Rising prices continue to dominate the headlines. The impact on household budgets is felt above all by those least well off. There is talk of a cost of living crisis that is having impacts on public health. Meanwhile, fear of persistent and accelerating inflation dominates the monetary policy agenda. Central banks are winding up their asset purchases and hiking interest rates.
Adam, really one of the best analyses I’ve seen lately. Distributional issues are almost totally absent in the current discussion. Also rate to see the distinction between labor and profit unit costs. My sense is that the inflation scare in the US may embolden the Fed into a recession that breaks the shift underway in the balance of power- at least temporarily. Question is whether there are underlying structural factors (demographics, deglobalization) that will help the shift despite monetary policy/cyclical factors.
When all is said and done, the power to raise prices or not resides in the hands and "agency" of business owners - we used to call them capitalists but we don't want to hurt their feelings today. Of course, then the question becomes: do they have legitimate reasons for raising prices - say because all their input costs or major ones have risen; which doesn't end the chain of reasoning: have they been having high profit margins and trouble finding places to put their "excess" profits? Then isn't their societal obligation, since inflation is such an awful thing, not to raise prices? Oh silly me: their obligation is to maximize the profits and thus values and pay outs to shareholders.
To Professor Tooze: it sounds like it is an expectation game of the analysts who companies listen too; if they expect a labor surge either the way it happened - pretty much by an unspoken "take this dangerous low paying job and shove it" - that's not the same thing as the founding of the CIO in the 1930's or the surge in post WWII militancy after the wage and prices controls in WWII but who sets the expectations and does the societal good have anything to do with the business reaction? The crude analysis - which may be right nonetheless is that inflation hurts the poor and the middle class the most and the wealthy 1-12% (using Rana Foroohar's range in her long conversation with Ezra Klein) can afford to pay $12 for a quart of milk (to use the Richcard Wolff analogy) then tough luck in the existing power arrangements, because the Fed is going to use the old clobber the workers and middle class tools of unemployment and high (er) interest rates to cool the inflation heat. Are there catastrophic features lurking in the sure to follow bursting financial bubbles?
As Casey Stengel once said of his new team the NY Mets: "Doesn't anybody here know how to play this game?" Well, neither here or the long, long Rana-Ezra air it out do the tools of wage and price controls, selected rationing rise...not quite WWII conditions but who knows...
Revealingly they never brought up "Joe Six Pack President" and I voted for him...knowing full well he's a "two stepper" (gesture populist left, go center-right) like Carter, Clinton and Obama...oh sure, labor law reform, we'll get to it when the Farm Bureau and NAM and Business Roundtable go for the Green New Deal...even a deeply amended form. After all, BBB became DDD: Dems Don't Deliver...Klein and Foroohar seemingly forgot about the WWII system response to head off inflation or even Nixon's late Keynesian phase. Despite that, their interview is worth the time, as was Klein's with Professor Tooze. God forbid the general public ever gets to hear options on fighting inflation beyond what their hear from the mainstream sources like CNN.
Sad to say, so far, it's a repeat: INFLATION is a banner and ideological rallying cry for the Right, not left or even decent liberal center. But I'm expecting perhaps too much to ask Klein at the NY Times and Faroohar at the Financial Times to take risks too far to the left.
Hmmm, I wonder how Bivens found such a large profit contribution to inflation. Could it have anything to do with his selected time frame? If I recall correctly, a large proportion of the economy shut down and I am guessing profits went negative in the first two quarters of 2020. The subsequent economic rebound would give the appearance of a huge increase in profits....
Notwithstanding the assertions of that old goat, Milton Friedman, inflation is always and everywhere a distributional, and therefore a political, phenomenon. As you point out, it's no coincidence that central banks rise to prominence only after Volker crushed labour (apparently he bragged in private that he kept a reminder in his wallet to screw over labour at every opportunity) so thoroughly that it allowed for the depoliticized, technocratic regime we've endured now for over 40 years.
