Back to the Seventies. (Henry Nicholls - Pool/Getty Images)
I can’t help but feel a sense of déjà vu at the current debate about global inflation. The similarities between today’s spiralling situation and the inflationary crisis of the Seventies are too striking to be ignored.
Nearly 50 years ago, the oil crisis of 1973 sent inflation skyrocketing across Western countries. It was a textbook case of imported inflation, which in a context of close-to-full employment and strong union bargaining power triggered self-reinforcing inflationary pressures, as companies raised prices to defend profit margins while workers in turn demanded wage increases. This price-wage (or wage-price) spiral was a response to the inflationary pressures coming from abroad — not their cause.
However, the Seventies crisis came at a time when the “compromise” between labour and capital that had provided the bedrock for the post-war economic-political settlement was already heavily strained, as each side attempted to claim a greater share of a shrinking cake. Economic and political elites realised that the inflationary crisis provided them with the perfect opportunity to deal a deadly blow to the post-war full employment regime, which in their view had led to the working masses becoming too powerful. They concluded that it was time to strike back — to break the back of organised labour and reassert the unfettered power of capital over society.
Inflation represented the perfect casus belli. With the theoretical backing of monetarist economists such as Milton Friedman, they crafted a narrative that blamed all economic problems — beginning with inflation — on excessive union power, unreasonable wage demands by workers and bloated welfare systems. The neoliberal counter-revolution had begun, a crucial aspect of which was the deliberate engineering of unemployment through a radical tightening of monetary and fiscal policies, in order to crush the bargaining power of unions. Combating inflation was not the end — it was the means.
As Alan Budd, economic advisor to the Thatcher government, would later admit: “There may have been people making the actual policy decisions… who never believed for a moment that this was the correct way to bring down inflation. They did, however, see that [monetarism] would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes.”
In many ways, the same thing is happening today. As in the Seventies, inflation is surging, threatening the post-pandemic recovery and raising once again the prospect of stagflation — the simultaneous incidence of stagnant or negative growth and accelerating inflation. And as in the Seventies, establishment economists and commentators have been quick to blame the surging prices on excess demand (people having too much money to spend), fuelled by excessive wage increases and over-expansionary fiscal and monetary policies during the Covid crisis.
Their proposed solution is the same as that adopted in the Seventies: central banks must hike up interest rates and cut back on fiscal spending. In one word: austerity. And that’s what they’re doing. Not only the US Federal Reserve, but central banks all over the globe — including, most recently, the ECB — are raising rates rapidly in the most widespread tightening of monetary policy for more than two decades.
The problem with all this is that — again, just like in the Seventies — the recent inflation has relatively little to do with excess demand and excessive wage growth. In fact, it has mostly supply-side origins, triggered by the Covid crisis and now the Ukraine war, and rooted in the systemic deficiencies of neoliberal globalisation. From a Western perspective, the global lockdowns of 2020 and 2021 caused a collapse of global supply chains in durable goods and industrial components, as well as of cheap, flexible and abundant labour in low and middle-income countries. These foreign supply-side bottlenecks, which in turn were exacerbated in several countries by domestic supply-side bottlenecks — such as a shortage of long-haul truck drivers and dock workers in the US and UK — are the reason prices were on the rise well before the outbreak of the conflict in Ukraine.
In other words, lockdowns are to blame — not the fiscal measures adopted to dampen their effects. This is what we might call lockdown inflation, which is now flaring up once again due to the recent Chinese lockdowns.
In recent months, the Ukraine war and the sanctions on Russia have caused inflation, especially energy and food prices, to grow at an even faster pace. These price rises have several self-reinforcing causes. On the one hand, the conflict has directly disrupted exports of crude oil, natural gas, grains, fertiliser and metals, pushing up energy, food and commodity prices. These supply-side problems have been further exacerbated by the West’s utterly self-defeating sanctions against Russia, which have left European countries scrambling for more expensive alternatives to Russian oil from America and Africa — as well as by speculation in commodity (futures) markets.
