asymmetries in capacity growth because productive capacity only grows when there is a shortage of capacity.

This insight has major implications for the way in which economies recover and the necessity for strong fiscal support when a deep recession is encountered.

Two conclusions arise from these observations.

1. Currency-issuing governments should do everything they can within their capacity to avoid recessions because they not only have damaging short-term impacts, but, also lead to investment shortfalls, which cause problems into the future as a result of capacity shortages.

2. Knowing investment is asymmetric means that policy should endeavour to instil confidence in the sales environment for several period out to encourage firms to invest in new capacity based on the confidence that the output that capacity can support will sell.


With those points in mind, it is clear that one of the challenges facing the new Federal government is to maintain optimism in the economy in order to avoid the current-quarter decline in business investment becoming consolidated.

If the new Treasurer keeps harping on about the $A1 trillion debt and the need to cut the fiscal deficit, they will fail that challenge and business will get spooked and we will head towards recession with on-going inflationary pressures.

Business Conditions and Sentiment data release – mixed evidence on inflation

The ABS also released their – Business Conditions and Sentiments, May 2022 – data, which is interesting because it tells us something about the way in which Australian businesses are viewing the current inflationary episode.

The data shows that:

1. 38 per cent of businesses “expect to increase their prices by more than usual” – not much change on the March outcome, which suggests there is no acceleration in inflationary expectation.

2. 48 per cent “have no plans to increase their price of goods and services over the next three months” – which is an important indication that cost pressures are not generalised (mostly because wages growth remains low).

3. Of those in the 38 per cent, the main reason was rising input costs (92 per cent) and rising energy/fuel costs (78 per cent). The two factors are not independent because input costs are being passed on by other companies who are enduring rising fuel costs.

What we will observe at some point, is that when OPEC increase supply and prices drop because it becomes counterproductive for them to try to squeeze profits on margin once volumes start to fall of with decreased demand as economies slow, that these pressures will evaporate.

4. Of the 48 per cent, 46 per cent cited the need to “retain customers” as the reason while 46 per cent cited “fixed price contracts”.

We have known for years that firms will defend market share (retention of existing customer base) rather than go for short-run margin push and find that they lose custom to other firms in the same segment.

Further, catalogue pricing is an important aspect of any market and firms know that if they become capricious with respect to previously advertised prices they stand to lose more in volume than they gain on margin.

39 per cent of the 48 per cent group reported this as a reason.

In other words, prices are sticky over some defined period.

It remains to be seen whether the reasons that are promoting the ‘stickiness’ transcend the transitory pressures pushing up energy and other costs at present.

Given the pressures are coming mostly from the supply disruptions associated with the pandemic, I doubt it.

5. In terms of sectors, “expected price increases” eased on retail trade, financial and insurance, transport, postal and warehousing, and the utilities.

This appears to be a global softening and is consistent with the evidence I presented yesterday that cost pressures in Europe have fallen for the second consecutive month.


Next Wednesday, the Australian National Accounts come out and we will see by how much this negative investment performance drags down growth.

Presentation to Economic Society of Australia

Published by Anonymous (not verified) on Wed, 25/05/2022 - 5:20pm in

It’s Wednesday and I just finished a ‘Conversation’ with the Economics Society of Australia, where I talked about Modern Monetary Theory (MMT) and its application to current policy issues. Some of the questions were excellent and challenging to answer, which is the best way. You can view an edited version of the discussion below and then enjoy The Meters.

Economic Society Presentation – May 25, 2022

Here is an edited version of the discussion including the Q&A section. The whole session ran for 52 minutes including introductions etc.

The production quality – resolution, sound, etc – is not the best because it was taken of a Zoom recording on low resolution. The video was created by the organiser – the Economic Society of Australia.

I did what I could to enhance the quality of this edited version – at times you will not cuts which corresponded sometimes to degraded audio.

Thanks to Belinda and Diane for their work in organising this.

Inflation may be peaking in Europe

There was also some consternation about the annual Euro area negotiated wage growth for the first-quarter which rose to 2.8 per cent.

The usual Pavlov reaction from mainstream economists was that it signalled a need for the ECB to intervene quickly and scrap its asset purchasing program and start hiking rates.

They should have read the latest – Deutsche Bundesbank Monthly Report – for May 2022 (in German).

In the opening chapter – Die Wirtschaftslage in Deutschland im Frühjahr 2022 (the economic situation in Germany for Spring 2022) – we read:

1. “Der deutsche Arbeitsmarkt entwickelte sich im ersten Vierteljahr 2022 ausgesprochen günstig” (German labour market is evolving well in the first quarter 2022).

2. “Damit kehrten jedoch auch die Engpässe von Arbeitskräften aus Vor-krisenzeiten zurück” (But the pre-crisis labour shortages returned) – why? because of Omicron (workers getting sick) and the Russian invasion.

3. “Die Tarifverdienste stiegen im Winter 2022 deutlich stärker als im Herbst 2021. Sie erhöhten sich gegenüber dem Vorjahr um 4,4%, maßgeblich wegen hoher Sonderzahlungen und Corona-Prämien. Die um solche Sonderzahlungen bereinigten Grundvergütungen legten hingegen lediglich um 1,6 % zu. Die Effektivverdienste dürften im ersten Quartal vor allem aufgrund im Vorjahresvergleich spürbar niedrigerer Kurzarbeit noch kräftiger gestiegen sein als die Tarifverdienste”

This is the important part – summarising – Winter 2022 negotiated wages rose more sharply than Autumn 2021 – 4.4 per cent annual.


“mainly as a result of high one-off payments and coronavirus bonuses”

“By contrast, after adjustment for such one-off payments, basic remuneration was up by only 1.6%.”

So once we take out this one-off boost in Germany, the Euro wide area negotiated wages outcome is likely to be around 2 per cent for the year – which I don’t need to remind anyone is very low and not pushing the inflation rate.

Further, the latest – Flash Euro PMI – came out yesterday (May 24, 2022), which provides a very current indication of what is going on.

The headline read in part “Cost pressures ease for the second month”.

Among other quotes:

1. “Factory output continued to be constrained by widespread supply shortages, with the Ukraine war and China’s lockdowns having exacerbated existing pandemic-related supply chain pressures.”

2. “Slightly slower rates of inflation were seen for both goods and services, principally reflecting the slower growth of costs recorded during the month.”

3. “there are signs that inflationary pressures could be peaking, with input cost inflation down for a second successive month and supply constraints starting to be less widely reported”.

The takeaway?


Once all these supply disruptions dissipate, inflation will fall rapidly.

Tragic farce of all time

Republican politicians in the US sending the victims of gun violence – including massacres of children – their ‘thoughts and prayers’.

Just ban the f**k**g guns!

Without the guns there can be no mass shootings.

Levy Summer Seminar 2022

I will be presenting in several sessions at the – Levy Institute 2022 Summer Seminar – which runs from June 11-18, 2022.

If you are interested in attending (I am not sure whether spaces remain) you can find details at the site.

This will be my first international flight since February 2020 and I have a good stock of masks at hand.

It will be great to reconnect in person with some of my MMT mates in the US and to talk MMT with those who seek to learn more.

Music – The Meters

This is what I have been listening to while working this morning.

One of the best funk bands of the 1970s was – The Meters – and they remain one of my favourites on my regular play list.