I only hope to live long enough to see central banks returned once more to the obscurity they so richly deserve once the primacy of fiscal policy over monetary policy is fully acknowledged and so employed.
Tooze seems worried that the authority of government economic technicians will be undermined by the class struggles of workers trying to maintain their standard of living as corporations fight to seize a greater portion of production as profits
Let me add a follow up to my comment below, posted as this one is going to be on June 18th, as I prepare my own little essay on "Inflation" for my substack new blog.
What I worry about today is the floundering Biden Administration and the Democratic Part being caught like the whole liberal-left economic establishment in the 1970's - flat-footed to deal with stagflation...which marked the demise of Keynesianism until perhaps the 2008-2009 great financial crisis. Because in my mind, just the thought of "runaway" inflation is enough to turn the debate on the political economy into a rout favoring the Right, and the Neoliberal center, just when it appeared in the Klein Foroohar interview, that we were at a moment of paradigm shift (and let's all remember Professor Tooze being "chewed out" in that gentle Bob Rubin way after Tooze leaned too close to MMT (Modern Monetary Theory) in a NY Times op-ed piece in 2021; Rubin was there like Batman the very next day to counter.
I'm not a huge fan of Professor Wolff, but in his appearance on the Zero Hour courtesy of Richard Escow (June 2, on YouTube) he raises the historical realities of previous measures to cope with potential and actual rampant inflation, esp. FDR and Nixon, but left out the Truman Adm response to the post WWII strikes and inflation - closely related. Wolff is right: we need a national discussion and Biden should lay out the historical tools in a speech, and ask the nation's citizen's to weigh in...do they want a Volker "light" recession and the risks it runs for speculative collapse (very real in l ight of the markets and faux markets in "coinage" reaction to the change in economic mood) or would they go for some forms of overt controls on prices...
And Wolff is right: our good capitalist supply chains and Just in Time inventory didn't seem to be able to cope with what Covid threw out...but Wolff is not sympathetic: it's the job of business to have back up supply chain plans....wasn't that the way Walmart drive the costs down I asked: if supplier A didn't match their price they knew there was a supplier B and C willing to try....
My recommendation outside government: how many tens or is it hundreds of thousands Business School enrollees surging towards their MBA's can work for grades on serious vettings - the old case studies that came from faculty that the students set up and research, to vet key industries products for the price behaviors to see what it looks like under smart microscopes...and the studies made public...or how many economists and researchers work for the "local" Fed reserve boards in Boston, St. Louis, Dallas, SF...and so on are they not capable of studies like that?
Because we shouldn't have to wonder around "speculating" about what is happening inside firms and the business leaders reactions to their situations; to hand that much power to the business sector and allow them to control entirely the facts flowing into their situations is a dangerous abuse of power...
The last thing a humane future in the US should rest upon is a repeat of the intellectual disaster that marked the 1970's and the rise of monetarism and the demise of New Deal style or WWII style interventions. If we go there, with Milton Friedman equivalents besting John Kenneth Galbraith in the public arena of causation... the odds of some type of Civil War, given everything else I've kept out of this comment...seem to me to go up. High stakes, indeed.
Very useful! Great work of you. I am just wandering to what expend price inflation can be more precisely linked with increase of intermediate costs (raw material, components, shortages and disorganisation of global value chain). So not only energy prices but also short term shortages linked with the post lockdown rebounce, and then the disorganisation, bottlenecks, etc followed by war and hiking prices on the level of food-chain. To me, these aspects can be mobilised too and therefore explain the new kind of stagflation.
It's pretty clear that the only way that workers will catch a break is through redistributive taxation because governments are the only entity even remotely powerful enough to curtail corporate power. Redistributive taxation seems like a pretty tall mountain to climb. When will we ever be shot of the scourge of Neoliberalism? It seems only recently that economists even know what questions to ask.
