Inflation fever is gripping the world. Even the best managed economies are struggling to contain it. The Federal Reserve, i.e., the US central bank, has been raising interest rates. The logic is that making money more expensive will containi inflation by slowing the rate of investment, spending and hiring workers.

Borrowing, becoming more expensive, will fall and businesses will cut back on investments and operations, laying off workers and not hiring those that they planned to. Thus, one clear trade off that it has acknowledged is the expected rise in the unemployment rate. Too bad, the economists argue, it is the price we must pay when the larger objective is to rein in inflation.

Who decided that reining in inflation is the larger objective of the two? It is part of the mandate the governments of most developed economies have given to their central banks in exchange for guaranteeing them some semblance of independence in managing that objective.

Thus, with inflation currently at 8.3 per cent in the US and with a target of 2 per cent, the Federal Reserve raised rates five times this year, including three successive raises of 0.75 per cent each bringing the federal funds rate to between 3 per cent and 3.25 per cent and it is not saying it is done. But raising rates too high or too fast can risk triggering a recession. Inflation is estimated to come down to about 3 per cent by the end of 2023.

Devoid of values

Our economic managers operate on theories of ‘positive’ economics, an economics that is considered a science devoid of values. Because if you were to give thought to values, you will begin worrying about the expected rise in unemployment from 3.5 per cent currently to about 5 per cent by next year. Inherent in positive economics is a value, that it is better for those with jobs to be able to pay less for their goods and services rather than be concerned about those without jobs who will not be able to afford anything.

The philosophical underpinning of this line of thinking has to be utilitarianism, the greatest good for the greatest number. But Gandhi rejected utilitarianism. He wanted sarvodaya, welfare for all. And higher unemployment also becomes a racial issue with minorities, such as latinos and blacks hit harder. The US is caught in a tough bind. The labour market is currently ‘tight’ and wages have gone up. Unions are taking the tightness as an opportunity to fight for better pay and working conditions.

Positive economics pushes us in directions we do not always want to go. It has already set up inflation in contradiction to unemployment. It focuses on our wants and tells us that wants are unlimited and the resources to meet them are limited. It wants to help us allocate the resources appropriately by the efficiency of the market that will provide an appropriate price to match demand and supply.

So, in this positive economics determined marketplace, Saudi Arabia decided that it wants to host the Asian Winter Games in 2029 in a futuristic city called Neom where there will be an artificial lake and year-round artificial snow. It may have the resources to sponsor such activities but are right thinking people allowed to make sense of an economic system that can support such uses of energy when we should be restricting energy use, and looking for sustainability so more countries in the future do not suffer from the kind of devastation that flooding did to Pakistan in the last few months?

Gandhi’s line of thinking would make us think in terms of needs instead of wants and how to satisfy those needs for all. So we do not have higher unemployment in the US or displaced poor living in tents in Pakistan waiting for their homes to be, if ever, rehabilitated while the rest of the world looks for economic efficiency to satisfy all their wants at reasonable prices.

The writer is an emeritus professor at Suffolk University, Boston.

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