Every economists and his dog has written something on inflation and wages. Opinion on what *should* happen is as colourful and as mixed as a fruit and nut mixture and tends to reflect an ideological preference for either workers or capitalists.

I’ve documented my understanding of inflation as a conflict between labour and capital over national income in my last three blog posts.

Capital Rule: Interest Rates, Inflation and The RBA
Inflation is a Conflict
The Flawed ‘Logic’ of Capital

The increasing costs that result from a rise in fuel prices have capital pass on those costs rather than reduce profit margins.

Today unlike the 1970s, the legislative and institutional arrangements leave labour unions without much of an avenue to effectively ‘fight back’ and gain real wage rises.

I think it is important to recall from an MMT perspective to remember the source of the price level

With the state the sole supplier of that which it demands for payment of taxes, the economy needs the state’s currency and therefore state spending sets the terms of exchange; the price level is a function of prices paid by the state when it spends. 

There are two primary dynamics involved in the determination of the price level. The first is the introduction of absolute value of the state’s numeraire, which takes place by the prices the state pays when it spends. Moreover, the only information with regard to absolute value as measured in units of the state’s currency is the information transmitted by state spending. Therefore, all nominal prices can necessarily be traced back to prices the state pays when spending its currency. 

The second dynamic is the transmission of this information by markets allocating by price as they express indifference levels between buyers and sellers, and all in the context of the state’s institutional structure. 

The price level, therefore, consists of prices dictated by government spending policy along with all other prices subsequently derived by market forces operating within government institutional structure.

https://docs.google.com/document/d/1sySbx6EHOAYpAjE4FGnYApdZNyY6rh79KzajZxSU884/mobilebasic

From the above perspective and understanding the Government through its regulatory powers has a lot of non-monetary tools to administer prices. That train of thought seems to be absent amongst the public intelligentsia that comment within the mainstream media. The public discourse is as simplistic as wages can and should rise by inflation, or real wages need to be cut because it is/isn’t inflationary.

However little comment is made to the understanding Inflation is distributional. If someone is paying more, someone receives more. The question should be focused on who is benefiting.

Then there’s the discussion on interest rates. I haven’t read a mainstream commentator dismiss monetary policy as useless. I summarised the effect of interest rate in my post Capital Rule: Interest Rates, Inflation and The RBA

The academic theories usually fall back to the higher cost of money meaning a slowing of spending which is the narrative perpetuated in the media. This is propaganda. An increase in the cash rate means; 

1. Increased income for asset (bond) holders; 
2. Rewards markets that have placed bets on rates rising;. 
3. Increased mortgage costs (and reduction on discretionary spending for households) and increased bank profits; 
4. Increased cost for business that have borrowed to fund their capital (likely to be passed on to consumers)

What the net outcomes of the distributional effects of raising the cash rate is inconclusive. But it is probable that businesses will pass on rising costs to consumers. Which is inflationary.

https://jengis.org/2022/06/09/capital-rule-interest-rates-inflation-and-the-rba/

Monetary Policy is a blunt and flawed policy Instrument

The flawed framework of using monetary policy continues to hurt the working class. The ALP Government has now conceded that wages will need to be cut in real terms, (source) agreeing with the Governor of the RBA.

“Three-and-a-half per cent is kind of the anchoring point that I want people to keep in mind,” he says. In other words, it’s a continued real wage cut for most workers in the short term — if we’re to stay on Lowe’s preferred path.

https://www.abc.net.au/news/2022-06-23/rba-boss-philip-lowes-plan-out-of-economic-trouble/101175018

The way we use monetary policy is effectively a threat to The Australian working class. Accept real wage cuts or we raise rates on your mortgages and take your income via another means. It is the most perverse framework and anti-working class.

Though Capital isn’t terribly clever. Their cuts to real wages undermine pushing increasing debt onto households. Australians have enjoyed real wages growth (despite failing to match productivity increases) – The difference between real wages and productivity growth has gone to profits. To maintain sales and realise that profit (as workers haven’t earned enough to purchase that output) Capital has deregulated financial markets and placed increasing debt onto households. Australians are amongst the highest indebted households in the world. Pushing debt onto households becomes harder in an environment of wages falling in real terms. That may manifest as a recession.

Deficit Myth Prevails

In this article Brakes on spending: Albanese warns of budget cuts it seems our newly elected Government falls into the same trap as the previous Government that it’s spending needs to be constrained by revenue. The word revenue is derived from the latin ‘re’ meaning back and ‘venire’ meaning come; Revenire literally means come back. That is your taxes come back to the monopolist of the currency that had to spend it in the first place.

With budget deficits forecast to reach $261.4 billion over the four years to 2025, the incoming government is rejecting some spending options despite pressure from state leaders and community groups for long-term boosts to outlays on health and social services such as Newstart.

https://www.smh.com.au/politics/federal/brakes-on-spending-albanese-warns-of-budget-cuts-20220623-p5aw7s.html?utm_medium=Social&utm_source=Facebook&fbclid=IwAR1pF6_ay8xqU3FSM50VEnNOWSumIG3WpvxAhWc3aRC_fJsbPxppunatd5A#Echobox=1656013729

Under the guise the government needs to ‘save’ money by reducing it ‘s spending and the need to cut spending because of inflation are excuses made that ensure the most vulnerable people in our society continue to suffer and are left poorer in real terms! The Government can engage in providing universal services like free childcare which have a deflationary impact!

Conclusion

It looks like workers (including me) are set for real wage cuts. It is likely this will manifest as increasing unemployment, increasing rates of home foreclosures and all the social impacts these things bring. The Governments fiscal policy of spending cuts make things worse!!

That is all from me!