Bank of Canada Governor Tiff
Macklem's Speech
to the Public Policy Forum
Macklem declares, "What I want to stress here is that maximum sustainable employment and inflation close to the two per cent target go hand in hand. If employment is well below its maximum sustainable level [which means in his convoluted way of speaking, a high rate of unemployment - TML Ed Note], the economy is missing jobs and incomes, and spending will be below the economy's productive capacity. This puts downward pressure on inflation, pushing it below the target. That's what happened early in the pandemic. If the economy is operating above maximum sustainable employment [a low rate of unemployment - TML Ed Note], businesses won't be able to find enough workers to keep up with demand, putting upward pressure on prices and pushing inflation above the target. That's where we are today."
Macklem's words are pseudo science. The relation between the labour market, wages and price inflation exists in that they are all features of the imperialist economy. Within the economy no direct connection can be drawn between rates of unemployment and price inflation. Both can be low or high depending on the concrete conditions, which involve all manner of economic and political features of the imperialist system both objective and subjective.
According to his theory, Macklem suggests that high unemployment as a general rule means the labour market is not operating at its maximum sustainable level but below it. Macklem's high and low, and above and below his imaginary maximum sustainable level are very confusing and difficult to follow. He is deliberately being obtuse to show his superior intellect.
In his imaginary scenario, high unemployment results in low inflation. In fact Canada's own experience contradicts his theory, in particular the period in the seventies known as stagflation when price inflation, unemployment and interest rates were all very high. The term stagflation is said to have been coined by British imperialist politician Iain Macleod who was Chancellor of the Exchequer in 1970. Macleod used the term to describe the situation in the United Kingdom during a period of simultaneously high inflation and unemployment. He said: "We now have the worst of both worlds -- not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of 'stagflation' situation."
Macklem's self-serving theory suggests a labour market operating below its maximum sustainable level with a low rate of unemployment will force prices higher. In saying this he postulates low unemployment gives workers the upper hand to increase their wages and this will cause price inflation. The crux of his theory revolves around the unscientific view that wage increases cause price inflation. With this political line he attacks the working class movement in defence of its claims and rights.
He sets the following scenario: low unemployment -- less competition for jobs -- pressure for higher wages, thus higher prices. But this is not the actual relationship. Wages are in a contradictory relation with profit within the same price of production. The rate of wages plays only a very minor role in raising or lowering prices of production. Low wages generally mean higher profits and vice versa within the same price of production.
Individual prices of production higher than their reality found in their scientific determination are usually a result of price manipulation from monopoly control or supply of a particular social product less than the demand.
General price inflation can stem from state manipulation of the amount of money in circulation plus other factors. The big chartered banks control the money supply and together with governments at all levels they have been pouring extra currency into circulation through low interest rates, fashioning deficit budgets to pay-the-rich and continually increase the counterproductive and destructive war economy, and engage in state borrowing from global moneylenders, which entails unproductive interest payments to them.
Macklem suggests without proof that the present high inflation in Canada is caused by what he considers low unemployment or a deviation from his imagined level of "maximum sustainable employment." He says in effect that the imperialist economy cannot "sustain" full employment. The economy cannot assure viable employment for everyone with some unfortunate people having to pay the price of this failed economy. It should be remembered that the current official rate of unemployment that he describes as being lower than his desired "maximum sustainable employment" is 5.2 per cent. This leads us to imagine just what rate of unemployment does he want -- seven or eight per cent or higher?!
He admits in his speech that his views are merely speculative or self-serving for the ruling elite. He spouts the following nonsense: "We recognize that maximum sustainable employment is not directly measurable and is determined largely by non-monetary factors that can change through time. This reflects the reality that maximum sustainable employment is more of a concept than a number. In practice, knowing when we've reached it is difficult because we have to infer where it is, and labour market indicators give us clear signals only when we are well above or below it." Wow; that is a mouthful indeed!
Examples contradicting his bogus theory that unemployment less than his concocted level of maximum sustainable employment causes price inflation are easily found. Japan is a case in point at this time. The rate of unemployment in Japan is around 2.5 per cent well below Canada's current 5.2 per cent and even further below Macklem's desired "sustainable" rate.
Macklem says Canada's rate of unemployment is below the desired maximum sustainable employment level and is thus causing price inflation. This would suggest that Japan's price inflation should be even greater than Canada's six per cent given that the rate of unemployment is far below Canada's and Macklem's imaginary sustainable level of employment. But that is not the case. In fact, Japan's price inflation hovers around zero per cent and has continued to be low during its prolonged period of low unemployment, which are a result of the concrete conditions in imperialist Japan.
The lesson for the people from Macklem's speech is the necessity to have their own modern economic theory born out of an analysis of the concrete conditions and independent of the self-serving inhuman ravings of the ruling elite.
This article was published in
Volume 52
Number 11 - November 2022
Article Link:
https://cpcml.ca/Tmlm2022/Articles/M520114.HTM
Website: www.cpcml.ca Email: editor@cpcml.ca