Indeed, notwithstanding the conflict in Ukraine, changes in supply and demand in themselves can’t justify the energy price increases. Global oil production, including from Russia, has actually increased compared to the same time last year (indeed, some Western countries, such as Italy, are importing more crude oil from Russia today than they have in past ten years, even though Russia’s recent decision to slash its gas supply to Europe suggests this is about to change). But energy traders, most of whom work for the world’s largest oil companies, saw the conflict in Ukraine as a perfect opportunity to hike up prices, knowing that most people would simply blame the rising prices on “the war” or even see it as “the price to pay to defeat Russia”.
This is why, as more and more people struggle to make ends meet, global energy giants such as Exxon Mobil, Shell, BP and Chevron have raked in record profits in the first quarter of 2022, far exceeding their revenue during the same quarter in 2021 — all because they are passing on ridiculous mark-up prices to consumers. As President Joe Biden recently put it, oil companies have “made more money than God this year”. Likewise, speculative activity by hedge funds, investment banks and pensions funds, fuelled by QE-induced cheap credit, rather than “supply and demand”, is also helping to drive up wheat prices, despite comfortably high global wheat stocks, raising the prospect of an unprecedented global wave of hunger. This is what we might call speculative inflation.
To make matters worse, certain mega-corporations that dominate entire sectors are able to use the (temporary) shortages, production cost increases and market chaos to raise their own profit mark-ups without losing customers — which is why corporate profit rates in the US and elsewhere have soared to their highest level since the Second World War. As even the Chair of the Federal Reserve, Jerome Powell, has said, large corporations with near-monopolistic market power are “raising prices because they can”. This is what we might call profit or market power inflation — or what some have termed “greedflation”.
Indeed, despite all the talk of the need to rein in wages to avoid wage-price spirals, the reality is exactly the opposite. As a result of the structural loss of workers’ bargaining power during the neoliberal era, workers in this new inflationary era are unable to protect their real wages, which are falling off a cliff in many countries as nominal wages grow much less than the general price level. Blaming workers for the current situation is a textbook example of victim blaming.
In this context, raising interest rates and pursuing fiscal austerity will not only achieve little or nothing in terms of lowering price rises that are driven by primarily supply-side factors — but by depressing aggregate demand and economic activity and driving up unemployment, it will hurt wage-earners even more. Furthermore, it will “discourage investments that could ease some of the logistical bottlenecks that emerged during the pandemic crisis”, as a UN report reads — that is, long-term investments needed to increase domestic production (supply) and wean countries off their dependence on foreign imports, especially in the field of energy.
It would be naïve to assume that policymakers aren’t aware of this. So why are they pushing for such a solution? I would posit that once again, as in the Seventies, they are intent on exploiting the current inflation to engineer a recession and drive up unemployment in order to pre-empt a potential rise in labour bargaining power. After all, even if organised labour is still very weak, it is also true that labour markets — particularly in countries such as the US and UK — have been growing increasingly tight as a result of the post-lockdown surge in labour demand and Brexit in the UK. They are bound to remain relatively tight even in the future as the global economy undergoes a structural process of de-globalisation and reshoring.
In this context, recreating a reserve army of labour through austerity and engineered unemployment might be seen by capitalists as a way to ensure the balance of power between labour and capital doesn’t tilt too much towards the former, even at the cost of causing some creative destruction on stock markets — and of sabotaging the long-term shift towards a more environmentally and geopolitically sustainable model of greater economic self-sufficiency. Indeed, the Fed now predicts that unemployment will rise for the next three years as a result of its decision to hike interest rates.
Moreover, in the EU, monetary tightening is seen by European techno-elites as a way to get countries back on the path of neoliberal “structural reforms” after the pandemic put these on the backburner. As Robin Brooks, chief economist at the Institute of International Finance (IIF), recently said: “Behind closed doors, there is a feeling that Italy’s spread has been too low for too long. That stymied needed reforms and drove away private investors who want a higher yield. So spread widening after [the recent] ECB meeting is partly by design. Back to more market discipline…” So much for the chattering classes’ talk about the EU’s post-pandemic “progressive turn” and abandoning of its neocolonial approach to economic policy.
So what might an alternative labour-driven rather than capital-driven response to the current inflationary crisis look like? There’s no shortage of tools that would shift the burden of the adjustment on the strong — the corporate pandemic and war profiteers — rather rather than on the weak: workers and low-income families. In the short term, as the Dutch economist Servaas Storm writes, “temporary strategic price controls, accompanied by supply-enhancing policy measures, can be used to eliminate corporate profiteering and prevent key prices (of energy and food) from shooting up”. These include price caps on fuel, energy and basic food items. This would force corporations to accept a reduction in their profit share, while allowing the labour share of income to rise.
