Stephanie Kelton has written a Substack article UNCTAD Warns of Too Much Tightening.
To steer the global economy away from this looming catastrophe, the report calls on governments in advanced economies to “avoid austerity,” both for their individual sake and for the sake of the global economy as a whole. It also urges “central banks in developed economies to revert course and avoid the temptation to try to bring down prices by relying on ever higher interest rates.”
The UNCTAD report is Trade and Development Report 2022 – Development prospects in a fractured world.
UNCTAD projects that world economic growth will slow to 2.5% in 2022 and drop to 2.2% in 2023. The global slowdown would leave real GDP still below its pre-pandemic trend, costing the world more than $17 trillion – close to 20% of the world’s income.
This means that something like $17 trillion of economic growth will not happen. This growth in the productive economy is necessary to forestall inflation. In some ways, the only tools that central banks have available to them are not suitable for fighting the current inflation. The central banks should stop applying the wrong solution, but the central governments need to apply the right solution instead. Getting the central governments to do the right thing may be harder than stopping the central baks from doing the wrong thing.
What the central banks have to tell their respective central governments is that the central banks will not bail out the central governments that refuse to do their duty to rescue the economy. The blame will have to be shifted onto the shoulders of the ones who are failing to do their duty. The central banks are not going to take the rap for the central governments’ failures.