Matthew Lynn writes at The Telegraph:
This year is shaping up as a terrible one for any ruling party to try and get re-elected
In France, Emmanuel Macron is already a lame duck President after losing his majority in last weekend’s Parliamentary elections. Over in Estonia, the coalition government has collapsed, and Israel is poised for fresh elections.
Chancellor Scholz in Germany and President Biden in the United States may now be waiting to be evicted from office by the electorate, while in Britain the Tories have just lost one of their safest seats in a by-election and don’t look like hanging on to power much longer.
In each country, there are local explanations for why each party is so unpopular. But there is one common, global theme. Inflation.
Rapidly rising prices are a catastrophe for whichever group of politicians happens to be in power.
Real wages get hammered. Interest rates have to go up, tipping economies into recession and raising unemployment.
Public spending has to be cut to cope with soaring interest and welfare payments. And, perhaps worst of all, governments have no one else to blame as voters work out that printing money for wild spending sprees is what caused the crisis in the first place.
Persistent inflation is caused by monetary policy.
First, once inflation starts to take off real wages inevitably get hammered. We can see that very clearly in the UK, where wages may be rising by 4pc per year, but with inflation now at 9.1pc, the amount that people earn is actually falling by 5pc annually. But the same remorseless logic is taking hold everywhere. In Germany, wages are rising at an average of 3pc but prices are going up by 7.9pc; in the US, wages are up by 3.4pc but prices by 9pc; and in the Netherlands wages are up by 3.8pc but inflation has now gone past 10pc. Living standards are getting squeezed and people are feeling poorer. In many cases, families have to cut back on holidays, new clothes, or even food simply to make ends meet.
And if your answer is to simply put wages up by say 10%, then that itself will fuel more inflation. When you have high inflation there are no good options, just least bad options.
Thirdly, public spending will have to be cut back. When inflation hits the 10pc level, the amount of interest that governments have to pay on all the debt they owe (and most of them owe more money after Covid than at any time since the Second World War) goes up as well. So do many automatic, inflation-linked welfare payments, as we have just seen in the UK with rises in pensions, especially for former public sector workers. The result? There is far less money to be spent on everything else.
Any chance of NZ getting back into surplus is near zero.
But the harsh truth is that the root cause of the current round of inflation is spending too wildly, and printing too much money, especially during Covid lockdowns that look more and more like a catastrophic mistake. Voters aren’t stupid. They can work that out – and they are not in a mood to either forgive or forget.
The printing presses went wild and we’re all paying for it now.
Inflation is completely lethal for any party that happens to be in power. Here is a simple prediction. It doesn’t matter whether they are from the left or the right. Over the next three years, not a single ruling party anywhere in the developed world will be re-elected.
A bold prediction.