What drives inflation? I think you should rewrite this as to what contributes to inflation and what has changed since covid. And where are the points of failure. I think these are very obvious and somewhat unique since we have been looking at "kick the can down the road" measures since Reagan.
Make it specific to the US, and then write a piece perhaps on how the covert war of sanctions will affect and already has impacted inflation on other nations, regardless of their status of emerging or market adversary. There's the real war and will cause more deaths, just watch.
And... There are so many measures to be instituted and none have been implimented, when we knew that inflation was going to spike, then flatten out, then drop if we just had maintained some sense of normalcy across all sectors. But no. We have been dicking around with measures that are lagging so bad, they hardly favor labor, investment markets, infrastructure, energy and food security, change or our allies that we so promised we would "repair" relations. And there is that war, that we think in temrs of "we're going to win".
What could control inflation... expanding stimulus to regional efforts over single nation should be mandated first and foremost. This can be corporate-driven as well. And probably was during the "Exxon" years over the central banking years of control of who sh..., who eats, who gets attacked. Who was the first sec of state under Trump??? Rex should have been put to work to create this blend of profits and investment. You think profits according to the charts drive inflation, yes? The truth is a politician has no desire one way or the other. Re-election is assured in many ways. Business must come first. Not Fauci. Not Zelenskyy. Not Powell. In that order.
Doing the things that have immediate effect such as making all int'l sanctions illegal make sense. Don't impair business after covid, regardless of "circumstance".
Consistency. If we aren't creating a war for protecting Uyghurs, don't further a war for Ukrainians that impacts energy and food security.
Moreover, as was written about the expansion under Obama and how it lagged, again regional stimulus simply makes more sense as the world is very small. America can only give you so much. These things can indeed be implemented and be favored over doing anything that would lead to instability and economic insecurity. In times of uncertainty, money is going to sit on the sidelines... you call it corporate profits.
I'll remind everyone that Bill Clinton called for a sense of corporate philanthropy as necessary for capitalism to thrive. Incentivize the unwillingness of a workforce, also.
As a big-government person - (aka every liberal) - your job is to actually make that happen as you care about the people. As a RINO or whatever conservatives think they are, your job is to expand economies based on that corporate success. Such should be how politicians represent the people. Right now, this moment, you have old white people deciding the fate of the world. And they are simply too inept to change and make the changes we need to lead properly. They don't need to, as there is no accountability and certainly no consequence. The Jan 6 witch hunt shows there will be no further "consequence".
Strong analysis, thank you. These deep dives tax my intellect and for that I am grateful--one of the reasons I subscribe....with that, why is it that (seemingly) every "wise economist" writes so...thickly? In this group I will probably be shouted down (perhaps not) but when two administrations basically print new money, putting A LOT more in circulation, isn't that "reason number one"? Yes, the war, commodity prices, supply chain, etc etc etc all have been factors, however putting trillions of new dollars in circulation (I forget if we are talking M1 or M2 and I am too lazy to google it for this post) that in and of itself is a pretty big culprit, no? Analysis here, analysis there--these different reasons, both academically and politically driven, serve to confuse more than explain. Just my view. Color me ignorant in NC...
But haven't our workers been all exported to Japan, Taiwan, Korea, and China such that the value generating percent of the economy that benefits from higher wages is very small? Of course we don't want tremendous disparity, but isn't that disparity at least as much a function of our insane trade policies as it is of lack of worker bargaining power? Aren't you fighting over the fairness of the seats on the lifeboats instead of patching and improving the boat?
Matt Klein's work on the relationship between inflation and the cost of eating out is interesting. I would like to understand whether he takes into account Tips when doing his analysis, because we have see "inflation" there as well - Remember when the normal Tip rate was 15%. Now, that is not an option anymore - they suggest a scale that goes from 18% to 25%
So am I reading this right? Money supply increased --> inelastic supply of good/service --> uneven corporate structure --> disproportionate amount of income captured by capital class --> inflation/decreased purhcase power ?
