Alan Kohler. Source The New Daily, Fair Use, Low Resolution Image to Identify the Subject

Claim: We Must Allow More Inflation to Address Climate Change

Essay by Eric Worrall

Aussie financial journalist Alan Kohler has suggested allowing more inflation could protect jobs from rising energy prices. But he appears to ignore the economic damage inflation itself would cause.

Alan Kohler: In a warming world, inflation targets need to rise

Alan Kohler
6:00am, Dec 5, 2022 Updated: 8:56am, Dec 5

Central banks need to start thinking seriously about raising inflation targets because of climate change.

Global warming is inherently, inescapably, inflationary, so when the countries that have 2 per cent inflation as their formal target get inflation down to 3 per cent, will they cause a global recession for the last 1 per cent, when it’s not caused by excess demand but by climate change?

We’re talking about the United States, Europe, Japan, UK, Norway, Sweden, Switzerland and South Korea, all with 2 per cent targets.

The most direct and obvious problem is energy prices. While the marginal cost of renewable energy is zero, which means it tends to be deflationary, the transition from fossil fuels is going to take at least a couple of decades, especially in some parts of the world, and in the meantime the declining scale of coal and gas will push their prices up.

This year’s inflation spike was mainly caused by Russia’s invasion of Ukraine and looks temporary, but when the world finally gets serious about tackling climate change, higher carbon taxes will raise the prices of fossil fuel energy well before it has ceased to be in use, and important.

Which is the whole point of carbon taxes – to make fossil fuel energy more expensive.

If anything, higher energy and food prices will do their own demand destruction so central banks will be forced to cut interest rates, not hike them, to preserve employment (which is actually in their charter, unlike climate change).

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The Ukraine shock was only severe because there are not sufficient alternative sources of supply to absorb the disruption to the supply of Russian gas and petroleum. More investment in domestic fossil fuel resources could have fixed this – but that investment didn’t happen, because of European and Western regulatory hostility to fossil fuel.

What about Alan’s proposal that we protect jobs by allowing higher inflation?

I disagree with Alan Kohler’s assertion that allowing more inflation would protect people’s jobs. Inflation is destroying people’s spending power, and the capacity of businesses to invest and hire people, every bit as much as a rise in interest rates would.

What is the difference between someone not being able to afford their mortgage because of rising interest rates, vs someone not being able to pay their mortgage because inflation has driven up utility bills and the cost of food? How is a business struggling to pay utility bills in any way in a better position than a business struggling to repay debts? Either way, ordinary people lose.

Inflation is worse than high interest rates. Inflation creates perverse incentives which can utterly wreck an economy, such as a perverse incentive to invest in unproductive assets like houses, instead of investing in productive assets like businesses. This leads to widespread economic damage, the stagnation of productive economic sectors like manufacturing, and the creation of enormous asset bubbles, which when they pop cause large scale wealth destruction.

Of course, low interest rates and low inflation would be better than the painful stability of high interest rates, or the economic ruin of high inflation.

Reducing the cost of energy is the path to low inflation and low interest rates. It is not just me saying the price of energy is the key. Australian Reserve Bank Governor Philip Lowe said last week, “… One way of tackling inflation induced by supply-side shocks is to address the supply…”, though admittedly Lowe carefully steered around providing a prescription of how the government should reduce interest rates.

The only short term salvation for people who are struggling to hang on to their homes, or businesses struggling with energy bills, is to rapidly address the underlying problem, the cost of energy. And the only way the cost of energy can be sustainably addressed in the short term, is to unleash fossil fuel investment, by abandoning Net Zero, and massively deregulating investment in energy resources.

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December 5, 2022 10:17 am

Why is “global warming inflationary”?

Bryan A
Reply to  Paul Homewood
December 5, 2022 12:03 pm

It appears that their intended purpose is to control the human component of CO2 output by making it far to expensive for the average family to …
Pay your mortgage (interest rate increases)
Buy food beyond vegetables (grow your own)
Heat your home
Run your A/C
Put gas/diesel in your car
Or even put electrons in your car
If they can make most of these unaffordable in combination, CO2 will drop (at least the human contribution will decrease (except for China))

Tom Abbott
Reply to  Bryan A
December 6, 2022 3:31 am

Except for China, India and half of the rest of the world. The world where common sense still exists.

Reply to  Paul Homewood
December 5, 2022 1:30 pm

I suppose the idea is that crops will be harder to grow, and there will be more extreme weather events damaging infrastructure. So we’ll be spending more on food and repairing infrastructure.

But – as Milton Fridman observed – broad inflation is a monetary phenomenon. If the amount of money in an economy is fairly constant, rising prices of some things will mean people will have less to spend on other things, so their prices will drop.

There are exceptions, of course. Monetary velocity changes will also lead to general price level changes.

But the real fact of the matter is that it’s government policies, like QE, lockdowns, and intentionally causing energy to become more expensive, that are causing inflation.

Last edited 1 month ago by BigJim
Tim Gorman
Reply to  BigJim
December 5, 2022 1:44 pm

It’s the age-old battle between central planning authority versus accumulated individual planning, the “invisible hand” if you will.

Centralized planning authorities simply can’t manage all the various necessary inputs adequately to come up with a central plan that works for everyone. So they resort to making political decisions meant to keep them in power and wind up with a rigid, one-plan-fits-all mess that never works out right.

