Sunday, December 11, 2005

Stagflation With a Vengeance

BBC Business News reports that Zimbabwe's consumer price inflation rate rose above 500%. But don't worry. I'm sure some Mugabe apologist can say that if you exclude food, fuel, home rentals, bicycles and maybe some more rapidly rising items, then we come up with some "core" rate of inflation which aren't really that bad.

Given the fact that Zimbabwe have at least 60% unemployment (Some argue its more like 70-75%) and a rapidly falling GDP it would be interesting to hear how all the pundits who argue that the ECB pursues a "tight" monetary policy would charactarise Zimbabwe's monetary policy. After all, despite the fact that the Euro-zone have rapid money supply and credit growth, rapidly rising house prices and a consumer price inflation rate firmly above the ECB:s supposed ceiling, 2%, they still regard it as tight , using as evidence the high unemployment rate and sluggish growth. This they argue is evidence of "slack" in the European economy. But in Zimbabwe where GDP is collapsing rather than growing slowly, and unemployment is 60-75% rather than 8.3%, there is arguably a abundance of "slack". Given this, should Zimbabwe's monetary policy be regarded as "tight"? If money supply and price growth is irrelevant in the Euro zone, shouldn't this hold true for Zimbabwe too?

In Zimbabwe's economic collapse is of course the result of the disastrous policies of black racist dictator Robert Mugabe, most notably his policy of stealing the lands of productive white farmers and giving it to his in agriculture obviously incompetent cronies. Zimbabwe's combination of 500% inflation and 60-75% unemployment is what one might call stagflation with a vengeance. EU policies are of course far less destructive, but it is still they who are responsible for the high unemployment and sluggish growth, and any attempt to substitute market reforms with inflation will only worsen EU problems .


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