The unproductive arguments raging among economists and central banks about when and how much to raise interest rates to curb inflation illustrates the complete failure of conventional economic theory, according to Deirdre Kent, of Otaki. spokesperson for the New Economics Party.
“Here we have the Reserve Bank putting up the official cash rate to keep inflation below 2 percent and the manufacturers saying that will slow productivity and put people out of work.,” she says.
“Economists argue themselves round and round,” she says.
“It seems then that under the orthodox economic theory, you can’t both avoid inflation and have a thriving economy.”
Ms Kent adds: “A small child can see how stupid this is. Surely, the child will say, intelligent adults can invent an economic system where there is no inflation yet there are jobs at the same time?
“The problem is that governments and central banks are relatively helpless when they allow banks issue 98% of the country’s overall money supply as they do in New Zealand.
“They have few tools at their disposal to curb inflation. We end up with this inane cycle of inflation one minute and unemployment the next.”
Ms Kent says that during the Depression in the last century, Wörgl, a small town in Austria, created its own money and charged a circulation fee.
“Every month the holder of a Work Certificate had to buy a stamp and place it on the back of the note to keep it valid,” she says.
“So the money circulated fast. At one stage there was inflation, so some notes were withdrawn from circulation. Over 15 months, unemployment in Wörgl dropped 25 per cent, when in the rest of Austria it had risen 10 per cent during the same time period.”
The New Economics Party supports a return to state seignorage, where the country’s legal tender is issued by the Treasury and not by commercial banks.