We shouldn’t increase unemployment to fight inflation, says economist

For economist Pavlina Tcherneva, governments make a big mistake by raising interest rates and thus favoring rising unemployment as a way of fighting inflation. She defends that the public sector starts to offer direct vacancies to those looking for a new job.

This year, central banks in several countries, such as Brazil and the United States, are raising interest rates to cool economic activity and thus try to contain the rise in prices.

“It’s a political decision that, if successful, will stop economic growth and leave millions of people out of work. The idea is that when people lose their wages and jobs, they don’t spend. This is a method of fighting inflation. , but we don’t have to do it that way”, she defended, during a virtual debate held by Cebri (Brazilian Center for International Relations), this Tuesday (27).

Of Bulgarian origin and a PhD in economics, Tcherneva, 48, is a professor at Bard College and a researcher at the Levy Economic Institute, both in New York. She studies monetary theory and was an advisor to Bernie Sanders’ campaign for the presidency in 2016. In 2020, she published the book “The Case for a Job Guarantee”, in which she proposes the model in which the state guarantees work to everyone who seeks a job. .

She argues that federal governments should allocate resources for the creation of vacancies, to be managed by states and cities, at the local level. These workers, who would be hired on a temporary basis, could perform various tasks, such as preparing food in community kitchens for the elderly, supporting victims of violence and tutoring students.

Temporary workers could also work on environmental issues, such as cleaning up rivers, recycling garbage and creating urban green areas. And also in remote and flexible activities, such as creating applications of public interest, helping to transport people or recording the history of the communities where they live.

Tcherneva recognizes that the biggest obstacle to transforming the idea into reality are the questions related to the increase in public spending, which she sees as nonsense.

“The public was convinced that the resources [públicos] are scarce, but this is something peculiar. We just had Covid, when the US spent a quarter of its GDP in a year. We also did this during the 2008 crisis. We have many examples that when the public sector wants to finance an action, this is not a problem. It’s a political choice not to face unemployment,” he says.

“When we talk about food insecurity, there are programs to provide food to the hungry. If there is a lack of housing, there are initiatives that provide houses. But when a person needs a job, governments give a small income, some training, but not a job in yes”, compares.

She recalls that the lack of occupation generates a series of difficulties in the lives of those who experience it.

“Unemployed people face a lot more physical and mental health problems. If they are out of the market for a long time, it is difficult to relocate afterwards. The issue leads to housing problems, crime, incarceration, poverty. US is $35,000 a year. One way or another, we pay the cost of unemployment, which is very high.”

Questioned by Sheet after the event, whether governments should prioritize offering jobs or providing emergency aid, she defended the first option, but said that the two alternatives complement each other to create an effective social safety net.

“The stabilization policy should focus on jobs, but it cannot be the only thing, because many people cannot work. They can be students, have physical limitations, be retired, so financial support is important”, he ponders.

She points out that there are intermediate models. “In rural communities in India, there is a program in which the person, when signing up, gets a card, with a deposited balance. You can keep the money and not go to work, but the program works well, because people generally like it. to have a job”, he says. “It’s something that gives dignity.”

The researcher recognizes that the idea of ​​the State creating direct jobs is not new: the New Deal program, implemented in the 1930s in the United States, opened thousands of temporary jobs in the same way. The federal government sent resources to cities to manage vacancies and have manpower to make improvements.

Tcherneva points out that the model was tested by several countries in the following decades, but that it faced resistance from several fronts.

“The Conservative lobby was very opposed to New Deal jobs. Many poor people who lived in Conservative states benefited from them, and went on to vote for Democrats. There was also opposition from business people, industrialists. Economists are also a big obstacle. But the older generation young people, especially those interested in the New Deal, are thinking along the same lines, but more broadly, about what is called the Green New Deal. Maybe it’s time to revive this idea,” he hopes.