This track – Ain’t no use – is on their fifth studio album – Rejuvenation – which was released in 1973 and is a classic of its type.

I remember the day I purchased this album sometime in 1975.

You here their lines in so many records since such was the influence of this band.

The guitarist – Leo Nocentelli – has it down for sure.

All that syncopation drives a person crazy with delight.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

First-Time Buyers Were Undeterred by Rapid Home Price Appreciation in 2021

Published by Anonymous (not verified) on Sat, 21/05/2022 - 3:32am in

 young ethnic family looking at a home with house of sale sign and sold over it.

Tight inventories of homes for sale combined with strong demand pushed up national house prices by an eye-popping 19 percent, year over year, in January 2022. This surge in house prices created concerns that first-time buyers would increasingly be priced out of owning a home. However, using our Consumer Credit Panel, which is based on anonymized Equifax credit report data, we find that the share of purchase mortgages going to first-time buyers actually increased slightly from 2020 to 2021.

The housing market was very active last year. As shown below, new purchase mortgage volume increased for the tenth consecutive year since a low in 2011 following the housing bust. We classify a household as a first-time buyer (FTB) if there has never been a mortgage lien on their credit file prior to this purchase mortgage. This provides a more accurate measure of FTBs than the traditional measure, based on not owning a home in the past three years. The number of purchase mortgages originated by FTBs increased from 2.25 million in 2020 to 2.52 million in 2021—an 11.9 percent increase. In contrast, purchase mortgages originated by repeat buyers increased by a slower 7.5 percent—roughly half its 15 percent pace in 2020.

New Purchase Mortgage Volume Continues to Rise

Source: New York Fed Consumer Credit Panel/Equifax.

How did FTBs fare in 2021? As shown by the blue line in the chart below, despite the 19 percent increase in house prices nationally, the FTB share of purchase mortgages increased slightly to 48.3 percent as compared to 47.3 percent in 2020. Using our measure, the FTB share has been steadily rising over the last eight years and is moving closer to its maximum level over the past twenty years of 50.7 percent in 2010. When we divide housing markets by the extent of their house price increases over 2021, we did not find any relationship between the pace of house price increases and the change in the FTB share. Disaggregating by age, we found that the FTB share increased for all ten-year age groups up to age 59.

A broader measure of access to homeownership by FTBs is to look at FTBs as a share of all home purchases, not just those financed by a mortgage. Redfin calculates the percentage of home purchases that are made by all-cash buyers. These buyers include large institutional investors as well as individuals. According to Redfin’s data, cash purchases as a percentage of home purchases increased from 25.3 percent in 2020 to 30 percent in 2021. If we assume that all FTBs finance their purchases with a mortgage, then we can calculate the FTB share of all home purchases. As shown by the red line in the chart below, our broader measure of FTBs’ purchases as a share of all home purchases fell from 35.3 percent in 2020 to 33.8 percent in 2021.

First-Time Buyers’ Share of Mortgages and Home Purchases

Source: New York Fed Consumer Credit Panel/Equifax.

Given the strong increase in house prices, how did FTBs manage to maintain their share of purchase mortgages? As shown in the following chart, the surge in house prices in 2021 resulted in higher purchase mortgage balances for both first-time and repeat buyers. Mortgage balances increased by 13.3 percent for FTBs in 2021, exceeding the prior year’s increase of 8.6 percent.

Average Balance of Purchase Mortgage by Type of Buyer

Source: New York Fed Consumer Credit Panel/Equifax.

What matters is how these higher mortgage balances translate into monthly payments for households. Freddie Mac reports that the average thirty-year FRM mortgage rate in 2021 was 2.96 percent, down modestly from a rate of 3.11 percent in 2020. This decline in the average mortgage rate was not enough to offset all of the higher mortgage balances for FTBs, resulting in the average monthly payment for FTBs increasing by 7.7 percent (from $1,594 per month in 2020 to $1,718 in 2021—an increase of slightly under $1,500 per year). These monthly payments include property taxes and/or homeowners insurance if they are escrowed. However, data from CoreLogic indicate that the average down payment percentage for FTBs rose from 8.5 percent in 2020 to 9.2 percent in 2021. If the decline in the FTB share of home purchases was due to growing affordability challenges, we might have expected the average down payment percentage to have been lower in 2021 than in 2020.

A possible alternative explanation is that the decline in FTBs’ share of home purchases may reflect FTBs being crowded out of the market as the purchase activity by all-cash buyers increased. If this took place, we cannot directly identify these households in our data. We do find that the average age of an FTB increased slightly, rising from 35.7 years in 2020 to 36.4 years in 2021. This might suggest that younger households found it relatively more difficult to compete in the tight housing market of 2021. However, the rise in the average age is well within the year-to-year variation we see in our data over the past decade. The growth in FTB purchase mortgages was also concentrated in conventional mortgages guaranteed by Fannie Mae and Freddie Mac, while the volume of FTB purchase mortgages guaranteed by the FHA/VA remained constant between 2020 and 2021. This could also indicate that the challenges in transitioning to homeownership in 2021 were more acute for households that need to make smaller down payments and therefore use FHA mortgages to finance their home purchase.

The housing market was on fire in 2021, with house prices rising 19 percent nationally. Despite this headwind, the FTB share of purchase mortgages grew slightly, continuing a trend underway since 2013. However, when we factor in all-cash purchases, we find that the FTB share of home purchases declined by 1.5 percentage points. This suggests that the influx of all-cash buyers in 2021 may have crowded out some FTBs.

Donghoon Lee is an economic research advisor in the Bank’s Research and Statistics Group.

Donghoon Lee is an economic research advisor in the Bank’s Research and Statistics Group.

Joseph Tracy is an executive vice president and senior advisor to the president at the Federal Reserve Bank of Dallas.

How to cite this post:
Donghoon Lee and Joseph Tracy, “First-Time Buyers Were Undeterred by Rapid Home Price Appreciation in 2021,” Federal Reserve Bank of New York Liberty Street Economics, May 12, 2022,

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Do Businesses in the Region Expect High Inflation to Persist?

Published by Anonymous (not verified) on Sat, 21/05/2022 - 3:30am in



As the economy continues to recover from the pandemic, a combination of strong demand,  severe supply disruptions, widespread labor shortages, and surging energy prices has contributed to a rapid increase in inflation. Indeed, the inflation rate, as measured by the Consumer Price Index (CPI), has exceeded 8 percent over the past year, the fastest pace of price increase since the early 1980s. If businesses and consumers expect inflation to be high in the future because it is elevated today, they may change their behavior accordingly, which can make inflation even more persistent. In other words, expectations about the path of future inflation can affect how current inflation will actually evolve. In particular, among businesses, expectations about future inflation can shape how they set wages and prices. Our May regional business surveys asked firms what they expected inflation to be one year, three years, and five years from now. Responses indicate that while businesses, like consumers, expect high inflation to continue over the next year, such elevated levels of inflation are not expected to persist over longer time horizons.

Businesses See Inflation Moderating

A common way to gauge inflation expectations is to ask households about the path of future price increases. Indeed, our Survey of Consumer Expectations has long asked people about their outlook for inflation. Businesses, however, can offer a valuable perspective on inflation expectations because they regularly negotiate employee wages and set the prices of the goods and services they provide—precisely the kinds of business decisions that can be affected by expectations of high future inflation. In fact, recent research suggests that the expectations of businesses tend to be more predictive of actual inflation than the expectations of households.