Adam, really one of the best analyses I’ve seen lately. Distributional issues are almost totally absent in the current discussion. Also rate to see the distinction between labor and profit unit costs. My sense is that the inflation scare in the US may embolden the Fed into a recession that breaks the shift underway in the balance of power- at least temporarily. Question is whether there are underlying structural factors (demographics, deglobalization) that will help the shift despite monetary policy/cyclical factors.
In regards to the EPI findings, what about those who say it is due to where they started there analysis and if you change the peg unit labor costs accounting for inflation changes from 8% to 53%? (https://twitter.com/DonFSchneider/status/1526299566823329793/photo/2).
When all is said and done, the power to raise prices or not resides in the hands and "agency" of business owners - we used to call them capitalists but we don't want to hurt their feelings today. Of course, then the question becomes: do they have legitimate reasons for raising prices - say because all their input costs or major ones have risen; which doesn't end the chain of reasoning: have they been having high profit margins and trouble finding places to put their "excess" profits? Then isn't their societal obligation, since inflation is such an awful thing, not to raise prices? Oh silly me: their obligation is to maximize the profits and thus values and pay outs to shareholders.
To Professor Tooze: it sounds like it is an expectation game of the analysts who companies listen too; if they expect a labor surge either the way it happened - pretty much by an unspoken "take this dangerous low paying job and shove it" - that's not the same thing as the founding of the CIO in the 1930's or the surge in post WWII militancy after the wage and prices controls in WWII but who sets the expectations and does the societal good have anything to do with the business reaction? The crude analysis - which may be right nonetheless is that inflation hurts the poor and the middle class the most and the wealthy 1-12% (using Rana Foroohar's range in her long conversation with Ezra Klein) can afford to pay $12 for a quart of milk (to use the Richcard Wolff analogy) then tough luck in the existing power arrangements, because the Fed is going to use the old clobber the workers and middle class tools of unemployment and high (er) interest rates to cool the inflation heat. Are there catastrophic features lurking in the sure to follow bursting financial bubbles?
As Casey Stengel once said of his new team the NY Mets: "Doesn't anybody here know how to play this game?" Well, neither here or the long, long Rana-Ezra air it out do the tools of wage and price controls, selected rationing rise...not quite WWII conditions but who knows...
Revealingly they never brought up "Joe Six Pack President" and I voted for him...knowing full well he's a "two stepper" (gesture populist left, go center-right) like Carter, Clinton and Obama...oh sure, labor law reform, we'll get to it when the Farm Bureau and NAM and Business Roundtable go for the Green New Deal...even a deeply amended form. After all, BBB became DDD: Dems Don't Deliver...Klein and Foroohar seemingly forgot about the WWII system response to head off inflation or even Nixon's late Keynesian phase. Despite that, their interview is worth the time, as was Klein's with Professor Tooze. God forbid the general public ever gets to hear options on fighting inflation beyond what their hear from the mainstream sources like CNN.
Sad to say, so far, it's a repeat: INFLATION is a banner and ideological rallying cry for the Right, not left or even decent liberal center. But I'm expecting perhaps too much to ask Klein at the NY Times and Faroohar at the Financial Times to take risks too far to the left.
Hmmm, I wonder how Bivens found such a large profit contribution to inflation. Could it have anything to do with his selected time frame? If I recall correctly, a large proportion of the economy shut down and I am guessing profits went negative in the first two quarters of 2020. The subsequent economic rebound would give the appearance of a huge increase in profits....
How does this square with the analysis that automation will continue to replace workers (eg teamsters)? Amazon jobs must be automation imperiled, no?
Notwithstanding the assertions of that old goat, Milton Friedman, inflation is always and everywhere a distributional, and therefore a political, phenomenon. As you point out, it's no coincidence that central banks rise to prominence only after Volker crushed labour (apparently he bragged in private that he kept a reminder in his wallet to screw over labour at every opportunity) so thoroughly that it allowed for the depoliticized, technocratic regime we've endured now for over 40 years.