Meanwhile, financial regulation cracking down on excessive speculation in energy and commodity markets would help lower inflationary pressures coming from financial markets. Redistributive fiscal policies, the opposite of austerity, are also needed to shield vulnerable groups from the higher costs of energy, fuel and other basic goods. And in the longer term, inflation control must be unconditionally subordinated to broader societal aims, such as boosting domestic supply and making economies more self-sufficient and less dependent on foreign imports. Ultimately, the debate about inflation is not really about inflation — it’s about the future of capitalism. And perhaps of the planet itself.
Thomas Fazi is an UnHerd columnist and translator. His latest book is The Covid Consensus, co-authored with Toby Green.
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SubscribeIt’s is strange how the author of this piece leaves out massive government spending, much of which goes to massive corporations instead of helping its citizens. Look no further than the American Covid-19 relief spending for an example. It is outrageous how little of it actually went to struggling Americans.
Here’s how things have developed in the US since 2020 COVID Zero:
M2 money supply up 40% through April 2022.
S&P stock index up 40% by January 2022.
Home prices up 40 percent by March 2022.
Weird isn’t it how money, home prices and stock prices are all up 40%. I wonder how they could be in sync? Could it be a capitalistic conspiracy? Or could it be that the educated Gentry class is first in line when free money is getting passed out? As they should be. Good lord old chap: we North London luvvies deserve every hard-earned penny that we get from monetary inflation.
US consumer prices were up 2 percent in 2020 and 12 percent in 2021.
I predict that they will end up by 40 percent.
In light of this you may think that the article above is all lefty twaddle. I couldn’t possibly comment.
And inflation only at 8%. Wow what a windfall !
That may have been meant as a sarcastic comment, but it happens to be the literal truth. There is very considerable evidence that the pandemic provoked the highest rates of savings across the board in decades, translating to literally trillions having been ferreted away. The first and foremost consequence of this is that the Fed and other exchequers rapidly raising rates will have less effect than they might hope, because people have a buffer which will take perhaps a couple of years to unwind. Ergo, they will all over-react and over-shoot, with very horrible effects in a few years.
Agreed. Possible horrible effects are illuminated by the earlier 20thC example of Imperial Germany financing WWI by immense currency printing, which all had to be saved by consumers suffering from the war economy and British blockade. Investments that were unwound into “excess demand” consumption and the inflation blamed on the Weimar Republic.
The key learning from this tale is that we cannot permit a socialist response (of any stripe) to the latest iteration.
Lefty twaddle, pure and simple (including bizarre mischaracterizations of Milton Friedman)! Many sane economists (ie, not connected to the Biden administration) we’re predicting significant inflation last year this time, after the COVID spending blowouts of 2020/21.
Does this author really think that his Marxist analysis would pass the sniff-test among thinking Unheard readers? What a colossal (and agonizing) waste of time and space !
Best thing about Marxism was Engels love for and devotion to Hunting, and riding to hounds, and supping claret at the tables of the landed rich of his patch!
I think the author raises some good points but, on balance, I am skeptical of any piece that leans so heavily on classical Marxist assumptions about the origin of conflict.
Just as our own time is beset by cultural Marxists who reduce the world’s problems to a simple interplay of racial and gender forces, so the previous generation did so with class. The author of this article appears to fall into the latter, “classical Marxism”, bracket.
What I find amazing is that Marxist explanations are used over and over again even when they are shown to empirically fail.
As an example close to my heart: Ian Smith, the last Rhodesian prime minister, assumed, as did his Apartheid South African counterpart, BJ Vorster, some years later, that the best chance of stability post-independence was to create a black middle class that would have the same class interests as the white ruling class. With class interests aligned, they imagined a world where the rule of law would remain in tact and where people could still use the basic engine of capitalism with secure property rights.
But during Zimbabwe’s land reform program, not a single white farmer I knew lost his land to a poor person. In each case he lost it to a member of his own class, someone who had a son at the same school as him, who went to the same sports clubs as him and who attended the same church as him. By Marx’s rationale, the farmers I knew should have lost their land to a spontaneously uprising peasant class.