Our May Empire State Manufacturing Survey and Business Leaders Survey included questions posed to regional businesses about their inflation expectations. When queried about their expectations over the next year, businesses generally expect inflation—as measured by the change in the CPI—to remain on the high side. As the chart below shows, the typical manufacturer expects prices to rise by 6.5 percent in the year ahead and the typical service firm expects inflation to be 6.1 percent over the next twelve months. These short-term expectations are only modestly lower than the actual inflation rate over the past year. However, when asked about inflation expectations over the medium-to-long term (three to five years ahead), businesses in both surveys expect price increases to moderate to 4 percent in 2025 and 3 percent in 2027. Interestingly, inflation expectations among businesses in the region line up quite well with the inflation expectations of households obtained by our nationwide Survey of Consumer Expectations.

Median Inflation Expectations among Businesses and Consumers, May 2022

Sources: U.S. Bureau of Labor Statistics, Consumer Price Index, May 2022; New York Fed Regional Business Surveys, May 2022; New York Fed Survey of Consumer Expectations, February and April 2022.

How much consensus is there among businesses on the path of future inflation? Our survey finds that firms’ inflation expectations exhibit fairly wide dispersion one year ahead, but tend to converge at longer time horizons. In particular, the inter-quartile range for one-year expectations—that is, what the middle 50 percent of respondents expect—is 5 to 10 percent among manufacturers and 5 to 8 percent for service firms, but narrows to 2 to 4 percent for both kinds of businesses five years out.


Consistent with evidence from household surveys, our regional business surveys indicate that firms’ expectations about inflation a few years out tend to be significantly lower than the current rate of inflation. This pattern of inflation expectations suggests that both businesses and consumers view the current period of high inflation largely as a consequence of the unusual economic environment. Thus, despite high current inflation, inflationary pressures are not expected to persist once economic conditions stabilize.

Jaison R. Abel is head of Urban and Regional Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Jason Bram is an economic research advisor in the Bank’s Research and Statistics Group.

Richard Deitz is an economic research advisor in the Bank’s Research and Statistics Group.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Global Supply Chain Pressure Index: May 2022 Update

Published by Anonymous (not verified) on Sat, 21/05/2022 - 3:29am in



Supply chain disruptions continue to be a major challenge as the world economy recovers from the COVID-19 pandemic. Furthermore, recent developments related to geopolitics and the pandemic (particularly in China) could put further strains on global supply chains. In a January post, we first presented the Global Supply Chain Pressure Index (GSCPI), a parsimonious global measure designed to capture supply chain disruptions using a range of indicators. We revisited our index in March, and today we are launching the GSCPI as a standalone product, with new readings to be published each month. In this post, we review GSCPI readings through April 2022 and briefly discuss the drivers of recent moves in the index.

More Stress on Supply Chains

The chart below provides an update of the GSCPI through April; readers can find a link to the updated data series on our new product page. Between December 2021 and March 2022, the index registered an easing of global supply chain pressures, though they remained at very high levels historically. However, the April 2022 reading suggests a worsening of conditions as renewed strains emerge in global supply chains.

April Data Indicate Worsening of Supply Chain Pressures

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

Note: Index is scaled by its standard deviation.


Before analyzing this recent pickup in supply chain pressures, we remind readers that the GSCPI is based on two sets of data. Global transportation costs are measured by using data on ocean shipping costs, for we which we employ data from the Baltic Dry Index (BDI) and the Harpex index, as well as BLS airfreight cost indices for freight flights between Asia, Europe, and the United States. We also use supply chain-related components  of Purchase Manager Index (PMI) surveys—“delivery times,” “backlogs,” and “purchased stocks”—for manufacturing firms across seven interconnected economies: China, the euro area, Japan, South Korea, Taiwan, the United Kingdom, and the United States. Before combining these data within the GSCPI by means of principal component analysis, we strip out demand effects from the underlying series by projecting the PMI supply chain components on the “new orders” components of the corresponding PMI surveys and, in a similar vein, projecting the global transportation cost measures onto GDP-weighted “new orders” and “inputs purchased” components across the seven PMI surveys.

Sources of Pressure

So, what are the drivers behind recent moves in the GSCPI? The charts below illustrate how each of the underlying variables contributed to the overall change in the GSCPI in the last two months. Each column represents the contribution, in standard deviations, of each component of our index to the overall change in the index during a given period. In the first chart, we examine February-March 2022. We note that the lessening of supply chain pressures over this period was widespread across the various components, which indicated a welcome reduction in global supply chain disruptions. Most of the series in our data set declined over this period; the U.K. “backlog” component worsened and the U.S. “purchased stocks” component increased marginally.

Widespread Improvements Seen across Components in March 2022

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

In the chart below, we focus on the contributions of the underlying components of the GSCPI from March to April 2022.

Global Supply Chain Pressures Worsen in April 2022

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

As the chart indicates, the worsening of global supply chain pressures in April was predominantly driven by the Chinese “delivery times” component, the increase in airfreight costs from the United States to Asia, and the euro area “delivery times” component, as other components have eased over the month. These developments could be associated with the stringent COVID-19-related lockdown measures adopted in China, as well as the consequences of the Ukraine-Russia conflict for supply chains in Europe.

Finally, as we noted in our previous post and discuss on our product page, recent GSCPI readings are subject to revision. The chart below compares the current GSCPI release with the previous three releases, showing that revisions can have an impact up to a year back in time. The chart indicates that, based on the current vintage of the GSCPI, the decrease in global supply chain pressures through April occurred at a slighter faster pace than previous GSCPI estimates had suggested.

Revised and Realized Data Can Alter Previous Supply Chain Pressure Readings

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

Note: Index is scaled by its standard deviation.


In this post, we provide an update of the GSCPI through April 2022. This estimate suggests that the moderation we have observed in recent months has been partially reversed, as lockdown measures in China and geopolitical developments are putting further strains on delivery times and transportation costs in China and the euro area. Forthcoming readings will be particularly interesting as we assess the potential for these developments to further heighten global supply chain pressures.

Chart Data

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Gianluca Benigno is the head of International Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Julian di Giovanni is head of Climate Risk Studies in the Bank’s Research and Statistics Group.

Jan J.J. Groen is an economic research advisor in the Bank’s Research and Statistics Group.

Adam Noble is a senior research analyst in the Bank’s Research and Statistics Group.

How to cite this post:
Gianluca Benigno, Julian Di Giovanni, Jan Groen, and Adam Noble, “Global Supply Chain Pressure Index: May 2022 Update,” Federal Reserve Bank of New York Liberty Street Economics, May 18, 2022,

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Australian wages growth remains flat despite RBA claims that a breakout is about to occur

Published by Anonymous (not verified) on Wed, 18/05/2022 - 12:37pm in



On May 4, 2022, the RBA increased interest rates claiming they had evidence of accelerating wages growth. For the last few years, the RBA had been signalling that they would not move on interest rates until there was a concerted increase in wages growth, which has been at record low levels for some years now. Well, today, we found out the RBA was poorly informed because the latest wages data shows that wages growth has been flat in each of the last three quarters. The is no acceleration. Wages growth is not driving the inflation trajectory. Workers are enduring massive real wage cuts and the RBA has made that worse by pushing up mortgage rates for those exposed. Today (May 18, 2022), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2021. The WPI data shows that nominal wages growth was 2.4 over the 12 months. Private sector wages growth has remained at low levels. The last time wages growth was higher was in the December-quarter 2014. While the conservatives are railing about inflation now and looking to target workers’ wages (further cuts), the evidence is that the wages side is not driving any inflationary pressures – the opposite is the case. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.