We are seeing it play out right before our eyes but the politicians can’t seem to see it. China, Russia, Iran, etc. are all suffering today from the results of central planning yet our politicians think all of these countries are economic threats. Give it another generation and they are going to fall apart. They will most likely be *military* threats as the central authorities try to hang on to power but that’s all.

The sad thing is seeing the US, the EU, etc all trying to move to the central planning authority meme. The Priest-Kings in the Bureaucratic Hegemonies that rule most of us today think they know best how we should all think and act. That’s not going to end well either!

Reply to  BigJim
December 5, 2022 7:24 pm

You are overlooking the fact that the Biden Administration has been printing money to pay it’s bills.
Which abrogates the concept “ If the amount of money in an economy is fairly constant”.
When government freely prints money to pay bills, the money supply grows by leaps and bounds. Lessening the value of cash and increases the costs for products and services.

Clearly, Federal Reserve watchers never bothered to consult Milton Friedman. Lost is a core Friedman dictum: “Inflation is always and everywhere a monetary phenomenon.”

At the same time, by government fiat, services and supplies of many products/services are in forced short supply. e.g., California mandating that only unionized teamsters and truck drivers can load/unload ships or transport goods.

Biden’s administration forcing invalid vaccines on millions, repeatedly even as vaccination decreases with each dose from poor to not-at-all.

Biden also demanded severe lockdowns, especially damaging to small business, helping increase monopolies for larger chains, factories, offices, etc.

Biden, his handlers and Administration are Hades bent on ruining the American dollar.

Tom Abbott
Reply to  ATheoK
December 6, 2022 3:35 am

Everything Biden does harms the United States. He seems bent on our destruction.

Tim Gorman
Reply to  ATheoK
December 6, 2022 6:18 am

Isn’t that how George Soros made his money? Ruin a countries economy so he could buy assets cheap and then resell later when a recovery happens?

Makes one wonder about Biden ….

Walter Sobchak
Reply to  Paul Homewood
December 5, 2022 1:51 pm

There is a confusion between price increases caused by shortages of commodities and price increases caused by a decline in the value of money. it is only the later that is inflation. Shortages can be and usually limited to certain sectors or regions. They do not affect the overall level of activity. Monetary inflation is reflected across the entire economy.

Reply to  Paul Homewood
December 6, 2022 1:54 am

Why is global warming inflationary?

That’s actually a really big question for such a short sentence, with the correct answer undoubtedly dependent on context, of which there are at least two scenarios, and may well be the point of your question.

On the one hand, there is the allegorical pantomime that the climate bedwetters force us to endure, ad nauseum.
While completely devoid of evidence, the political class have chosen to accept this version of the world’s economic and political future, abrogating their responsibilities of prudent economic management and national interest, instead selling our collective souls to the climate devil, namely the global elite.

Once snared in the web of UN treaties, EU regulations and trade deals, and the glaring oversight of the WEF, IMF and World Bank, national laws are now devoid of veracity.
Worse still, the New World Order no longer simply suggests capital investment in renewable technology. It is instead, now an imperative encumbered by international law, and every stakeholder within the global economy is compelled to comply.

In addition, conditional and quantifiable CO2 reduction targets force the decommissioning of non-renewable energy generation and the truncation of the agricultural, mining and manufacturing sectors.

The inherent and persistent rise in energy and food costs drives the cost of living ever higher. Concurrently, private investment capital dries up in the renewable energy sector, forcing government infrastructure spending to achieve renewables targets. Complicating the allocation of capital is the reality that the operating life of renewable assets are manifestly shorter than expected, requiring precious capital to be diverted to premature asset replacement projects.

It is simply impossible to fund this level of capital investment from government revenue, so government bonds are issued, followed by a capitulation to the tempting, yet improbable world of Modern Monetary Theory (MMT).
MMT is a process that literally involves printing money, and it’s backed by nothing – a massively inflationary insult to the economy. While it seems absurd, every other advanced economy is now doing it, so why not us? Governments quickly usher in MMT as part of their capital investment and management process.

This entire scenario is massively inflationary. Worse, it isn’t temporary, there is no diversion, divestment or transfer of assets. There are no capital raising alternatives, get out clauses, or even the option of deferment. The statutory obligations are set in stone and no exceptions are requested, nor are they given.
This is inflation that never goes away. It’s intractable. It has the potential to evolve into economy crushing stagflation, with the very real risk of driving the economy into a protracted recession, or even a period of economic depression.

The scary part about this entire scenario is that it is playing out before our eyes. The tightening noose of the global elites is in place and being actualised. Private capital is being withdrawn from renewable projects, Governments have capitulated to their global masters. They are cutting their economies off at the knees as industries are neutered before our eyes, and they are increasingly committing their respective nations to a point beyond their fiscal and monetary means.

I could call it a scenario, but it’s actually reality, and it has progressed well beyond the first act.

On the other hand, we another compelling scenario, which is also a current reality, and yes it has the potential to be inflationary, but not intractably so.

This scenario is set against the very real backdrop of natural variability. Since the beginning of the Industrial Revolution – a miserably cold period in history – we have seen a modest rise in temperature that is both unremarkable, and in many respects, statistically irrelevant.

