Avishkar Govender
Avishkar Govender

Stagflation

Stagflation is an economic condition where inflation is high, economic growth is slow and unemployment is high. To say that South Africa is suffering in a state of stagflation is an understatement. Everyday the cost of living increases, the availability of economic opportunity diminishes and joblessness expands. To confirm this we have been told that the three enemies of South Africa are poverty (that is that people cannot afford to live), inequality (that is that people cannot benefit from opportunity) and unemployment (that is that people cannot find work). This however does not deal with the causes of inflation, economic stagnancy and unemployment.

I have long held the belief that psychotic repetition, that is the unnecessary remaking of something that’s already been made or the unnecessary redoing of something that’s already been done, is the root cause of inflation, by increasing the production costs, and thus the prices. However we must also consider the increasing costs of labour, whether through minimum wages or through annual increases, as being another source of cost-push inflation.

Naturally there is also the problem of limited supply, and the phenomenon of demand-pull inflation, that is where prices increase as demand increases, which because of slow economic growth, with a heavily concentrated economy, with limited numbers of available markets to supply, is a reality of the under-developed world.

Why South Africa is not a preferred destination for investment and development — while the government institutes job-reservation and an inflexible, excuse-driven, labour regime; that serve as the background to discussions about the expropriation of property without compensation, whilst basking in the glory of a junk status credit rating — is beyond my, most economist’s and all sane and rational people’s understanding.

Finally we have heard that unemployment is caused by a lack of available jobs, because of the slow economic growth, and a lack of skilled workers, because of the inequitable education and training sectors. However, the fact is that high wages and high costs of production, both in financial and economic terms, make employing people prohibitive, such that there are fewer jobs than there could be. Further to which the billions of rands spent on the SETA project was meant to have solved the problem of untrained and under-trained workers.

So we have this situation of a confluence of inflation, slow economic growth and unemployment; that is collectively a state of stagflation. How do we resolve this problem? In order to provide a constructive intervention, here are twelve things that we can do to reduce inflation, increase economic growth and decrease unemployment:

  1. Prohibit psychotic repetition – Making it illegal and subject to the same schedule of punishments as fraud, given that psychotic repetition depends on fraud.
  2. Institute individual wages – Making it possible to pay each person what they are actually worth.
  3. Limit annual wage increases to 1% – This will severely reduce inflation.
  4. Prohibit minimum wages – Allow the labour market to work freely and on the basis of efficiency, unlike the present system where the good workers carry and cross-subsidise the bad workers.
  5. Invest in infrastructure development outside of the big cities – This will decentralise the economy and reduce demand-pull inflation.
  6. Abandon affirmative action, black empowerment, black economic empowerment and broad-based black economic empowerment – this will get rid of the job reservation legacy of apartheid.
  7. Repeal the basic conditions of employment act, the employment equity act and all related acts – the right to dignity is a constitutional right which must be upheld by the labour courts.
  8. Abandon all notions of expropriation without compensation – protect property rights and investment will flow into the country.
  9. Make the purchase of government bonds a tax-deductible expense and make the interest earned off government bonds exempt from taxation – this will increase demand for government bonds and pull South Africa out of junk-status credit rating.
  10. Reduce the rate at which the Reserve Bank lends money to other banks to 1% – this will increase investment and ease economic financing.
  11. Merge the SETA system into the TVET colleges and merge the SETA funding into NSFAS – implement the NSFAS Bank system that I detailed some years ago.
  12. Force both ESKOM and SASOL to buy coal mines so that are able supply themselves with all the coal that they need; storing, not selling, their excess coal – this will decrease the price of electricity and fuel making it more possible to employ more people.

Doing these twelve things will reduce inflation, increase economic growth and decrease unemployment in South Africa. If we do these things we may stand a chance against the demon of stagflation.

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