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Central banks cannot address supply disruptions, the cause of global inflation

Tong Kooi Ong and Asia Analytica
Tong Kooi Ong and Asia Analytica9/23/2022 12:22 AM GMT+08  • 14 min read
Central banks cannot address supply disruptions, the cause of global inflation
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We are who we are, shaped by our past experiences and the lessons we learn from others. Similarly, today’s decisions on economic policies are heavily influenced by historical events, and the thinking and theses of economists-academics of the past.

From the 1930s, economic stability was largely driven by the ideas of British economist John Maynard Keynes (1883-1946). He advocated countercyclical fiscal policies, for the government to step in when market forces fail to do the job. In other words, governments should act to counter normal business cycles — spending more during recessions but also reining in excesses during boom times.

The problem is, everyone is a Keynesian during bad times — pump priming the economy to boost aggregate demand — but far less so during good times. This is especially true in democratic countries where politicians are loath to make the tough decisions that inflict pain on the people. Taking away the punch bowl in the middle of the party is never popular. As a result of rising fiscal spending, by the late-1960s, global inflation was running high and morphing very rapidly into a major problem.

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