My experience of South Africa is the same: the biggest racists are not lowly workers and the unemployed, but the ANC elites who send their children to expensive schools and who rub shoulders with the settler class they both revere and despise. This group of people are, once again, turning out not to be blind vectors of their class, as Marx envisaged.
Avowedly anti-marxist as both Vorster and Smith were, they nevertheless unwittingly bought into Marx’s key assumptions about class, which I think shows just how pervasive Marx’s world view was and is – even those who loathe him (then and now) still see the world through his lens.
It appears that, no matter how many times Marxist explanations turn out to have weak predictive power, they are still trotted out at every available opportunity, as this article demonstrates.
There is no consideration, for example, of other obvious drivers of wage stagnation, such as mass migration.
There are many more factors that could (or should) be considered outside of a simple class explanation.
But immigration as the go to explanation for the ills of society (as it seems to be with most Unherd commenters) is just as hackneyed as ‘class interests’. My go to explanation is lack of investment, particularly in vocational training and infrastructure, is just as plausible. Only this can increase productive capacity- which is what we desperately need in this country.
I don’t for a moment think mass migration is the sole cause of this issue. I am just saying it is one factor of many which is often not mentioned.
My point is that the current circumstance is the result of a complex array of interactions and that a simplistic “class analysis” will fall short of any common sense test.
I agree with your point that lack of investment in much needed areas is also one of the drivers.
Outside of Germany such training has been discouraged in favor of Marxist training academies, the Universities.
Lots of people from much poorer countries willing to work for low wages (for us) but high wages (for them). It seems pretty obvious to me; I suppose it would be interesting in whether Fazi would include this in his quasi conspiracy analysis. Probably not, he is a leftist, so we can never be seen to ‘blame’ the assumed ‘downtrodden’, even where we are not actually in any way blaming them!
I think Marx’s discussion of class is on much stronger ground than the neomarxists use of identity. Whether you agree with Marx as to solutions, the division of owners and labourers is not arbitrary, it decribes a relationship between two people (or groups of people) that is materially defined by their differing roles. As long as there is an owner who employes a worker there is a relationship between those two roles. That’s quite different if you substitute something like race, where you could just as easily reverse the categories or even simply cease to recognize them.
superb
Very good points!
Idiotic. The cause of the inflation is – as always – massive government money printing. Price caps are just shuffling the deckchairs – trying to deal with the symptoms and not the cause.
The entire article is a ludicrous attempt to exploit the current situation to push various misguided political narratives.
There has been high inflation for the last two decades. It was just confined to asset prices – stocks, land, housing, etc. Just because it’s now popped up in direct consumer prices doesn’t mean it’s a new thing. For some reason people seem to consider house price inflation to be “good inflation”. I do not. All inflation transfers wealth from one group of people to another without demanding any effort or talent (or indeed usually being taxed).
The author would be better spending his time actually listening to some of the excellent archived speeches of Milton Friedman rather than simply assuming that monetarism has nothing to teach us. But I am not holding my breath waiting for the penny to drop …
Even Margret Thatcher gave up on monetarism in the end. It just doesn’t work.
It actually worked in Chile…..
Good points. But please dont join ignorant writers in talking about house orice inflation. A rise in one commodity is deflationary. Inflation means a fall in the value of money, affecting all prices. The word should never be used to mean a rise in the price of one commodity.
It wasn’t ‘one commodity’ – it was many assets. But excessively theoretical arguments may not illuminate as much as some think, nor do economic terms necessarily have the precise meanings they might in physics. After all, the concept of ‘money’ is an abstraction to start with. [So we get economics ‘hard science envy’!]
Were governments actually’printing money’ to anything like the same extent in the 1970s, when we had what most would define as high inflation, and why cannot this term equally be used to mean the prices of many or most (it is probably never ‘all’) goods rising at the same time?
I seem to recall the large gap in income growth between the haves and have-nots occured over several decades from from the 80s onwards, and not due to the stagflation 70s.
And caused largely thanks to massive imports of low wage low skilled immigrants, promotion of double income families and corporatism, all of which eroded lower and middle class bargaining power. And the first two were encouraged by the so called Leftist friends of the labour class.