The Wage Price Index:

… measures changes in the price of labour, unaffected by compositional shifts in the labour force, hours worked or employee characteristics

Thus, it is a cleaner measure of wage movements than say average weekly earnings which can be influenced by compositional shifts.

The summary results (seasonally adjusted) for the March-quarter 2022 were:

Quarterly (per cent)
Annual (per cent)

Private hourly wages

Public hourly wages

Total hourly wages

Basic CPI measure

Weighted median inflation

Trimmed mean inflation

On price inflation measures, please read my blog post – Inflation benign in Australia with plenty of scope for fiscal expansion (April 22, 2015) – for more discussion on the various measures of inflation that the RBA uses – CPI, weighted median and the trimmed mean The latter two aim to strip volatility out of the raw CPI series and give a better measure of underlying inflation.

Real wage trends in Australia

The summary data in the table above confirm that the plight of wage earners continues in Australia.

Real wages fell again in the March-quarter in both the private and public sectors.

It is clear that the public sector wage caps (state and federal) have created an environment where private sector wage rises are being constrained, independently of the state of the private labour market.

The first graph shows the overall annual growth in the Wage Price Index (public and private) since the March-quarter 2000 (the series was first published in the March-quarter 1997) and the RBA’s core annual inflation rate (red line).

Any blue bar area above the red line indicate real wages growth and below the opposite.

Workers have endured increasing real wage cuts over the last four quarters.

The next graph shows the growth in private sector real wages since the March-quarter 2005 to the March-quarter 2021. The core inflation rate is used to deflate the nominal wages growth.

The blue bars are the annual rate of change, while the red line is the quarterly rate of change.

The fluctuation in mid-2020 is an outlier created by the temporary government decision to offer free child care for the March-quarter which was rescinded in the June-quarter.

Overall, the record since 2013 has been appalling.

Throughout most of the period since 2015, real wages growth has been negative with the exceltion of some partial catchup in 2018 and 2019.

Industry Variability

The aggregate data shown above hides quite a significant disparity in quarterly wage movements at the sectoral level, which are depicted in the next graph.

The blue bars are the current quarterly change, while the red triangles are the previous quarterly change.

Some sectors have experienced rising nominal wages growth in the last quarter but many other sectors are static or going backwards.

The ABS also reported that:

  • Administrative and support services, Education and training and Arts and recreational services industries all recorded the highest quarterly rate of growth (0.8%).
  • Electricity, gas, water and waste services, Retail trade and Accommodation and food services industries recorded the lowest quarterly rate of growth (0.3%).
  • The highest through the year growth was recorded in the Rental, hiring and real estate services industry at 3.1%. This is the highest annual rate of growth for the industry since June quarter 2013.
  • Electricity, gas, water and waste services industry recorded the lowest annual rate of wage growth (1.5%) for the third consecutive quarter.

If we consider the situation over the last year, then we can see from the following graph that there is no evidence of a major wages breakout occurring.

While nominal wages growth was positive, albeit modest, the next graph shows the movements in real wages and you can see that real wages fell in all sectors.

This is now a chronic situation.

This on-going cut in the purchasing power of workers is almost unprecedented in our wages history and marks a massive redistribution of income towards profits.

Further, one can hardly say that wages push is causing the inflation spike.

Workers not sharing in productivity growth

The Non-farm GDP per hour data (productivity) is derived from the quarterly National Accounts and available via the RBA Table H2 Labour Costs and Productivity.

The ABS Information Note: Gross Domestic Product Per Hour Worked – says that:

In Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) and Australian System of National Accounts (cat. no. 5204.0) the term ‘GDP per hour worked’ (and similar terminology for the industry statistics) is generally used in preference to ‘labour productivity’ because:

– the term is more self-explanatory; and

– the measure does not attribute change in GDP to specific factors of production.

While the decline in real wages means that the rate of growth in nominal wages being outstripped by the inflation rate, another relationship that is important is the relationship between movements in real wages and productivity.

Historically (up until the 1980s), rising productivity growth was shared out to workers in the form of improvements in real living standards.

In effect, productivity growth provides the ‘space’ for nominal wages to growth without promoting cost-push inflationary pressures.

There is also an equity construct that is important – if real wages are keeping pace with productivity growth then the share of wages in national income remains constant.

Further, higher rates of spending driven by the real wages growth can underpin new activity and jobs, which absorbs the workers lost to the productivity growth elsewhere in the economy.

Taking a longer view, the following graph shows the total hourly rates of pay in the private sector in real terms (deflated with the CPI) (blue line) from the inception of the Wage Price Index (March-quarter 1997) and the real GDP per hour worked (from the national accounts) (green line) to the March-quarter 2021.

It doesn’t make much difference which deflator is used to adjust the nominal hourly WPI series. Nor does it matter much if we used the national accounts measure of wages.

But, over the time shown, the real hourly wage index has grown by only 10.5 per cent (and falling), while the hourly productivity index has grown by 35.5 per cent (and rising).

So not only has real wages growth turned negative over the last year or so, but the gap between real wages growth and productivity growth continues to widen.

If I started the index in the early 1980s, when the gap between the two really started to open up, the gap would be much greater. Data discontinuities however prevent a concise graph of this type being provided at this stage.

For more analysis of why the gap represents a shift in national income shares and why it matters, please read the blog post – Australia – stagnant wages growth continues (August 17, 2016).

Where does the real income that the workers lose by being unable to gain real wages growth in line with productivity growth go?

Answer: Mostly to profits.

The next graph shows the gap between the real wage index and the labour productivity index in points.

It provides an estimate of the cumulative redistribution of income to profits as a result of real wage suppression.

Now, if you think the analysis is skewed because I used GDP per hour worked (a very clean measure from the national accounts), which is not exactly the same measure as labour productivity, then consider the next graph.

It shows the movements in the wage share in GDP (at factor cost) since the March-quarter 1960 to the December-quarter 2021 (latest data).

While the series moves around from quarter to quarter, the trend is obvious.

The only way that the wage share can fall like this, systematically, over time, is if there has been a redistribution of national income away from labour.

I considered these questions in a more detailed way in this blog post series:

1. Puzzle: Has real wages growth outstripped productivity growth or not? – Part 1 (November 20, 2019).

2. 1. Puzzle: Has real wages growth outstripped productivity growth or not? – Part 2 (November 21, 2019).

And the only way that can occur is if the growth in real wages is lower than the growth in labour productivity.

That has clearly been the case since the late 1980s. In the March-quarter 1991, the wage share was 56.6 per cent and the profit share was 22.2 per cent.

By the March-quarter 2021, the wage share had fallen to 50.1 per cent and the profit share risen to 30.3 per cent.

There has been a massive redistribution of income towards profits has occurred over the last 40 years.

The relationship between real wages and productivity growth also has bearing on the balance sheets of households.