Under this scenario, there is significant evidence that rural output has exponentially increased over the past two centuries. This is hardly surprising, as we know that in times of yore, the human race, along with animal and plant species, flourished in a very similar climate to what we have today.

Emerging economies have been particular beneficiaries, with the agricultural sectors of their respective economies contributing significantly to economic growth, while subsequently creating an ever expanding middle class. This emerging middle class is driving demand for commodities and consumer goods like we have never seen before. As the middle class continues to grow across the globe, consumption may well result in demand exceeding supply, which is a fundamental driver of inflation.

The other inflationary issue to contend with is the liquidity in the flow of money to these growing markets. The world is awash with capital, and it is always looking for a home, with booming emerging economies with stable governments an attractive target. The big problem is that excess liquidity can quickly become inflationary, with speculative asset bubbles emerging and misguided deployment of capital leaving an economy awash with money.

The good news is that none of this climate inflationary stimulus is intractable, or particularly difficult to manage. Every road to an advanced economy is paved with economic distractions, often lurching violently from growth to contraction, and back again. What is exciting is that these nations are becoming stakeholders on the world stage, and have the right to morph into advanced economies, just as Western nations did before them.

Our job should be to facilitate their journey. Not impose a set of rules that were deemed to be omnipotent by a ruling class of unelected bureaucrats.
To protect them, we need our leaders to first protect our own nations and nationhood from the marauding hands of those that seek to rule us under the auspices of a false and misleading climate doctrine.

These are two very different scenarios – both potentially inflationary; both climate based – but one leads us along the ‘Highway to Inflationary Hell’ (thanks António Guterres for the prosaic inspiration). The other leads a nation down the path to self-determination and prosperity, with inflation merely a speed bump on the journey to success.

Allan MacRae
Reply to  Paul Homewood
December 6, 2022 2:03 pm

“Aussie financial journalist Alan Kohler has suggested allowing more inflation could protect jobs from rising energy prices.” 

As my gigantic Polish friend Dr Tadeuz used to say, “Vere do zey get zese IDIOTS?”

December 5, 2022 10:35 am

He is just another “technically-illiterate” political type, if he thinks that that is the only solution. What about considering that “carbon dioxide plays no part in global warming, and needs to be totally ignored”? Politicians seem to have become adept at handing out huge wads of cash while complaining about ongoing inflation!

Reply to  mikelowe2013
December 5, 2022 4:06 pm

He is just another “technically-illiterate” political type”
Kohler is just another useful idiot.

Reply to  Mike
December 6, 2022 5:07 am

Isn’t it best summed up by saying he is just a journalist and they are not noted as being very bright or well informed?

December 5, 2022 10:48 am

Ah, that’s the ultimate intersection of expediency and deflection.

December 5, 2022 10:53 am

Alan Kohler: In a warming world, inflation targets need to rise”

How can we drive it into your thick head that it is not a warming world?

Reply to  Disputin
December 5, 2022 4:09 pm

How can we drive it into your thick head that it is not a warming world?”

Get the BOM and the CSIRO to admit they are wrong. Ultimately, that is where all the bullshit pseudoscience in Australia is coming from and is promulgated by the ABC – which Kohler works for.

Reply to  Mike
December 5, 2022 4:39 pm

Science media political corruption.

Science corruption triangle.jpg
Reply to  Streetcred
December 5, 2022 10:52 pm


December 5, 2022 11:03 am

Goblin mode

December 5, 2022 11:19 am

Do they sell Cracker Jacks in Australia? I’m wondering because that must be where financial journalist Alan Kohler got his economics training.

December 5, 2022 11:31 am

I have been watching the Aussie 10-year bond rate, which is generally regarded here as how the market sees interest rates going. Having peaked at just over 4%, it is now at 3.4% and seems to be still falling.

Financial commentators (I think including Alan Kohler) are still saying that the central bank, which has raised interest rates every month for the last 7 months, is likely to raise rates even higher.

The disconnect comes, I think, from the textbook response to inflation, which is to raise interest rates, and the situation we are in now.

The situation we are in now in one of damagingly rising energy costs, caused by western governments following the green renewables madness. This is the cause of our inflation. In the past, inflation has tended to be driven by consumer demand, typically as a result of governments printing too much money. Dealing with consumer-driven inflation by raising interest rates makes sense. Dealing with rising energy costs by raising interest rates makes no sense at all. It will simply make people’s lives even harder, and the lower you are in the financial dungheap, the worse it will be for you.

Alan Kohler could earn his keep by urging the government to increase the supply of dispatchable energy instead of dishing out extreme interest-rate pain on those who are already suffering from government stupidity. Our Albanese Australian Labor government is doing a King Canute act by trying to put a cap on energy prices. That will turn out no better than Canute’s efforts (although there are reports that Canute was laughing at his advisers). The appointed un-elected prime minister of Britain, Rishi Sunak, is imposing his own version of pain on the British people by continuing the fracking ban that prevents the energy supply from being increased (the one he opposed when touting for votes when there was a sort of Tory leadership election), and by going into full-austerity mode. If you thought Xi Jinping was hurting his people with his zero-COVID policy, just watch how Rishi Sunak hurts his people with his zero CO2 policy. Don’t get me started on Joe Biden. Incidentally, Xi Jinping appears to have recognised his error, and is reportedly ending ‘zero-COVID’.

