Capitalism as an engine of economic growth faces, of late, criticisms as global inequality is on the rise. The acting International Monetary Fund (IMF) chief David Lipton said on July 17, 2019 that the rising anger worldwide at the increasing inequality blamed on globalisation calls for a change of directions soon. Lipton in a speech celebrating the 75th anniversary of the creation of the International Monetary Fund and the World Bank added, that does not mean there is an "inherent flaw in capitalism". Lipton, however, said that while capitalism "has been the engine behind so much of the success we have experienced, it is an imperfect system in need of a course correction". He noted that much of the anger is because of concerns about the fairness of the system. He said that "Part of the problem is the rise of excessive inequality" out of the system.
Although since 1980 poverty rates have declined worldwide, the top tenth of the top one percent worldwide has garnered roughly the same economic benefits that have accrued to the bottom 50 percent. Under the circumstances, governments should respond by increasing spending to address inequalities, and closing corporate tax loopholes and working to prevent corporations from shopping for countries with lower taxes. Lipton warned that the changes from trade, globalisation and technology are fuelling "rising anger, political polarisation and populism". And while at the end of the Second World War allies gathered at the Bretton Woods conference to create the institutions that would use economic cooperation to prevent future conflicts, "We are at risk of what one could call a reverse Bretton Woods moment".
Federal Reserve Chair Jerome Powell doubles down on rate cut signalled in Paris on July 17, 2019, stressing on July 16, 2019 that the United State (US) inflation outlook is near historic lows. In the face of it Powell added more weight to expectations that the central bank will cut interest rates later this month (July 2019). Economists and investors see it as a certainty that the Federal Reserve will lower the key borrowing rate at the policy meeting to be held in July 30-31, 2019. And Powell in his recent statements has moved to solidify those predictions by pointing to some concerns about economic growth and persistent weak inflation. Powell said in a prepared speech at a Bank of France event that central bankers have "raised concerns about a more prolonged shortfall in inflation below our 2.0 percent target".
Powell said that continued uncertainty about global growth amid rising trade tensions, inflation expectation "are near the bottom of their historical ranges". Despite the Federal Reserve's confidence that the US economy will continue to grow, many officials feel "the combination of these factors strengthens the case for a somewhat more accommodative stance of policy". The Federal Reserve raised the policy rate four times last year (2018) and a rate cut on July 2019 would be the first in a decade. Powell repeated that the central bank "will act as appropriate to sustain the expansion"; and this after 10 years will finally reach the marginalised segments of US society.
The writer is a retired Professor of Economics, BCS General Education Cadre.