One of the salient features of the neo-liberal era has been the on-going redistribution of national income to profits away from wages. This feature is present in many nations.

The suppression of real wages growth has been a deliberate strategy of business firms, exploiting the entrenched unemployment and rising underemployment over the last two or three decades.

The aspirations of capital have been aided and abetted by a sequence of ‘pro-business’ governments who have introduced harsh industrial relations legislation to reduce the trade unions’ ability to achieve wage gains for their members. The casualisation of the labour market has also contributed to the suppression.

The so-called ‘free trade’ agreements have also contributed to this trend.

I consider the implications of that dynamic in this blog post – The origins of the economic crisis (February 16, 2009).

As you will see, I argue that without fundamental change in the way governments approach wage determination, the world economies will remain prone to crises.

In summary, the substantial redistribution of national income towards capital over the last 30 years has undermined the capacity of households to maintain consumption growth without recourse to debt.

One of the reasons that household debt levels are now at record levels is that real wages have lagged behind productivity growth and households have resorted to increased credit to maintain their consumption levels, a trend exacerbated by the financial deregulation and lax oversight of the financial sector.

Real wages growth and employment

The standard mainstream argument is that unemployment is a result of excessive real wages and moderating real wages should drive stronger employment growth.

As Keynes and many others have shown – wages have two aspects:

First, they add to unit costs, although by how much is moot, given that there is strong evidence that higher wages motivate higher productivity, which offsets the impact of the wage rises on unit costs.

Second, they add to income and consumption expenditure is directly related to the income that workers receive.

So it is not obvious that higher real wages undermine total spending in the economy. Employment growth is a direct function of spending and cutting real wages will only increase employment if you can argue (and show) that it increases spending and reduces the desire to save.

There is no evidence to suggest that would be the case.

I usually publish a cross-plot that consistently shows no relationship between annual growth in real wages and the quarterly change in total employment over a long period.

The graph has issues at present due to Covid-19 outliers, although the conclusion doesn’t change.

There is also strong evidence that both employment growth and real wages growth respond positively to total spending growth and increasing economic activity. That evidence supports the positive relationship between real wages growth and employment growth.


In the March-quarter 2022, Australia’s wage growth remained modest to say the least.

There can be no sustained recovery for the economy post Covid without a significant shift in the way we think about wages growth.

The data shows that the significant cuts to workers’ purchasing power continue, and, in my view, constitute a national emergency.

There can be no sustained acceleration in the inflation rate while wages growth is at these levels.

The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure.

The problem is that the federal government supports wage suppression because that attracts funding for the conservatives from the corporate lobbies which help them stay in power.

None of this offers workers a better future.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

Raising interest rates is like blowing up the garden to weed it

Published by Anonymous (not verified) on Tue, 17/05/2022 - 6:00pm in

By Dirk Ehnts, PhD in Economics, affiliated researcher at the Institute for International Political Economy Berlin

Sten Grahn, Technical Doctor in Production Engineering

Peo Hansen, Professor of Political Science, Linköping University

Jussi Ora, Director of Positive Money and Board Member International Movement for Monetary Reform

and Patrik Witkowsky, Founder of the Centre for Employee Ownership


This article was first published in Swedish on May 15, 2022, at Göteborgs-Posten.

The Riksbank (central bank of Sweden) only sets the interest rate. And interest rates have no impact on the energy prices that are driving inflation today. But higher interest rates lead to higher unemployment and lower output – and that can push inflation even higher. But there are other ways to curb inflation, write Dirk Ehnts, Sten Grahn, Peo Hansen, Jussi Ora and Patrik Witkowsky.

Stefan IngvesStefan Ingves, Governor of the Riksbank. IMF Photo/Cory Hancock via Flickr, Creative Commons 2.0 license

The (Swedish) inflation rate in March was 6.1, per cent, compared with 4.5 per cent in February. This is largely due to higher energy costs. The oil price, which was negative in April 2020 when there was a surplus, has risen to around $100 per barrel. Gas prices have also soared.

Is there anything we can do about the price increases? Today, we give responsibility for inflation to the Riksbank, which has an inflation target of 2%. According to accepted economic theory, inflation can be brought down by raising interest rates. As the Riksbank writes on its website: “A rise in interest rates also makes it more expensive for firms to finance investment. As a result, higher interest rates normally curtail investment. If consumption and investment fall, total demand also drops and there will be less activity in the economy. When activity is low, prices and wages usually rise at a more modest rate.”

Blunt tool

However, a slowdown in economic activity also leads to an increase in unemployment. The Riksbank thus fights inflation by increasing unemployment. The idea is that higher unemployment weakens the bargaining position of wage earners, as the threat of unemployment is now more acute.

Raising interest rates is therefore both a blunt and harmful tool. It can be likened to blowing up a bomb in the garden to get rid of the weeds. The job of weakening the economy gets done, but at a very high price. In addition to the economic and social damage done to those who lose their jobs, unemployment further divides society.

A second problem with raising interest rates is that it is unlikely to reduce inflation at all. Energy prices today are largely imported and therefore have nothing to do with Swedish wages. In other words, even if we blow up the garden, it is highly likely that weeds will continue to flourish. Moreover, we can expect higher interest rates to increase business costs. Swedish companies are very indebted today. Therefore, if interest rates rise, companies can raise their prices, and thus inflation, to stabilize the profits they need to pay off their debts.

In other words, even if we blow up the garden, it is highly likely that weeds will continue to thrive.

An interesting example is the situation in the Czech Republic and Slovakia, two countries with similar economies. While the Czech central bank started to raise interest rates last summer from zero to the current five per cent, in the eurozone country of Slovakia the rate has remained at zero. Last summer, inflation was the same in both countries. Today it is higher in the Czech Republic than in Slovakia.

Sweden produces more electricity than we consume, but since Swedish energy operators operate in the integrated European energy market, this means that, under current legislation, they will raise their prices if market prices rise. Our current energy prices, therefore, do not reflect a change in production costs, or in supply and demand in Sweden. Higher energy prices are transmitted via the international energy markets. They create profits for Swedish energy operators as a result of events outside Swedish control.


Investments in public transport

So, are there any alternatives to raising interest rates? One option is to subsidize petrol and diesel, as the government did by cutting the fuel tax and paying a transfer to car owners. However, this only adds fuel to the fire by throwing money at it, which will end up as profits for the energy companies.

Another option, which curbs both inflation and climate impact, is to invest heavily in public transport, electric vehicles and other solutions that reduce energy demand. Germany is an interesting example. There, citizens can buy tickets for the national public transport system (everything except long-distance trains) for just 100 crowns (about 8 pounds sterling) a month this summer. This fills empty trains and encourages people to park their cars, reducing energy consumption.

In the longer term, a more strategically robust price stabilization policy is needed. Instead of raising interest rates, we need to transform our energy and transport systems. This means massive public investment in renewable energy, public transport, fossil-free vehicles and energy efficiency. This also includes a major investment in local renewable energy production. To achieve this goal, the fiscal framework needs to be reformed, as it currently hinders public investment, weakens our infrastructure and makes Swedish consumers and industries vulnerable to foreign energy markets.

It is easy to blame the Riksbank for inflation. But this is completely the wrong way to go. Blowing up the garden by raising interest rates is associated with major social costs and it also risks increasing inflation further. The best way to fight inflation is to rebuild and rethink our energy and transport systems.