The western world is run by destructive deaf ignoramuses. Alan Kohler is a very intelligent person who has a phenomenal opportunity right now to lead our leaders out of their madness. I had expected better of him. He may still turn around, but he needs to do that soon.

Reply to  Mike Jonas
December 5, 2022 1:34 pm

Now that central banks buy their (and other) governments’ debt, yields no longer reflect market sentiment. If a central bank thinks bonds are spooking the market, they’ll buy or sell them to bring their prices (ie yields) up/down to where they want them.

Capitalism is long dead.

Tom Abbott
Reply to  Mike Jonas
December 6, 2022 3:52 am

“The situation we are in now in one of damagingly rising energy costs, caused by western governments following the green renewables madness. This is the cause of our inflation.”

That’s correct. And it won’t stop until the restrictions are removed from the oil and gas industry.

Unfortunately, most of our Western leaders, for one reason or another, think it is necessary to destroy the oil and gas industry.

As a result, a lot of people are suffering because of this bad policy due to increases in their costs for electricity and this could result in people dying in the near future as they can’t afford to heat their homes.

I don’t think it can go on like this forever. People are going to start complaining more loudly as time goes along because the politicians are not making things better for them, they are making things worse.

Tony Sullivan
December 5, 2022 11:40 am

I’m constantly amazed at how many public figures who are well educated, and are employed in some compacity in the financial/economic sector, seem to displace rational thought when it comes to climate change. Many of these are people one may normally trust with their money, or listen to their advice from an economics perspective. But when they weave climate change into their vocabulary I want to run from them. When you make comments like “While the marginal cost of renewable energy is zero”, how is anyone supposed to take you serious on any level? I don’t know Adam Kohler from the dog next door, but he seems to fall into the ‘run from him’ category.

Reply to  Tony Sullivan
December 5, 2022 11:53 am

Alan Kohler always aspired to be admired by the “progressive” flank of the political spectrum.
To this end he started decades ago peppering his weekly newspaper columns and tv appearances with “global warming / climate change” threats.
(About the time of the Copenhagen CoP I think).
He’s invested in the religion now, so don’t expect any change in his preaching any tome soon.

Chris Hanley
Reply to  Mr.
December 5, 2022 1:42 pm

Invested literally as well as figuratively I suspect.

Reply to  Tony Sullivan
December 5, 2022 11:53 am

Highly credentialed doesn’t necessarily equal well educated.

There are loads of highly credentialed people who are Intellectual Yet Idiot (IYI)*

*Nassim Taleb’s “Skin in the Game”.

Last edited 1 month ago by JamesB_684
Reply to  Tony Sullivan
December 5, 2022 12:03 pm

re: “While the marginal cost of renewable energy is zero”: what is the marginal cost of solar energy at night? My arithmetic says it is infinite, ie, any dollar amount divided by zero.

The same goes for the marginal cost of wind energy on a still day, of course.

Reply to  Mike Jonas
December 5, 2022 4:50 pm

Even during the day, it is impossible for the marginal cost to be zero.
Any time something is used, there is wear and tear, so maintenance must be considered.
Beyond that you have the cost of loans needed to pay for construction, and the cost of the labor needed to keep the facilities running.

What is it about leftists in general, and AGW activists and their inability to do even simple economics?

Reply to  MarkW
December 5, 2022 9:58 pm

Although ‘marginal cost’ is just a concept, it is a useful concept. It can be defined a few ways, but for electricity it’s basically the cost of producing electricity for a while, less the cost of not producing. So it excludes all fixed costs and all, some or none of other costs. When comparing the cost of renewable electricity with dispatchable (typically fuel-sourced) electricity, for example, it is necessary to compare the full cost of renewable electricity with the marginal cost of dispatchable electricity in order to make a fair comparison. That’s because the renewable electricity is intermittent so it has to be backed up by dispatchable electricity. During any period when renewables are used the dispatchable equipment has to be present but not actually producing, so the dispatchable cost saved is only its marginal cost. That is basically just the cost of fuel plus a bit for things like additional wear and tear, but minus a bit for things like the cost of changing the production rate.

That’s why renewable electricity is so much more expensive than any fuel-sourced electricity. And it’s why comparing them using “levelised cost” is complete nonsence.

B Zipperer
Reply to  Mike Jonas
December 5, 2022 10:22 pm

Regarding LCOE the EIA.GOV actually agrees, although they use the phrase “require a careful comparison” since they really can’t come out and say it is nonsense to compare the two [nondispatchable vs dispatchable].

“Because load must be continuously balanced, generating units with the capability to vary output to follow demand (dispatchable technologies) generally have more value to a system than less flexible units that
use intermittent resources to operate (resource-constrained technologies). We list the LCOE values for dispatchable and resource-constrained technologies separately because they require a careful
comparison.” p3

Right-Handed Shark
Reply to  Tony Sullivan
December 5, 2022 2:32 pm

The dog next door has a far broader comprehension of economics.

Joseph Zorzin
December 5, 2022 11:47 am

“Global warming is inherently, inescapably, inflationary”

December 5, 2022 11:49 am

Wow You can’t fix stupid!

David Wojick
December 5, 2022 11:50 am

This is interesting: “… higher …. food prices will do their own demand destruction….”

