Government retreat and conflict between wage earners and companies

Since the start of the COVID crisis, OECD countries have supported household income and corporate earnings with huge public transfer payments. This has prevented conflict between households and companies over who bears the burden of the fall in activity and then the rise in commodity prices. But now long-term interest rates are rising quite rapidly and governments need to reduce primary fiscal deficits. Governments will no longer be able to offset income losses caused by either weakened growth or rising commodity prices. There will therefore be acute conflict over how income losses are distributed between wage earners and companies, which was hitherto averted thanks to governments’ intervention.