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Journey to the heart of Argentina

Published by Anonymous (not verified) on Mon, 16/05/2022 - 6:00pm in
By Carlos García Hernández

Originally published in Spanish in El Común on 13th May 2022


Women and a child walking past ouses in La boca Buenos Aires, ArgentinaImage by Fernando Hidalgo Marchione on Flickr. Creative Commons 2.0 license

Between May 2nd and 5th, 2022, I had the opportunity to join economist Warren Mosler’s visit to Buenos Aires organized by Pymes para el Desarrollo Nacional and Grupo Bolívar.

In this way, the interest in modern monetary theory has allowed Mosler’s analysis to be oriented towards the specific case of Argentina. It has been a fascinating experience that has taken us to the bowels of the country’s economy.

The organizers asked Mosler to focus his proposal on two things: the possibility of achieving full employment without inflation (an economic state I have dubbed the Lerner point) and Argentina’s latest agreement with the International Monetary Fund.

Mosler presented his proposal at several public events, to managers of the Central Bank, to the leaders of the public financial institution Banco Nación, at the University of Moreno, in a visit to the Río Santiago shipyard and on the radio program Teoría Monetaria Moderna Presenta. His conclusion is that Argentina’s problem is primarily of a fiscal nature, since Argentina currently spends 8% of its GDP on interest payments derived from public debt securities and Mosler estimates that this figure will soon rise to 20%. On the other hand, the official unemployment figure is not very high (7%), but youth unemployment is over 30%. In addition, the real unemployment rate is much higher than the official one and poverty reaches 37.3% with a marginal poverty rate of 8.2%. Added to this is the enormous problem of inflation, which currently stands at 55.1% per year, but is expected to exceed 60% by the end of the year.

The specific measures he proposed were threefold: the adoption of floating exchange rates, a permanent 0% interest rate policy, and the implementation of job guarantees based on employment buffer stocks.

The adoption of floating exchange rates is the measure that would make it possible to carry out the other two, since only floating exchange rates allow for permanent full employment policies and 0% interest rates decided by the central bank. Currently, Argentina has a fixed exchange rate of the peso against the dollar. The reason for this is that there is a belief among the leadership and the general population that Argentina’s main problem is external constraint. Therefore, it is believed that the Argentine peso is worthless and that it is necessary to maintain large foreign exchange reserves in order to import and grow. This puts the Argentine economy at the mercy of financial speculators, since Argentina has to defend the exchange rate by buying Argentine pesos through its dollar reserves. The consequence is that Argentina periodically suffers debt crises and the risk of running out of reserves, which drives up interest rates, inflation and unemployment. Mosler’s proposal is to adopt floating exchange rates so as not to have to defend a fixed exchange rate by means of foreign exchange reserves and for the Argentine economy to function exclusively through the national currency. He gives as an example the debt crises of Mexico in 1994 and Russia in 1998. Both countries adopted floating exchange rate policies in the face of explosive debt crises resulting from fixed exchange rates. The consequence was that after the introduction of floating exchange rates, there was a sharp adjustment in which the Mexican peso and the ruble lost 66% and 75% of their exchange value against the dollar respectively. Thereafter, the value of the currencies stabilized and then gradually recovered. According to Mosler, something similar would happen in Argentina because the Argentine economy is similar to that of Russia and Mexico. Currently, the official exchange rate of the Argentine peso is 116.25 pesos per dollar and the exchange rate in the black market (the so-called blue dollar) is 202 pesos per dollar. Therefore, the devaluation resulting from the floating exchange rates would bring the value of the official peso to approximately the value of the blue dollar. After this adjustment, the value of the peso would stabilize and then recover progressively, as occurred with the Mexican peso and the ruble.

In response to this proposal, Argentine leaders argue that such a devaluation of approximately 60% would increase the price of imports and that the poorest classes would not even be able to buy food for subsistence. However, Mosler argues that this problem would be solved by means of subsidies in pesos to those who need them and an indexation of salaries that require it. In addition, Mosler also points out that the price of Argentina’s exports would become cheaper and therefore the devaluation would increase the country’s exports. In addition, annual inflation is already at about 60% or so, forcing periodic wage indexations. Therefore, floating exchange rates would require a new and final indexation before entering the period of stability.

This leads us to the second proposal, permanent 0% interest rates and the renunciation of issuing any public debt. Currently, Argentine interest rates are 47%. This reflects a self-defeating attitude similar to that of fixed exchange rates. Argentines believe that without very high interest rates like the current ones, the Argentine peso would lose all its value and therefore high interest rates are the only incentive for the currency markets to accept the peso. This generates a constant flow of pesos directly into the international currency markets where pesos are exchanged for dollars. This dynamic floods the foreign exchange markets with pesos and causes the peso to devalue constantly. This, according to Mosler, is the main source of inflationary pressures in Argentina.

Currently, Argentina spends 8% of its GDP on interest payments, but according to Mosler’s estimates, this figure will soon be 20%, mainly due to interest payments on inflation-linked debt securities, real monetary time bombs that already represent 20% of the total public debt and amount to 70 billion dollars. Mosler proposes to eliminate the issuance of public debt securities, since Argentina is a country that enjoys monetary sovereignty and therefore does not need to either collect taxes or issue debt to finance its public spending. He also urges Argentine policymakers to stop talking only about the primary fiscal deficit (which does not include the interest payments derived from the debt) and suggests that when dealing with the fiscal deficit, they should do so taking into account the enormous and unnecessary amount of pesos that are permanently going to the foreign exchange markets to be exchanged for dollars. In response to the unfounded expressions of fear about the value of the peso, Mosler pointed out that the value of the peso corresponds to the Argentine GDP and to all the products that can be purchased with pesos. To maintain that the peso would lose all its value if interest rates were 0% is as absurd as saying that meat, soybeans, grain, gas, oil, tourism and all the products produced by the Argentine economy would lose all their value. That is simply not going to happen, especially at a time when Argentine exports are reaching record levels. As long as taxes have to be paid in Argentine pesos, the value of the peso will never be zero. Only in an unimaginable case in which no taxes would have to be paid in Argentina would the value of the peso be zero.

With floating exchange rates, interest rates would no longer be determined by the markets, but by the Central Bank. Therefore, once floating exchange rates are adopted, the level of interest rates in Argentina should be 0% and the Argentinian government should renounce the issuance of debt securities.

All of the above brings us to Mosler’s last proposal, job guarantees based on employment buffer stocks. This proposal is only sustainable over time with floating exchange rates that avoid having to adopt fiscal austerity measures to defend fixed exchange rates. In addition, the job guarantee would eliminate any inflationary pressures that may have subsisted from floating exchange rates and the elimination of positive interest rates, since guaranteed labour acts as a wage anchor in both downturns and upturns.

As Mosler tirelessly repeated in his expositions, the price level of an economy, and therefore its level of inflation, can only be explained by the price that the State is willing to pay for the goods and services it needs to supply itself. This especially concerns the price of labour reflected in wages, since the origin of all goods and services is socially embodied human labour. According to Mosler, the wage level is not the cause of inflation in Argentina. Therefore, the State would have no difficulty in setting up a program similar to (but broader than) the so-called Plan Jefes y Jefas, which until a few years ago served as a job guarantee in Argentina. Under this model, anyone who wants and is able to work, but cannot find work in either the private sector or the permanent public sector, should receive a transitional job until he or she can be incorporated into work in the private sector or the permanent public sector. The purpose of the job guarantee is not production per se but to demonstrate the beneficiaries’ work capabilities, since the private sector generally only likes to hire people who are already working. Therefore, guaranteed work should be implemented after the government has decided on the desirable size of the public sector to ensure good quality public services.