This is moronic. Inflation is a tax. Pure and simple! And it’s the most un-progressive tax imaginable. The Establishment print money, and everyone pays the same price via the pound in his pocket. Yes, the rich lose out the most but it’s the poor who suffer the most. Defending Inflation on “progressive” grounds is insane.
Usually the rich can survive inflation as they have the flexibility and access to investments to protect themselves. It is middle class savings that get destroyed.
Given that nearly every western nation has decided that debt was OK to build prosperity in competition with each other following the US lead, we now must inflate our way out. In the US outlays were always about 2% greater than revenue – until 2008 when FDR’s time bomb went off in conjunction with a rescue of an imprudent financial system. We are now seeing that cost as debt service consumes budgets.
The facts could be well served by an article titled “How the Progressive Elites exploit Inflation.”
The ultimate buy now pay less later scheme.
I wonder if there’s a way to make a spectator sport out of watching the truly bizarre, contorted theories these guys come up with to attribute every ill to capitalism and big corporations. There could be scores, judges and awards even.
Well said. And in writing the following:
“These supply-side problems have been further exacerbated by the West’s utterly self-defeating sanctions against Russia”
Fazi condemns himself as a dupe to the one of the oldest sayings in the economic playbook – understanding the cost of everything and the value of nothing.
Is it any wonder the ideological worldview of socialists continues the retreat which started in the post-WW2 era, while capitalism continues to defy all of their expectations in meeting the headwinds of world events head on and eventually prevailing, thus generally enriching the lives and hopes of billions of people?
There is surely a difference between responsible capitalism and no holds barred capitalism. We need the former not the latter.
Most modern capitalists would have a mental breakdown if they ever read Adam Smith’s The Wealth of Nations.
I think the author would be wise to remember the old adage: “never attribute to malice that which is adequately explained by incompetence”.
Incompetence on a global scale? A broken ideology and heavy dose of corruption.
I don’t deny that they play some role but Mr Fazi writes as though current events are all part of a masterplan to undermine the working classes when the reality is that incompetence is a far bigger driver of events.
The author says: “With the theoretical backing of monetarist economists such as Milton Friedman, they crafted a narrative that blamed all economic problems — beginning with inflation — on excessive union power, unreasonable wage demands by workers and bloated welfare systems.”
Except if you watch this video (https://www.youtube.com/watch?v=GJ4TTNeSUdQ) from Friedman (see 10 mins 20 secs to 11 mins 30 secs) you will hear him say “Higher wages are mostly a result of inflation rather than a cause of it”.
Never let the facts get in the way of a good story.
Friedman’s monetarism is probably the best known economic theory in existence. Has hyper inflation ever been cured by a prices and incomes policy? The writer is incredibly ignorant.
“These include price caps on fuel, energy and basic food items. This would force corporations to accept a reduction in their profit share, while allowing the labour share of income to rise.”
Unherd Editors: please commission a follow-up piece by the author and send Thomas to Venezuela so he can report back from a country that has much more experience with price controls. Thanks
Inflation was entirely predictable. Economic history is littered with lessons as to what happens when governments attempt uncontrolled spending and free money. The 80s were a case study in how to solve this – painfully, but successfully. Argentina, Zimbabwe, Venezuela are case studies in what not to do.
Even Marx recognised that all money is ‘labour value’. I do something for you, then you do something for me that we agree is equivalent in terms of work – money represents the debt between us. To make it easier we use money-tokens to facilitate the trade. When the government expands the number of money-tokens, it devalues outstanding labour debts, and forces prices up to balance labour and tokens. This is where we are. Too many tokens, not enough productive labour. This is then magnified by supply-side shortages in energy – the core multiplier for productivity.
The proven steps necessary to curb inflation are those learnt in the 1980s. Money supply has to be controlled, and the cost of money has to go up while supporting this with incentives for supply-side expansion and increasing economic productivity. The most effective way of doing this is fast, cheap improvements in energy production and increased efficiencies from more effective infrastructure. In the 80-90s it was gas, computers and global supply chains (cheap foreign labour). Now it is likely to be nuclear power, mass automation and autonomous vehicles.
So investment is key. But this has to be pump primed by government spending – particularly on vocational training where we are way behind many comparable countries.
Spendy governments will claim any money printing is “pump priming”.