I only hope to live long enough to see central banks returned once more to the obscurity they so richly deserve once the primacy of fiscal policy over monetary policy is fully acknowledged and so employed.
Tooze seems worried that the authority of government economic technicians will be undermined by the class struggles of workers trying to maintain their standard of living as corporations fight to seize a greater portion of production as profits
Let me add a follow up to my comment below, posted as this one is going to be on June 18th, as I prepare my own little essay on "Inflation" for my substack new blog.
What I worry about today is the floundering Biden Administration and the Democratic Part being caught like the whole liberal-left economic establishment in the 1970's - flat-footed to deal with stagflation...which marked the demise of Keynesianism until perhaps the 2008-2009 great financial crisis. Because in my mind, just the thought of "runaway" inflation is enough to turn the debate on the political economy into a rout favoring the Right, and the Neoliberal center, just when it appeared in the Klein Foroohar interview, that we were at a moment of paradigm shift (and let's all remember Professor Tooze being "chewed out" in that gentle Bob Rubin way after Tooze leaned too close to MMT (Modern Monetary Theory) in a NY Times op-ed piece in 2021; Rubin was there like Batman the very next day to counter.
I'm not a huge fan of Professor Wolff, but in his appearance on the Zero Hour courtesy of Richard Escow (June 2, on YouTube) he raises the historical realities of previous measures to cope with potential and actual rampant inflation, esp. FDR and Nixon, but left out the Truman Adm response to the post WWII strikes and inflation - closely related. Wolff is right: we need a national discussion and Biden should lay out the historical tools in a speech, and ask the nation's citizen's to weigh in...do they want a Volker "light" recession and the risks it runs for speculative collapse (very real in l ight of the markets and faux markets in "coinage" reaction to the change in economic mood) or would they go for some forms of overt controls on prices...
And Wolff is right: our good capitalist supply chains and Just in Time inventory didn't seem to be able to cope with what Covid threw out...but Wolff is not sympathetic: it's the job of business to have back up supply chain plans....wasn't that the way Walmart drive the costs down I asked: if supplier A didn't match their price they knew there was a supplier B and C willing to try....
My recommendation outside government: how many tens or is it hundreds of thousands Business School enrollees surging towards their MBA's can work for grades on serious vettings - the old case studies that came from faculty that the students set up and research, to vet key industries products for the price behaviors to see what it looks like under smart microscopes...and the studies made public...or how many economists and researchers work for the "local" Fed reserve boards in Boston, St. Louis, Dallas, SF...and so on are they not capable of studies like that?
Because we shouldn't have to wonder around "speculating" about what is happening inside firms and the business leaders reactions to their situations; to hand that much power to the business sector and allow them to control entirely the facts flowing into their situations is a dangerous abuse of power...
The last thing a humane future in the US should rest upon is a repeat of the intellectual disaster that marked the 1970's and the rise of monetarism and the demise of New Deal style or WWII style interventions. If we go there, with Milton Friedman equivalents besting John Kenneth Galbraith in the public arena of causation... the odds of some type of Civil War, given everything else I've kept out of this comment...seem to me to go up. High stakes, indeed.
Very useful! Great work of you. I am just wandering to what expend price inflation can be more precisely linked with increase of intermediate costs (raw material, components, shortages and disorganisation of global value chain). So not only energy prices but also short term shortages linked with the post lockdown rebounce, and then the disorganisation, bottlenecks, etc followed by war and hiking prices on the level of food-chain. To me, these aspects can be mobilised too and therefore explain the new kind of stagflation.
What drives inflation?
Mostly the same thing that drives cars.
It's pretty clear that the only way that workers will catch a break is through redistributive taxation because governments are the only entity even remotely powerful enough to curtail corporate power. Redistributive taxation seems like a pretty tall mountain to climb. When will we ever be shot of the scourge of Neoliberalism? It seems only recently that economists even know what questions to ask.
