As Minister Nagy opens his piece, more and more European governments are asking us to do the craziest things to save energy (and support the war). The Dutch ask that you shower for no more than five minutes, one UK energy supplier says to cuddle a pet to stay warm, public workers in Italy’s sweltering heat face restricted A/C. One thing is for sure, the economic crisis is not just impacting third-world countries. As Nagy says, “We are seeing desperate attempts to keep the economy going in developed Western countries as well.”
In an environment of soaring inflation (with no end in sight), deteriorating economic growth prospects, and the risk of recession rising by the day, the dollar once again has become a safe haven, with investors fleeing the currencies of emerging markets, especially those who haven’t jumped on the “Recession is coming, deal with it” bandwagon.
The logic behind this mindset, according to Nagy, goes something like this: The U.S. Fed’s “aggressive” monetary tightening, i.e., rate hikes, are meant to contain inflation by artificially inducing a recession, which will initially hurt but will be worth the suffering. The ol’ "no pain, no gain policy," as Nagy dubs it.
He further goes on to explain, “According to former U.S. Treasury Secretary Larry Summers, unemployment should average above 5 percent for five years, but it is OK if it rises to 10 percent for a year.” In other words, it’s best to keep unemployment low for the time being so that people can’t make purchases (because… they have no income to spend), which will crush demand, thereby lowering prices and curbing inflation. I guess the fact that people will have no income for basic purchases for their day-to-day living (e.g., food) is not a concern. Stunning. Of course, one can always hope those Covid stimulus checks will hold out.
Over here in Europe, the situation is a tad different, Nagy goes on to say, as we are facing the direct consequences of the sanctions war against Russia and, for some of us, the impact of being in the very neighborhood where the war is taking place, for instance, Hungary. “Inflation tends to be higher in countries close to war, which is why we can speak of inflation in this region that is largely war-related, for example, in the case of Hungary, where 80 percent of the inflation is external,” Nagy states. And yet, the long-term effects of the war are disastrous for all of Europe. When will inflation peak? When will growth bottom out? How badly will EU competitiveness be impacted? Will Italy default? Nobody has the answers to these questions.
As to the ultimate question — When will the ECB see fit to intervene in the sovereign debt market? — one may presume they will attempt to do so sooner rather than later.
Which brings us to the core of Minister Nagy’s piece since, after all, at the end of the day, it is your average citizen who is most greatly impacted by the decisions made on high, often at the bidding of a power thousands of miles away. “Why should ordinary workers and their families pay for dealing with inflation during a war, especially if this time it is not their wage demands that are pulling the strings?”
Nagy further asks, “Is it fair to put the burden of curbing inflation, which is driven in large part by profits, on workers who have shared in very little of the extra corporate income earned?”
Hungary and its decision-makers say no. With war and war inflation already upon us, inducing a recession and subsequent unemployment is not the answer.
As Nagy explains, the Hungarian experience has shown that, apart from the model of price caps we have implemented, there are few international good practices that would not ultimately increase corporate incomes.
And, as Nagy emphasizes in his piece, “global recession is to be feared more than inflation.” Thus it is to be avoided at all costs. In Hungary, we are sure to see restricted growth, but we still have faith a recession will likely be avoided. And despite the many protests of our dear left-liberal friends here in Hungary, we will do so following an economic policy that does not seek to destroy jobs but one that protects families, employment, and an affordable standard of living.
“Politicians would be wise to recognize that they cannot let workers, families and the middle class bear the burden of the shock,” says Nagy. Indeed, this is the first time that decision-makers on a global level have the opportunity to ditch the textbook foolery and “refuse to jump from a situation of high inflation and low growth to an even worse recession without protecting society.”
Of course, there is one solution that most in the West (and even some of our neighbors) refuse to acknowledge. And Minister Nagy soundly concludes his piece with this. The best, in fact, “the only effective and cheaper way to bring down inflation is to end the war itself.”
Peace, not an artificially induced recession imposed on your citizens, is something Prime Minister Orbán has been calling for from the very beginning. But I guess, peace, like employment, has sadly fallen out of favor.
It continues to be a shock that our friends over in the West, the “defenders of democracy,” keep forgetting that democracy is, at the end of the day, all about the people, the voters.
Sometimes, it doesn’t take much to realize why we garnered a fourth two-thirds majority.