Monetary policy ‘not a magic wand’ for unemployment
Unemployment cannot be solved through monetary policy, but by correcting structural impediments in the economy, an SA Reserve Bank (SARB) conference heard.
“Monetary policy cannot do anything about structural unemployment,” said Princeton University academic Jean-Pierre Landau.
“We now have maybe 40 or 50 years of experience. We know that there is nothing that monetary policy can do about unemployment.”
He said monetary policy could try to prevent cyclical unemployment from translating into structural unemployment, which was what some advanced economies were trying to do.
“We know it’s a big mistake to try to fight unemployment with monetary policy. It creates inflation, which is very bad for the poor people,” he said.
“We tried in our countries in the ’60s and ’50s to fight unemployment through excessive monetary policy. All we got was very high inflation. We know now that it does not work.”
Cosatu has on several occasions called on the government to expand the SARB mandate to include job creation and economic growth. Dr Azar Jammine, chief economist at Econometrix, echoed Landau’s views.
“Interest rates only have a limited capacity to influence economic growth. They do help sometimes in a very short term, but there is always a risk.”
Jammine said central banks did not exist 100 years ago and job creation depended on economic policy.
There were structural impediments to job creation in this country.
“In South Africa right now, the biggest impediment … is the fact that so many of our population are not educated and not skilled,” Jammine said.
“This does have its origins in the apartheid system, but even since the death of apartheid, 18 years have passed and we have continued going backwards.”