Starving is good?

By the way, an energy price spike due to shortage of supply is not inflation. And this one was kicked off by a lack of wind in the EU, not the war which came later.

Reply to  David Wojick
December 5, 2022 12:08 pm

An energy price spike due to shortage of supply does indeed cause inflation. We are seeing supply-driven inflation, but in the past we tended to see demand-driven inflation.

David Wojick
Reply to  Mike Jonas
December 5, 2022 1:00 pm

Inflation is when the money supply gets too large. Real price increases are not inflation. So shortages are not inflation, nor are buying sprees.

Tim Gorman
Reply to  David Wojick
December 5, 2022 1:18 pm

I agree. Price spikes of a commodity due to temporary supply problems are not inflationary. The prices will mediate when supply comes back. Same with demand, as commodity prices go up due to demand increases it is automatically limited by people foregoing buying the commodity – i.e. demand goes back down and prices with it.

When government grows the money supply for political purposes it distorts *everything* and causes both supply shortages and demand increases – economic inflation. That doesn’t go away easily as the Western economies are finding out the hard way. When you have a long period of money supply driven inflation as we are seeing today, wages will grow as well, meaning those prices caused by the inflation will only come back down slowly, if at all. While the inflation *rate* may come down the inflation prices will not.

Money supply caused inflation is not like commodity price spikes due to shortages. One is temporary, the other is not.

Joseph Zorzin
Reply to  Mike Jonas
December 5, 2022 1:27 pm

we have demand driven inflation too because of the multi trillions Biden spent due to deal with Covid- along with the new anti inflation bill which will spend several hundred billion more- and as inflation gets ever worse, they’ll spend even more to fight it- ad infinitum

Reply to  Mike Jonas
December 5, 2022 5:19 pm

Governments have moved well beyond this simplistic concept of inflation. They have a goal of about 2% annual inflation. Calculate 2% for 35 years. 1.02^35 is double…
Their objective is that, when you die after 35 years of tax contributions, they will again tax your estate, either in the form of inheritance taxes or capital gains taxes for that 100% increase in “monetary value” of long term assets. Thus over your lifetime, you will pay 40% of what you earn, 15% of what you purchase, and in the end your inheritors will pay tax again on the 100% increase in value of your assets. Your entire lifetime will thus monetarily be ZEROED out. This is how governments view citizen’s lifetime monetary contribution to the economy. G7, G10 etc meetings have working groups to make sure this occurs.

Bryan A
Reply to  David Wojick
December 5, 2022 1:42 pm

I don’t think it was from a lack of wind, that’s just weather dependent energy being weather dependent. The issue in Europe is the lack of domestically sourced reliable energy sources

December 5, 2022 12:27 pm

. “While the marginal cost of renewable energy is zero, which means it tends to be deflationary, the transition from fossil fuels is going to take at least a couple of decades,”
I don’t think the marginal cost of renewable energy has any effect on inflation or anything else except energy propaganda. Actual cost and its contribution to true cost of energy to the consumer is the the active ingredient and it is measurably inflationary. That is exacerbated by the market meddling done to force it on us.

December 5, 2022 12:27 pm

The sheer numbers of supposedly smart credentialed folks pushing the NutZero nonsense is just amazing. I can only believe that somewhere along the way the education they received was just too much for their little brains to absorb and short circuited. There can be no other good explanation for their ridiculous comments.

Reply to  guidvce4
December 5, 2022 1:26 pm

The “Education” they received wasn’t education, it was indoctrination.

Reply to  guidvce4
December 5, 2022 4:45 pm

Short-term / medium-term investment … just taking advantage of the free money and ensuring that it exists for as long as possible.

Gilbert K. Arnold
December 5, 2022 12:29 pm

I ask this in all sincerity… Is the man an idiot?

old cocky
Reply to  Gilbert K. Arnold
December 5, 2022 3:41 pm

Was that a rhetorical question?

Gilbert K. Arnold
Reply to  old cocky
December 5, 2022 4:34 pm

I hope not

Philip CM
December 5, 2022 12:30 pm

If you were ever looking for the answer to what happens to a society which loses its desire for a hierarchal system based on merit.
Sadly, Australia does not stand alone as we watch the world-wide promotion of the incompetence of the unworthy.

December 5, 2022 12:33 pm

Alan Kohler has long been a cheerleader of climate hysteria, the climate industrial complex, and the redistribution of wealth through socialist mechanisms such as carbon taxes.

Despite his high profile as a business journalist, Alan has always tended to wear his left leaning propensities on his sleeve, and at times, with a dispassionate regard for the engine of employment, small business.
The notion of high inflation being beneficial to employment is absurd. There is certainly no fundamental economic precedent that would suggest this to be true, in fact quite the opposite.

Rising inflation always equates to higher interest rates, driving the servicing cost of debt higher, materials and the cost of production increase, capital expenditure collapses, consumer demand dries up, and to add insult to injury, an inevitable, endlessly ascending wages/inflation spiral takes hold the longer inflation persists, as we saw in the 1970s. 
This scenario will be untenable for small business, with many ending up on life support, or collapsing altogether. 

