The actions taken to deal with inflation in the UK, US and Australia show clearly that Billionaire Ray Dalio, manager of the world’s largest hedge fund Bridgewater was correct when he made an announcement in 2019 that shocked many by stating unequivocoly that “capitalism is failing” and that a “revolution” is coming.
There is no denying that global inequality is at unsustainable levels, and that interest-based economies are no longer fit for purpose.
Australia’s neoliberal economic system, shaped by corporate interests, a Reserve Bank focused on inflation targeting, and an unequal taxation system, has created a society where wealth and power are concentrated in the hands of a few, while the majority of citizens bear the burden of economic failures they did not create.
Islam with its non-riba based system and social solidarity through zakat, sadaqah and waqaf offers a better solution.
Islam does believe in the principle of competition and reward for one’s efforts but does not leave it to the market alone as that would lead to hardship and injustice, and would have a negative impact on the moral and spiritual development of individuals and of society as a whole.
As has been seen with the RBA’s playing around with interest rates, interest only brings more problems.
Gross domestic product – the universal measure of economic output – does not measure rates of literacy, divorce, or suicide. GDP does not account for our impact on the environment.
In short, it reflects the culture of the modern corporation: a vehicle designed to eliminate all moral imperatives except for profit.
Mufti Taqi Usmani, contend that Islamic economic theory may have some answers to the dilemma of balancing the free market with protection of the vulnerable.
Indeed, the Prophet Muhammad (s) in his last sermon before he died emphasised human and property rights to his followers, leaving them to codify the ethical principles he had bequeathed through the word of God and the documented precedent of his own life.
We need new policies focussed on creating a fairer system that prioritizes the well-being of all citizens, rather than serving the interests of the privileged few.
Just look at the Reserve Bank that lifts interest rates when actually supply shocks accounted for three-quarters of the pick-up in inflation in Australia.
Excess corporate profits account for 69% of additional inflation beyond the RBA’s target. These supply shocks won’t be fixed by lifting interest rates.
The Reserve Bank of Australia should not be using the socially destructive, unfair, and inefficient method of raising interest rates to deal with inflation.
By lifting rates, the RBA is forcing households with mortgages to hand over more of their money to their banks, via higher interest payments, so those households have less money to spend at the shops in the hope that inflation will fall.
However this is, in fact, a form of stealing as there is no good reason why banks should get more money. Raising interest rates increases the impact of inflation on poorer households by making their borrowing more expensive and will push many families deeper into debt.
It will also discourage investment in an economy because consumers have less money to spend. This will mean fewer jobs, lower productivity, and lower wage growth because the RBA’s policies are primarily benefitting corporations and the wealthy, rather than the broader population.
Interest rate hikes widen the wealth gap and worsens housing affordability and at the same time increases rents.
If the RBA wants people to stop spending its doing exactly what Keynes thought was unfair. Rather than getting households to postpone some of their consumption (by mandating more saving from as many households as possible), it’s eliminating some households’ ability to consume more by raising interest rates (which is transferring money from mortgaged households to banks as a financial rent).
Inflation could be better managed with savings and delayed consumption rather than usury which would be a much fairer system.
Why shouldn’t households be allowed to keep the money they’ve earned? Keynes looked at how to stop people from competing over scarce consumer goods and triggering inflation in the domestic economy.
Keynes rejected the option of limiting peoples’ ability to spend too much by raising taxes, or by lifting interest rates to transfer money from households to banks as a financial rent.
He proposed that the ability to spend too much could be by mandated savings of some kind. Keynes said it would be much fairer to postpone peoples’ ability to spend because it would allow workers to keep the money they’d worked hard for.
Compulsory saving can be a very effective inflation-management tool and was part of the reason why Australia’s mandatory superannuation scheme was introduced in the 1980s and 1990s, to help contain the inflation that had plagued the economy since “stagflation” in the 1970s.
Two brilliant Australian economists had similar proposals — Nicholas Gruen and Lachlan Kerwood-McCall suggested some form of compulsory savings.
If RBA wants to take money off workers to reduce aggregate demand, why not give that money back to workers by putting it in their retirement savings as additional income for their retirement, rather than giving it to bankers in the form of higher interest payments?
Australia’s taxation system that, despite claiming to be progressive, falls short of effectively addressing economic inequality. The burden of taxation falls disproportionately on the middle- and lower-income brackets, while wealthy individuals and corporations exploit loopholes and deductions to minimize their tax obligations.
This regressive system perpetuates a cycle of inequality, as the super-wealthy continue to amass wealth while the majority of citizens bear the brunt of rising living costs, limited social services, and inadequate infrastructure investment.
While corporations and the super-wealthy thrive under the neoliberal economic model, the majority of citizens face the repercussions of inflation and other economic failures that they did not create.
The rising cost of living, coupled with stagnant wages, puts pressure on households already struggling to make ends meet.
Furthermore, economic downturns and financial crises disproportionately affect those with limited resources, while the wealthy often benefit from government bailouts and protective measures.
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