Inflation And Public Spending

Inflation has been with us for months now , including the US and the more developed economies of the EU, and inflation is scary, and not just for those who live on their salaries. The words of Jerome Powell, Chairman of the US Federal Reserve prove it:

“Reducing inflation is likely to require a sustained period of below-trend growth. In addition, weakening labor market conditions are very likely. Higher interest rates, slower growth and weaker market conditions ” Weaker labor markets will reduce inflation, but they will also cause some pain for households and businesses. These are the unfortunate costs of reducing inflation. But if price stability is not restored, the pain will be much greater.”

Not so long ago that some analysts said that inflation would be transitory and that in a few months it would be overcome. Well, these well-intentioned prophets have made a resounding mistake and that is why the entire West is preparing to fight inflation, and the formulas for that fight are as well known as they are unpleasant: lower public spending, raise interest rates, lower real wages, etc etc.

And in Spain what? I do not believe that the current government is willing to practice any anti-inflationary policy , since its survival rests on a government coalition and a parliamentary majority that is only politically sustainable from the logic of greater public spending, whatever the circumstances of the economy. And that is what this government desperately needs to function. If he is deprived of it or if the dose is lowered, he collapses. This is the result of getting into bed with populism and separatism.

The analyst Ignacio Varela has thus seen the refusal of sanchismo to lower taxes:

“It is a mistake to interpret the Executive’s fierce resistance to tax cuts as an ideological position. The thing is simpler and, at the same time, more dangerous: it needs to continue breaking historical collection records to sustain the leonine spending commitments with its partners and reach the elections without loosening one iota of the clientelistic watering can that the president calls “protecting the working middle classes”, the second vice president, “full support for union demands”, and any responsible person, in the present situation, would point out as the surest way to ruin the country in the midst of escalating prices. First of all, to the working middle classes.”

Economic rigor and political polarization mix as poorly as electoral budgets and an effective fight against inflation.

Be that as it may, these difficulties are compounded by the electoral proximity: in May 2023 regional and municipal elections and in eighteen months in general, and the proximity of those dates does not give much room to fight against inflation, unless, of course, , that the EU get serious and demand measures against inflation from all its members, including Italy and Spain.

And it is that populism does not stop mowing the grass under the feet of democracy, either in Latin America, or in the EU. For example, it is not understood that in developed Italy the Draghi government has been charged to give way to populism , this time probably from the right.

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