The most glaring disparity between big and small business during periods of high inflation and economic dislocation, is the difference in the elasticity of demand. For many small businesses, the price elasticity of demand is often highly elastic, with demand either falling dramatically during periods of economic stress, or prices being forced lower just to retain a sustainable volume in demand. Conversely, many big businesses produce products that we can’t live without, and simply pass on increased costs, which consumers take on the chin, barely moving the needle on demand. 
Whether Kohler and his fellow ideologues realise it, or not, the ramifications of the climate cult they so adoringly proselytize about will redefine our Western economies in ways that will have massive social and economic consequences, particularly within local communities. 

In the same way that e-commerce and the corporatisation of retail destroyed the cultural and social value of the ‘High St’, small town traders, and village like retail precincts, so climate ideology will destroy millions of small businesses that are so fundamental to employment, innovation, and our respective economies. 
How any of that can be justified in the name of climate hysteria can surely only be reconciled in the minds of the sane as pure, unmitigated lunacy. 

Last edited 1 month ago by PeterD.
Joseph Zorzin
Reply to  PeterD.
December 5, 2022 1:34 pm

“Rising inflation always equates to higher interest rates…”

Moderate interest rates are reasonable. As those rates go up- I see my local bank is finally offering interest above the almost zero level which has been the norm for years. Some of us are too poor to own stocks and bonds and other such investments which are the things that tend to be inflating in value. We poor have small savings accounts which were earning next to nothing. So, not being an economist, I’d say very, very low interests rates are a bad thing.

Tim Gorman
Reply to  Joseph Zorzin
December 5, 2022 1:47 pm

If those interest rates are driven by return on investment which grows productivity of the economy then there is nothing wrong with them. Most of the Western economies have moved to using interest rates as political tools instead of fostering productivity growth.

Joseph Zorzin
Reply to  Tim Gorman
December 5, 2022 1:59 pm

right- and they seem to imply that controlling inflation is all about interest rates and not the money supply or how tax money is invested

I suggest even high taxes aren’t necessarily a bad thing if invested wisely- but that’s probably impossible.

Tim Gorman
Reply to  Joseph Zorzin
December 5, 2022 2:05 pm

That assumes the government is better at choosing wise investment than the people. You are right – that is impossible. But it *is* what so many of the political elites of today believe.

Joseph Zorzin
Reply to  Tim Gorman
December 5, 2022 2:21 pm

The government needs to stick to basic infrastructure. I suggest one trick that makes it all more difficult to get good government is that the feds subsidize states and the states subsidize local communities- and all that money comes with strings attached- all done to try to socialize the nation. Time to cut the strings. Communities and states that aren’t productive should decline and let the more productive areas thrive- maybe the failures could learn something by observing the successful regions.

Tim Gorman
Reply to  Joseph Zorzin
December 5, 2022 2:56 pm

I’ll buy most of what you said. I would only note that almost all of the infrastructure in this nation was funded and installed by local governments. State and federally funded infrastructure is a small percentage of the total.

Think sewer treatment plants, water treatment plants, city streets, farm-to-market roads (i.e. county roads), bridges, street lights, public theaters, public zoos, public parks, and on and on and on.

It’s only since the 60’s that the federal government (and to a smaller extent the state governments) have intruded on all kinds of infrastructure around this country.

We would be far better off if the federal government got completely out of infrastructure outside of national security requirements (e.g. interstates).

old cocky
Reply to  Joseph Zorzin
December 5, 2022 3:53 pm

The potted summary is that interest rates are are blunt instrument which works over the medium to long term and fiscal policy is a mare targeted approach works over the short to medium term.

The RBA charter requires it to try to keep inflation in the 2 – 3% range, which is the reason for interest rates having been below the risk-free rate fo ages.
If the government can’t or won’t do anything about rising costs, the RBA has no choice but to raise interest rates.

Of course, proposed government actions such as price caps or compulsory acquisition have their own problems.

Reply to  Joseph Zorzin
December 5, 2022 4:59 pm

Interest rates by themselves are more or less meaningless.
What matters is the difference between interest rates and inflation.

If you invest at 10%, but inflation is running along at 15%, you are losing money.
If you invest at 5%, but inflation is only 2%, you are making money.

Last edited 1 month ago by MarkW
Reply to  Joseph Zorzin
December 5, 2022 6:26 pm

Interest rates, in their own right, are a ‘relative’ influence on the economy.
In other words, if an economy has slowed to, or near, recessionary levels, low interest rates are a powerful and necessary tool to help stimulate the economy. If the economy is overheated with high liquidity and low interest rates, the economy will grow very quickly, but the consequence of that scenario is that asset bubbles can form, which is exactly what we have seen with endless house price increases and a booming share market, along with other asset classes. This ‘wealth effect’ boosts the net wealth of consumers, adding enormously to consumer demand for goods and services.

The Reserve Bank had a major role to play in this stimulus by not only keeping interest rates low, but also boosting money supply through quantitative easing, which pumped billions into the market, massively boosting liquidity (necessary at the time to save jobs and businesses, and prevent a recession forming, or even a depression, during Covid).

The Australian economy stayed healthy and buoyant throughout Covid, which was both a blessing and a curse. With the economy intact, this was the perfect recipe for inflation, especially when combined with the inflationary impact of supply not meeting demand in energy, commodities, fresh produce, consumer goods, etc. Some of this was partly due to supply chains that had become choked due to Covid, the Ukraine conflict, and of course there was the global energy crisis, which Australia was not immune from, and which in no small part has been due to dumb climate driven policy decisions.