They don’t even know what the pump is let alone how it works.
I feel I was tricked into reading this article and I would like my 14 minutes back. It promised to expose a conspiracy of elites mismanaging our economies for their own benefit, but all it did was invert cause and effect to advocate for a conspiracy of elites, soviet style. I guess they don’t teach it in school anymore, they never really did, but for all those who missed it: Communism failed completely and definitively as an economic system, and it was a good deal more brutal and murderous than fascism. Are we condemned to repeat the mistakes of history? Seems we are headed in that direction.
The author points rightly to supply side disruption owing to worldwide lockdowns as the core cause of the current inflation. But minimises the effect of uncontrolled and irresponsible spending in response by governments intent on keeping power. Petrol on fire.
How then can he argue from any standpoint but an ideological one that price controls are a solution to the problem? Even the most cursory understanding of economics tells us that they will discourage investment and cap or reduce supply. Again, petrol on fire.
Unbridled mass immigration was the solution to the labour shortages of the last 20 years, produced by a most unholy alliance between large companies and their lobbyists on the one hand, and “progressive” politicians and the legions of social justice warriors lined up behind them on the other, egged on by a fully compliant mainstream media. This is why they continue to pay little more than lip service to the concerns of low wage labour, who are those most affected.
If you want to shield vulnerable groups from the higher costs of energy, then don’t enact environmental policies that raise the cost of energy.
The German government chose to shut-down it’s nuclear reactors in spite of having some of the highest electricity costs in the world. Is that the fault of greedy corporations?
The US government effectively froze the expansion of their domestic oil and gas production, and are now facing record fuel prices. Since bread doesn’t fly itself to the grocery store, it’s no surprise that the downstream costs are increasing as well. Is that the result of rampant profiteering?
The Canadian government seems determined to destroy an oil-sands industry that accounts for 7.5% of their national GDP.
For every “greedy” corporation gouging consumers, there’s a well-meaning government inflicting orders of magnitude more economic pain through short-sighted policy and utopian economics.
Absolutely! Have you seen Alex Epstein’s excellent defence of fossil fuels?
The supporters of Milton Friedman in the 1970s made a point of NOT blaming the trade unions for inflation: if inflation is always a monetary phenomenon, governments can stop it by controlling the growth of the money supply.
When you only have a hammer…
…and a sickle.
No mention of massive illegal immigration encouraged by elites in an article about capital’s battle with labor.
No mention of Climate Change or Green New Deals in an article about progressive policy imperatives and energy costs.
The author repeats Joe Biden’s simplistic, self-serving and self-contradictory demands to producers:
“I must tax your profits and you in return must produce more for less to help my re-election.”
Would anyone, including the author, work harder and risk more for a smaller paycheck?
Want to strengthen labor’s hand, Mr. Fazi? Restrict immigration and repatriate all foreign nationals.
If you don’t think that is a death blow aimed at neoliberalism’s heart, then I’ve got a bunch of free airplane tickets to Rwanda to sell you.
If you’re going to criticise someone its usually a good idea to learn what they actually said. Friedman blamed inflation on an increase in the money supply. Indeed he famously argued that inflation was always and everywhere a monetary phenomenon.
Precisely.
In this case, when you pay people not to work it’s really simple and why it was easy to predict. More money + less production = inflation. So the governmental response to Covid (lockdowns and ‘free’ money) is the cause. Not very complicated.
Hopefully this puts the lie to ideas like Universal Basic Income and Modern Monetary Theory.
I guess that’s why certain interest groups are so strenuously denying the crushing reality, that everyone else saw coming, when government starting printing money. Because it damages their pet theories.
These things never die – they just wait a generation or two and then resurrect like zombies.
At least the patent office refuses claims for perpetual motion machines aka “Modern Mechanical Theory”.
Plus increasingly cheap-to-free money after 2012 helped bid up asset prices.
We need to fully understand what is being played out here. This is a carefully co-ordinated, orchestrated and pre-planned coup. The UK, US and practically every other western government are in fact puppets, under the control of wealthy powerful fascists (WEF). We need to remove these “elected” lunatics and put them in a court to be jailed for life. Anything else is capitulation.