The job guarantee wage would become the minimum wage of the economy and would act as an automatic price stabilizer in both expansionary and recessionary economic periods, while eliminating poverty and unemployment.

Before going into the IMF agreement, Mosler also pointed out that in Argentina there is a problem with market regulation. According to Mosler, this is due to a high concentration in strategic productive sectors that leads to oligopolistic practices. His proposal is to regulate these oligopolistic markets to limit their excessive profit margins and avoid speculative practices, especially in the banking and primary sectors.

Finally, he delved into the tempestuous field of the agreement with the IMF. This agreement includes a loan of $45 billion and numerous conditionalities that are very harmful to Argentina, such as the issuance of long-term debt securities and fiscal austerity measures. Mosler proposes to replace this agreement with one that is more beneficial to both Argentina and the IMF. His proposal is to repay the loan through a 3% tax on Argentina’s gross exports. These exports amount to a total value of approximately $100 billion per year. Dedicating 3% of that figure to loan repayment would be beneficial to the IMF because it would ensure that it would receive dollars from the only source of dollar inflows into the country, exports. This means that no currency exchange would have to take place to make payments. Moreover, the IMF would no longer have to worry about imposing any kind of conditionality on Argentine policies. For its part, the Argentine government would be able to exercise its political sovereignty without any constraint from the IMF in the form of conditionalities. Moreover, the 3% tax could be deducted from exporters’ other taxes if it deemed it appropriate, so that there would be no mandatory increase in the tax burden.

I believe that the Argentine government should listen to Mosler’s message and implement the measures he proposes. The achievements of an Argentina with full employment, price stability and well-regulated markets would be beyond imagination. If such a situation were sustained over a prolonged period of time, I am convinced that Argentina could once again become the great world economic power it once was and regain its rightful place of relevance on the international scene.

Euro delendus est











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Reblog – No, MMT Didn’t Wreck Sri Lanka

Published by Anonymous (not verified) on Sun, 15/05/2022 - 8:37pm in

Debunking Bloomberg with Fadhel Kaboub

Written by Stephanie Kelton

Originally published on Stephanie Kelton’s “The Lens” on 29th April 2022.

Two poor men sitting on a trolley on a street of closed shops. Petta, Colombo, Sri LankaImage by Harshabad on Pixabay

Last week, Bloomberg touted an opinion piece (written by one of its regular columnists) claiming that “Sri Lanka was the first country in the world to try MMT” and that “the experiment has brought the country to ruin.” A few days later, The Washington Post republished the article. So it garnered a fair bit of attention. Unfortunately, the essay offers little insight into what’s really gone wrong in Sri Lanka. But, hey, editors and writers have discovered that MMT drives clicks, so there’s no dearth of efforts to shoehorn MMT into almost anything.

A number of people sent me the link and asked me to respond. I sat down to do just that, but then I remembered that MMT economist Fadhel Kaboub talks about Sri Lanka in some of his presentations and that he’s been studying the country for years.

Fadhel is an Associate Professor of Economics at Denison University and President of the Global Institute for Sustainable Prosperity. He brings deeper knowledge of the Sri Lankan economy and the policy decisions that have paved the way for their current predicament. So I reached out to invite him to respond to Mihir Sharma’s main claims about the so-called MMT experiment in Sri Lanka.

Sharma’s big claim is that “two cherished heterodox theories…became official policy in Sri Lanka and, within two years, they brought the country to the brink of default and ruin.” The government has halted payments of its foreign debt and warned that it may default. Import prices are surging. It’s hard for people to buy food and fuel. There are periodic blackouts and rationing. Inflation is close to 19 per cent and the central bank has recently doubled interest rates. Sharma acknowledges that there are ’structural factors’ at play, and he concedes that the pandemic hammered the nation’s tourism sector while the Russian invasion of Ukraine made everything worse. But he argues that “the deeper problem” is that the ruling elite “turned Sri Lanka’s policymaking over to cranks.” One of the heterodox theories that is supposedly responsible for the crisis is MMT.[1] What follows is a lightly-edited transcript of my Q&A with Professor Kaboub.

KELTON: Sharma claims that “Sri Lanka is the first country in the world to reference MMT officially as a justification for money printing.” He blames former central bank governor, Weligamage Don Lakshman, for listening to monetary cranks who convinced him that “nobody needs to worry about debt sustainability” as long as you “increase the proportion of domestic debt [relative to debt denominated in foreign currency].” Is there anything in MMT that says that as long as you “increase the proportion of domestic debt” you can “print money” without worrying about debt sustainability or inflation?

KABOUB: When I first read the statement of Sri Lanka’s Central Bank governor, Mr Weligamage Don Lakshman, back in 2020, it was very clear to me that he does not understand the basic MMT insights. He was under the impression that what matters in terms of monetary sovereignty is the proportion of foreign currency debt relative to domestic currency debt and that there was no need to rethink the foundation of the economic development model that his country has used since the late 1970s. Governor Lakshman focused on the proportion of debt but never questioned what the external debt was fueling, and never articulated how a higher proportion of domestic debt was going to build economic resilience in Sri Lanka.

MMT economists have been very clear all along that a country’s fiscal spending capacity is constrained by the risk of inflation, which is determined by the level of productive capacity (availability of real resources, productivity, skills, logistics, supply chains, etc.) and the level of abusive market power enjoyed by key players in the economy (cartels, exclusive import license holders, shell companies, cross-border traffickers, speculators, corrupt government procurement systems, etc.). Therefore, increasing a country’s fiscal policy space must be done via strategic investments to boost productive capacity and regulation of abusive market power. Sri Lanka’s economic policy choices (pre-pandemic and Russia-Ukraine war) do not even come close to what MMT economists would have suggested.

As I will explain below, Sri Lanka has three structural economic weaknesses that were systematically reinforced via mainstream economic policies: 1.) lack of food sovereignty, 2.) lack of energy sovereignty, and 3.) low value-added exports. These deficiencies imply that accelerating the country’s economic engines leads to more pressure on its external balance, a weaker exchange rate, higher inflationary pressures (especially food/fuel/medicine and basic necessities), and, as a result, it leads to the classic trap of external debt.

Here is how it all started. Sri Lanka, like many countries in the Global South, began the liberalization of its economy in 1977, and adopted a classic IMF-style economic development model based on exports, foreign direct investment (FDI), tourism, and remittances. This development model remained tamed during the civil war (1983-2009), but it was fully unleashed in 2009, and that is when external debt began to skyrocket, going from $16 billion in 2008 to nearly $56 billion in 2019. The value of the Sri Lankan rupee dropped from 114 to 178 LCU/USD. Thanks to a massive increase in government subsidies and transfers reaching more than 30 per cent of government spending in recent years, Sri Lanka struggled to keep inflation below 5 per cent. Yet, economists celebrated Sri Lanka’s great achievements with an average growth rate exceeding 5 per cent in the decade after the civil war, and a real per capita GDP growth putting the country officially in the upper-middle-income economy category. Sri Lanka was following the mainstream economic development model like a good student. In the decade starting in 2009, exports grew from $9.3 to $19.1 billion, tourism quintupled from 0.5 to 2.5 million visitors annually, FDI inflows quadrupled by 2018 to a record $1.6 billion, and remittances doubled to nearly $7 billion annually. These are the four engines of Sri Lanka’s economic growth, but they are also the engines driving the country deeper into the structural traps of food and energy dependency, and specialization in low value-added exports.

