Inflation, interest rates and who’s really in charge?

May 2, 2022
Cost-of-living pressures were highlighted at the May Day march in Sydney. Photo: Peter Boyle

Cost-of-living pressures and the economy are critical issues in most election campaigns, and they certainly are in this one.

“Economics”, like “national security”, is used by the major capitalist parties to create an aura of authority. But it has quite a different meaning for those who are most affected by interest rates and inflation rises — workers.

Interest rate rises mean less money in workers’ pockets. It means a struggle to keep a roof over your head. It means that the dream of home ownership remains just that — a dream.

Research by the University of New South Wales last September estimated that as many as 40% of households were experiencing mortgage stress and this was as high as 70% in some parts of the country.

Wages remain stagnant and the 32% of people renting a house or flat are finding it increasingly difficult to keep their heads above water, let alone to ever consider buying a home.

Anglicare reported in April that less than 1% of rentals were affordable for those on income support and only 2% of workers on the minimum wage could find affordable rental accommodation. It surveyed 46,000 rental properties on a weekend in March and found just 312 places an aged pensioner might afford, 51 for someone on a disability pension and seven for someone on JobSeeker.

In the hands of politicians, economists and commentators, the economy is often presented as being in some way an organic structure with an independent life force. The “invisible” hand that is spoken of is aimed at convincing us that the economy will self-manage. If it doesn’t, it is a task of government to fix things.

The capitalist economy is built by working class labour; nothing we touch, use or consume comes without first being touched by the hand of a working person.

Capitalism is the taking by force, or stealth, the value produced by the labour of the people.

Experts are rolled out and “explanations” given but two inter-connected questions are inevitably glossed over: what is inflation; and why has there been such a historically long period of near-zero interest rates?


Inflation simply describes the rate at which the value of a currency falls and, consequently, the general level of prices for goods and services rises. This is tied to the fact that capitalist production demands that the productivity of labour rises. More is produced by each worker which means that more goods are produced which necessarily leads to the total value of the overproduced goods to drop.

It is a dilemma that continually haunts capital and the state is compelled to seek ways of alleviating the crisis.

Interest rates have been historically low. The drop to a near-zero rate across all economies happened as the world economy went into free fall at the time of the 2008 Global Financial Crisis. Vast amounts of money were pumped into saving financial institutions and saving capitalism. Capitalism may have been bailed out of another crisis, but the system itself never fully recovered. Then came COVID-19.

States can poke and prod at the problems that capitalism creates. Governments can act to alleviate some of the worst excesses produced by capitalism’s self-induced crises, but this or that political party, this or that prime minister or leader of the opposition, or their spokespeople on economic matters, are unable to alter the structural issue within the economic system.

Occasionally economists reveal a glimpse of what the people know from bitter experience. Ross Gittins, writing in The Age and Sydney Morning Herald, commented that “in a well-managed economy, workers’ wages rise a little faster than prices. This hasn’t been happening”.

This presupposes that a capitalist economy can be well-managed. At best, governments hope to gain power in broadly good economic times, for which they seek to take credit. If things go awry, then “headwinds” are spoken of, while opposition parties blame the government for ineptitude.

And around the wheel turns.

During election campaigns, the major parties seek to convince us that they can influence the way the economy will function. The fiction is that a national economy can somehow be divorced from the global economy.

This election is taking place during another global capitalist crisis that affects national aspirations and local communities. Since the beginning of the Great Depression, there have been 17 significant recessions and crises that have affected global capitalism. The International Monetary Fund (IMF) reported that from 1970–2011, there were 147 banking crises, 217 currency crises and 67 sovereign debt crises.

Despite this, many claim that capitalism and the economy can heal itself. But capitalism is not self-correcting and governments are unable to do more than tinker, ineffectually, at the edges. If it were otherwise, then we would not have perpetual problems and crises.

Better economic manager?

The Coalition and Labor are both seeking to convince us they are the better economic managers. The IMF has again revised down its forecast for global economic growth. It now expects global gross domestic product to expand by a little more than 3%, over 2022–23. The war in Ukraine is a dominant factor in this, with the European Union’s economic strength set to shrink by 1.1%.

According to Vitor Gaspar, director of the IMF Fiscal Affairs Department, countries with rising debt levels face serious difficulties. These economies are being urged to “normalise” — make cuts to — their budgets.

This will have an impact on Australian workers, the people who make the economy.

Ronald Mizen, in the March 21 Australian Financial Review, put it bluntly: “Whoever wins the federal election in May will face 15 years of deficits and the need to find savings of $40 billion a year in the next few years.”

Chris Richardson, from Deloitte Access Economics, believes that finding an additional $40 billion a year to shrink debt ratios making it easier to borrow, is achievable, even though it will account for more than 2% of annual national income. As this will not be easy, he stated the obvious that neither major party will be saying much about this before May 21.

Interest rates will rise and fall, as will inflation rates but the problem remains. Economists’ talk of the “golden age” of capitalism refers to a brief period from the end of WWII until the economic crisis of the early 1970s. But they fail to tell us this “golden age” came after the Great Depression and a world war that took the lives of more than 3% of the world’s population.

Our political masters work tirelessly to preserve this impossibly flawed economic structure and maintain the fiction that they only need to tweak this dial, or pull that lever, and the garden will be rosy again.

It won’t. We deserve better.

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