What drives inflation? I think you should rewrite this as to what contributes to inflation and what has changed since covid. And where are the points of failure. I think these are very obvious and somewhat unique since we have been looking at "kick the can down the road" measures since Reagan.
Make it specific to the US, and then write a piece perhaps on how the covert war of sanctions will affect and already has impacted inflation on other nations, regardless of their status of emerging or market adversary. There's the real war and will cause more deaths, just watch.
And... There are so many measures to be instituted and none have been implimented, when we knew that inflation was going to spike, then flatten out, then drop if we just had maintained some sense of normalcy across all sectors. But no. We have been dicking around with measures that are lagging so bad, they hardly favor labor, investment markets, infrastructure, energy and food security, change or our allies that we so promised we would "repair" relations. And there is that war, that we think in temrs of "we're going to win".
What could control inflation... expanding stimulus to regional efforts over single nation should be mandated first and foremost. This can be corporate-driven as well. And probably was during the "Exxon" years over the central banking years of control of who sh..., who eats, who gets attacked. Who was the first sec of state under Trump??? Rex should have been put to work to create this blend of profits and investment. You think profits according to the charts drive inflation, yes? The truth is a politician has no desire one way or the other. Re-election is assured in many ways. Business must come first. Not Fauci. Not Zelenskyy. Not Powell. In that order.
Doing the things that have immediate effect such as making all int'l sanctions illegal make sense. Don't impair business after covid, regardless of "circumstance".
Consistency. If we aren't creating a war for protecting Uyghurs, don't further a war for Ukrainians that impacts energy and food security.
Moreover, as was written about the expansion under Obama and how it lagged, again regional stimulus simply makes more sense as the world is very small. America can only give you so much. These things can indeed be implemented and be favored over doing anything that would lead to instability and economic insecurity. In times of uncertainty, money is going to sit on the sidelines... you call it corporate profits.
I'll remind everyone that Bill Clinton called for a sense of corporate philanthropy as necessary for capitalism to thrive. Incentivize the unwillingness of a workforce, also.
As a big-government person - (aka every liberal) - your job is to actually make that happen as you care about the people. As a RINO or whatever conservatives think they are, your job is to expand economies based on that corporate success. Such should be how politicians represent the people. Right now, this moment, you have old white people deciding the fate of the world. And they are simply too inept to change and make the changes we need to lead properly. They don't need to, as there is no accountability and certainly no consequence. The Jan 6 witch hunt shows there will be no further "consequence".
Strong analysis, thank you. These deep dives tax my intellect and for that I am grateful--one of the reasons I subscribe....with that, why is it that (seemingly) every "wise economist" writes so...thickly? In this group I will probably be shouted down (perhaps not) but when two administrations basically print new money, putting A LOT more in circulation, isn't that "reason number one"? Yes, the war, commodity prices, supply chain, etc etc etc all have been factors, however putting trillions of new dollars in circulation (I forget if we are talking M1 or M2 and I am too lazy to google it for this post) that in and of itself is a pretty big culprit, no? Analysis here, analysis there--these different reasons, both academically and politically driven, serve to confuse more than explain. Just my view. Color me ignorant in NC...
But haven't our workers been all exported to Japan, Taiwan, Korea, and China such that the value generating percent of the economy that benefits from higher wages is very small? Of course we don't want tremendous disparity, but isn't that disparity at least as much a function of our insane trade policies as it is of lack of worker bargaining power? Aren't you fighting over the fairness of the seats on the lifeboats instead of patching and improving the boat?
Matt Klein's work on the relationship between inflation and the cost of eating out is interesting. I would like to understand whether he takes into account Tips when doing his analysis, because we have see "inflation" there as well - Remember when the normal Tip rate was 15%. Now, that is not an option anymore - they suggest a scale that goes from 18% to 25%
So am I reading this right? Money supply increased --> inelastic supply of good/service --> uneven corporate structure --> disproportionate amount of income captured by capital class --> inflation/decreased purhcase power ?