Here is how these engines constitute a trap. An increase in tourism induces more food and energy imports. An increase in remittances means more brain drain. An increase in low value-added exports induces more imports of capital, intermediate goods, fuel etc.; and an increase in low value-added FDI does the same plus the repatriation of profits out of Sri Lanka. On a global scale, these neocolonial economic traps have suctioned $152 trillion from the Global South since 1960.

KELTON: Sharma argues that it was the “printing of money” that caused inflation to hit record highs. He cites the rate of growth of the Sri Lankan money supply and concludes that inflation hit record highs because the central bank expanded the money supply by 42 per cent from December 2019 to August 2021. Why isn’t this a critique of MMT, and how do you think about the current inflationary pressures?

KABOUB: Sharma is wrong on two fronts here. First, he is assuming that the central bank actually controls the money supply, when in fact the money supply is an endogenous variable determined by the private sector (consumers, business, and banks). The central bank simply accommodates the needs of the market in order to keep short-term interest rates at a stable target, otherwise it will cause all kinds of instability across financial markets. Second, Sharma is assuming that inflation is caused by an increase in the money supply, when in reality, Sri Lanka’s inflation, like many developing countries, imports its inflation via food and energy imports. The higher the pressure on the external balance, the weaker the exchange rate, the higher the inflation pressure from imported goods. Sri Lanka struggled with these pressures for a decade, and managed to muddle through by accumulating more external debt, which quickly became unbearable after the pandemic (loss of tourism, remittances, FDI, and export revenues) and the massive increase in global food and energy prices after the Russian invasion of Ukraine.

The solutions to Sri Lanka’s inflation problems are not in the hands of its central bank. Raising interest rates in Sri Lanka will not end the war in Ukraine, or end the pandemic-induced global supply chain disruptions. The most effective anti-inflation tools fall under fiscal policy. It is the parliament, and the various ministries and commissions that can design strategic investments to boost productive capacity, and have the legal authority to update and enforce antitrust laws. In fact, raising interest rates can often fuel inflation (and inequality) because it is the equivalent of an income subsidy to bond holders, and a tax on actual investors who might be discouraged from increasing productive capacity

KELTON: Sharma appears to know that he has offered a faulty representation of MMT. He anticipates some of the counterpoints that I suspect you and I would both raise. He writes, “proponents of MMT will likely say that this was not real MMT, or that Sri Lanka is not a sovereign country as long as it has any foreign debt.” You have been studying Sri Lanka for a few years now. What, if anything, have policymakers done that suggest that they have been running any kind of “MMT experiment” over the last two years?

KABOUB: Well, this is where Sharma nails it! As I explained above, Sri Lanka’s economic policies don’t even come close to anything informed by MMT insights. Sri Lanka’s government ignored its structural weaknesses, didn’t invest in food/energy and strategic domestic productive capacity, didn’t tax/regulate abusive market power, has a corrupt political system dominated by a single family, and when it was backed into a corner after the pandemic, it doubled down on bad economic decision by claiming that agricultural fertilizers are unhealthy (when they really didn’t have the foreign exchange reserves to pay for the imports), so they destroyed agricultural output, especially rice, in the middle of global food crisis. If the Sri Lankan government was serious about investing in healthy food or a healthy economy, it would have put forward an actual food sovereignty strategy centred on native seeds, it would have discouraged intensive monoculture farming, it would have invested in regenerative farming to undo decades of damage to the soil, and it would have supported farmers to increase yields with well-defined medium and long term strategies. Clearly, this “organic farming” experiment was sloppy at best, but it should not overshadow the fact that the roots of the agricultural vulnerability have been decades in the making.

KELTON: Sharma chides the government for shunning the advice of “mainstream economists” and for “refusing to even consult the IMF.” Let’s assume he’s right about the central bank and other policymakers turning away from mainstream economists and institutions like the IMF. What kind of advice has the IMF given to Sri Lanka in the past, and what kind of economic development strategies would you recommend if officials called on you to advise them?

KABOUB: Sri Lanka has been following the IMF instruction manual for decades. It has received 16 loans from the IMF since the 1960s, and it is currently negotiating another one. Since 1996, Sri Lanka has never been away from the IMF’s negotiating table for more than 3 or 4 years at a time. Despite the political rhetoric of the Sri Lankan government over the last couple of years, the current Sri Lankan administration has abided by the IMF’s terms and conditions of the $1.5 billion Extended Fund Facility (that’s the 16th loan disbursed between 2016-2020). So maybe the Sri Lankan government has come to realize that the IMF instruction manual is actually harmful. The problem is that they don’t fully understand why, and they certainly haven’t identified an alternative strategy to escape from this trap.

In terms of policy advice, Sri Lanka needs emergency assistance with immediate shipments of food, fuel, medicine, and basic necessities. Sri Lanka needs debt relief rather than debt restructuring. For example, UNDP has recently recommended negotiating debt-for-nature swaps. There are other debt swap mechanisms such as debt-for-development, debt-for-equity, and debt-buy backs. The Sri Lankan central bank should be negotiating FX swap line agreements with the central banks of its major trading partners in order to stabilize the value of its currency.

Sri Lanka should also access the IMF’s newly created $45 billion Resilience and Sustainability Trust (RTS), which, unlike other IMF facilities, is actually a program that funds strategic investments to build resilience and promote sustainability. Sri Lanka would qualify for up to $1.4 billion of concessional loans with substantial grace periods. However, to qualify for RTS funds, Sri Lanka must first have an existing agreement with the IMF. It needs to enter these negotiations with its own strategic vision in order to escape the IMF’s austerity and external debt trap.

The IMF wants countries to establish an economic policy framework that leads to external debt sustainability, but its track record has been a miserable failure. Sri Lanka needs to convince the IMF and other lenders and strategic partners, that it can only escape this external debt trap if it tackles the problem at its source — e.g. by investing strategically in food sovereignty (with an actual long-term strategy rather than half-baked organic farming wishful thinking), investing in renewable energy capacity (energy efficiency, public transportation, etc.), investing in education and vocational training in order to climb up the value chain in the manufacturing sector, and becoming more selective in its support for export industries and FDI projects. In other words, ending the race to the bottom policies, and building resilience to external shocks.

These strategic investments must be coupled with an actual democratization of the political as well as the economic system. The government needs to crack down on corruption, cartels, abusive price setters, and entities that enjoy exclusive economic power and have every incentive to object to the strategic investments listed above.

The sad part of this story is that Sri Lanka is only one of many countries in the Global South facing the same structural traps, struggling with unbearable external debt, soaring food and energy prices, shortages, and rising social and political tensions.


[1] The other has to do with a shift toward organic farming that has apparently fueled a precipitous drop in crop yields, farming incomes, and export revenues.











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