Inflation is remaining stubbornly high, and is forecast to continue rising because of low unemployment, a raft of wage rises throughout the nation, a still healthy economy (in no small part due to healthy resources exports), and surprisingly good retail sales, despite a decline in consumer confidence. The RBA wants to see the economy cool, particularly in terms of a decline in demand for goods and services, an end to wages growth, and even a rise in unemployment. The governor of the RBA, Dr Philip Lowe, has also said he would like to see a fall in energy costs, even if that means reverting back to fossil fuelled low cost energy, which is very interesting, and of course, absolutely the correct thing to do.

Last edited 1 month ago by PeterD.
old cocky
Reply to  PeterD.
December 5, 2022 6:40 pm

Nice summary

Reply to  old cocky
December 5, 2022 7:16 pm

Thank you, old cocky.
With a nom de plume of old cocky, I’m guessing you are from the bush. I was born and bred in the bush myself – lower SE of SA. Moved to the ‘big smoke’ as a young fella, like many country kids.

old cocky
Reply to  PeterD.
December 5, 2022 7:49 pm

Yep, North-west slopes of NSW originally, but a piece of paper and many subsequent years IT contracting in Sydney.

Reply to  old cocky
December 5, 2022 8:53 pm

It’s interesting how many of us from the bush ended up in the professional services. I’m a management consultant who specialises in operations management and the inherent correlation between operations and marketing.
I bought a house in my home town 3 years ago, and moving back in February. Had enough of city life. 40+ years is not a bad run.

old cocky
Reply to  PeterD.
December 5, 2022 11:20 pm

That sounds nice. Best wishes for the move. I hope it’s not in some low spot along the Murray.

Reply to  old cocky
December 6, 2022 5:23 am

No, I’m even further south than the Riverland. A small town called Millicent. It’s about 40 minutes west of the Victorian border and just 15 minutes from the Southern Ocean.
The area is known as the Green Triangle because it has fertile soil and high rainfall. Gets a bit cold in winter, but very liveable the rest of the year.
I’m looking forward to moving back.

Reply to  PeterD.
December 5, 2022 4:58 pm

It is rare for wages to keep up with inflation.
The idea that inflation is good for workers is utterly absurd.

Reply to  MarkW
December 5, 2022 9:21 pm

It is rare, in fact it is counter productive for wages to rise at the same rate as inflation, because it simply makes inflation intractable. That’s why the RBA governor, Philp Lowe is so frustrated with the current surge in union driven wage rises.

We saw the same set of circumstance occur during the Hawke era. In fact it got so out of hand that Hawke negotiated with the unions to back off until inflation capitulated, moving back toward the RBA’s target range. Incredibly, the unions agreed.
There’s no doubt Hawkes previous role in the ACTU had an enormous bearing on this outcome.

As you mentioned, inflation is not good for workers. Ultimately, it erodes the value of every dollar they earn, and the wider the spread between wage indexation and inflation, the greater the erosion on the value of earnings. That’s why it is such an imperative for central banks, such as the RBA, to get inflation under control as quickly as possible.

Last edited 1 month ago by PeterD.
Tim Gorman
Reply to  PeterD.
December 6, 2022 4:57 am

If average wages do not rise at the same *rate* as inflation over the long term then sooner or later you will have a worker revolution as they become poorer and poorer in real terms.

I suspect what you are really talking about is the differential between average wages and average prices. You can’t make everyone rich through wage growth greater than inflation growth, at least over the long term, it is a self-limiting process. It’s an issue that Marxists can never seem to understand.

Reply to  Tim Gorman
December 7, 2022 12:33 am

Wage indexation is based on prices. It’s based on the Consumer Price Index (CPI). The wages of many people in Australia are linked to CPI increases, so wages growth tends to show up in the data fairly strongly correlated with CPI.

You are absolutely right about the absurd notion of wages exceeding inflation, Tim. While it is a fantasy of the unions, it is simply not realistic.

During the Bob Hawke era, we did have a scenario where unions forced wages dangerously close to inflation levels. This led to an endless upward spiral of out of control wage rises and rapidly rising inflation in response. The Prime Minister negotiated with the unions to end the madness, which they ultimately agreed to, as it was a victory over inflation they could never win.

What amazes me is how many in the union movement have economics degrees, and yet they fail to get their head around the wages/inflation conundrum.

As you quite rightly said, Marxists never seem to understand economic concepts. Quite frankly, I’m unaware of a Marxist that understands anything very much, about anything much at all, and that included Marx himself.

Chris Hanley
December 5, 2022 1:04 pm

… central banks will be forced to cut interest rates, not hike them, to preserve employment …

Kohler is a Keynesian believing that higher inflation brings lower unemployment when history shows the opposite, it is a recipe for the stagflation of the 1970s.
Only until the early 1980s when US interest rates were allowed to rise that inflation was controlled and unemployment at over 10% started to decline.
History repeats itself, first as tragedy, then as farce (attributed to Karl Marx).

