Three irreconcilable economic policy objectives – Natixis

It is likely that economic policies in many OECD countries will have three objectives. Increasing wages, especially low wages, to reduce inequality and poverty, maintaining the increased public spending while public debt ratios are already very high and preventing asset price bubbles, reducing financial instability. But these three objectives are irreconcilable, in the view of analysts at Natixis.

Current trend is to maintain an expansionary fiscal policy by foregoing wage increases and asset price stabilisation 

“If governments choose to increase wages, especially low wages, this will result in a lasting rise in inflation and rising interest rates and: The impossibility of continuing the expansionary fiscal policies and implementing the desired public spending; A downward correction in asset prices, and therefore certainly an end to the bubbles.”

“If governments choose to continue to conduct expansionary fiscal policies with a high level of public spending and large fiscal deficits, then interest rates will have to remain low, which precludes significant wage increases and implies a further rise in asset prices.”

“If governments and central banks choose to combat excessive asset price rises, then more restrictive monetary policies must be adopted, which makes it impossible to maintain expansionary fiscal policies.”