Joseph Zorzin
Reply to  Chris Hanley
December 5, 2022 1:40 pm

“stagflation of the 1970s”

due to the drastic rise in oil prices, partly due to Henry Kissinger suggesting to Iran to raise the price- which they did- from something like $3/barrel to something $40/barrel

so what’s needed now is to get energy prices down- the real prices- not the bogus pricing of unrenewables – but the price of fossil fuels- and that’ll happen if ONLY they let it happen

I keep thinking of a small video clip that Tony Heller likes to show- showing Biden when running for office and speaking to a crowd- a young lady asked if would end fossil fuels- he walked over to her- put his hands on her shoulders and said he would- the day he takes office- I just assumed that was idiot election politics- but he has tried hard to stiff the fossil fuel industry. Well, the White House is huge- I wonder what they set the thermostat at? Maybe he should put a 500′ tall wind turbine in the lawn- then watch the sunlight streaming through the spinning blades…

Reply to  Joseph Zorzin
December 5, 2022 7:37 pm

Great comment, Joseph.

If politicians spent a couple of hours watching Tony Heller videos each day for a week, and at least half of them cognitively reconciled what he was saying in their tiny brains, this nightmare train to Not Zero could be over in a matter of months.

At the very least, the rainbows and unicorns could be put back in the toy box, and they could finally start premising energy policy on sound economic fundamentals, with both national and energy security at the forefront of their minds.

How avant garde – politicians using logic and rationality to form policy.

B Zipperer
Reply to  Joseph Zorzin
December 5, 2022 10:44 pm

Here is candidate Biden promising a permanent moratorium on off-shore drilling:

Yet, he just OK’ed Chevron to go back into Venezuela and resurrect their oil industry.
His is beyond stupid.

December 5, 2022 1:12 pm

Dear Alan Kohler …

You can’t build a house or an industry or an economy or a nation on words alone. Numbers please.

December 5, 2022 1:18 pm

The bonkers award has a new contender- it should be a perfect match for the planned food production reduction

December 5, 2022 1:36 pm

This idiot lives on Planet B You know the one that Greta said “There is no Planet B”
I don’t think I have ever read such vacuous twaddle, even in the statements of Brandon and his gormless minions

December 5, 2022 1:50 pm

Some correspondence with the Reserve Bank of Australia Governor about modelling of economics and modelling of climate change. Geoff S

Reply to  sherro01
December 5, 2022 1:52 pm

Wish my typing could be left unchanged by unseen forces.

December 5, 2022 2:43 pm

And the only way the cost of energy can be sustainably addressed in the short term, is to unleash fossil fuel investment, by abandoning Net Zero, and massively deregulating investment in energy resources.”

The love [for one’s fellow human] that dare not speak its name ….


December 5, 2022 3:55 pm

Progressive prices forced by single/central/monopolistic solutions.

December 5, 2022 4:37 pm

I can’t remember the last time Kohler wrote anything significant that turned out to be the right course of action.

December 5, 2022 6:04 pm

If a government is honest, they tax. If a government wants to hide what they are doing, they inflate. The differences is taxes often hit the wealthy harder where as inflation always hits the poor harder.

Last edited 1 month ago by Dena
Scarecrow Repair
December 5, 2022 6:26 pm

Let’s just revalue the currency. Add a zero to all prices, including wages and tax brackets.

Bonus is being able to contribute ten times as much towards carbon zero!

December 5, 2022 6:41 pm

Aussie financial journalist Alan Kohler has suggested allowing more inflation could protect jobs from rising energy prices.”

Ah yes, the distant loon call of someone invested in real property and precious metals…

December 5, 2022 6:46 pm

Alan Kohler is an MMT’er. (Modern Monetary Theory). Inflation doesn’t matter. Just print more money.

Iain Reid
December 5, 2022 11:29 pm

Another uninformed journalist that thinks that renewables will replace fossil fuel generation.
And the idea that using carbon tax for fossil fuelled generation is in itself inflationary and not good. The tax is not going to make fossil fuelled generation go away, the grid needs it to remain balanced and to cover intermittency. the other matter is there is a limit to how much renewable generation a grid can run with and stay stable.
The only alternative to fossil fuell generation is nuclear, not renewables.

Tom Abbott
December 6, 2022 3:23 am

From the article: “Central banks need to start thinking seriously about raising inflation targets because of climate change.
Global warming is inherently, inescapably, inflationary,”

Global warming isn’t inflationary. What is inflationary is the methods alarmists are using to rein in CO2 production. They are wasting trillions of dollars on windmills and solar, and are trying to destroy the oil and gas industry at the same time. Both actions are inflationary.

“so when the countries that have 2 per cent inflation as their formal target get inflation down to 3 per cent, will they cause a global recession for the last 1 per cent, when it’s not caused by excess demand but by climate change?”

You’re dreaming. We won’t be hitting 3 percent inflation for a while. We still have a recssion to go through. You do notice the worker layoffs that are occurring, don’t you. Guess why that’s happening.

Reply to  Tom Abbott
December 6, 2022 4:15 pm

What is inflationary is the methods alarmists are using to rein in CO2 production.

But they have a banana republic solution for that-

Edward Martin
December 6, 2022 7:50 am

The word “inflation” was coined by socialist politicians to describe their THEFT of we, the people’s money because it sounds so much nicer — politicians and their socalled “News Media” love this classic deceit!

December 6, 2022 10:14 am

Another “economist ‘ with a degree in calathumpian gender studies.

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