Yes, yes. You take Biden and Trudeau, I’ll tackle Johnson, Macron and Scholz…..
this is one of the most muddled things I have ever read. interestingly the far right also think inflation is a deliberate elite conspiracy, designed, like covid, to justify emergency powers, which can then be normalised. Thomas Fazi shouldn’t be too down-hearted because it seems likely he will get what he wants. when push comes to shove we will find there is no stomach for the “austerity” he talks of. I just hope he is honest enough to admit his mistake when we rediscover where it leads. Money creation transcends politics and undermines democracy itself, because it enables politicians to conceal the problems that society must confront. it creates confusion about cause and effect and ends in abject poverty and total moral collapse. in Weimar Germany the money creation was obvious and, initially, it looked to some as if Germany were a success story (full employment, an export boom etc.). In our case the money creation was, until Covid, at one remove from our day to day lives and therefore harder to detect. in both cases, successive governments and their opponents have been happy for blame to accrue to everything but the core problem. In the end, as we know, Germany was torn apart by intense political rivalries and all trust broke down, meaning no group was willing to shoulder its share of the costs of rebuilding a free and decent society.
“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
― Vladimir Ilyich Lenin
I’m not sure I agree that “commentators have been quick to blame the surging prices on excess demand”.
The first reason was supply chain rupture, the second the printing of money.
It’s not to do with a rise in power of the working class either. If anything they are weaker, not stronger. Boris WANTS a high wage economy.
Strange article.
“ Boris WANTS a high wage economy.”
Guess that’s why we are importing the Third World, eh?
Johnson hasn’t a clue about anything. It’s a bit like saying I want nice things
For himself. He’s not too bothered about the rest of us.
If the working class or indeed the middle class exist anymore accept as a perpetuated devisive convenience of control. I would suggest 3 global classes. The elites, the middle management and the rest of us.
With government bureaucrats as part of the elites.
1970’s and “close-to-full employment” doesn’t ring true to me.
This is just pure hard left ‘they are out to get you’ nonsense
When you’re a hammer, everything looks like a nail.
When you’re a central banker, everything looks like an interest rate problem.
It’s the tool they have, and they would be foolish not to use it. The author is correct that the solution is to increase the supply of stuff, but the Fed can’t control supply, so they have to settle for using interest rates to reduce demand to match the lower supply. That’s what they’re doing. And it will likely cause a recession and higher unemployment. As disastrous as that is on the lower classes, the alternative of simply allowing inflation rage would be vastly worse. The wealthy have assets which appreciate with inflation; the working classes don’t. So inflation is a hugely regressive tax.
As someone else here mentioned, it doesn’t help that the United States government has been borrowing and spending like a drunken sailor for decades and shows no signs of stopping. The saying is “don’t fight the Fed”. But if you’re a Fed banker, it must feel like you’re fighting Congress every day.
Not interested in “more redistributive fiscal policies.” we’ve had too much of that in the past couple of years already and look where it’s got us. Being native of one of the fastest growing cities in the US with a hot real estate market to boot… the Republic of Austin, Texas, I can say that urban policies that are building density and unlivable environments in the name of “affordable housing”, will be the nail in the coffin of prosperity generating economies. I spend a lot of time also in NY where the government is in your pockets all which ways; home ownership is extremely low, rental subsidies are extremely high, and discontent is all around. Just look and see what “redistributive policies” are doing to the gorgeous state of NY to see where you don’t want to go with government and the economy. Not to mention that NY is the secret illegal immigration hub of NY and the US. More government-subsidized consumers being flown in under the cover of darkness to fill decaying buildings. Does anybody work for a living any more ?
I think the Elites (top 1%) caused inflation by massive deficit spending and QA designed to buy off the working classes without increasing their taxes. In the US the income share of the 1% went from 8% in the early 1980s to 22% by 2003. As part of this policy of blocking competition productivity growth went from 2.5% to .4% after 2004. I know think the top 1% will push for policies that hurt these same working classes. Basically, imports and immigrants were used to crush average real wages. This system’s ability to hold inflation in check has ended. Hence, another run at working class real wages through inflation will be the result. This is crony or state capitalism. Big business and Big government are merging.
Milton Friedman’s argument was the opposite from the summary in this article. He was a monetarist, arguing that the money supply was the cause of inflation. Nothing to do with excessive wage claims, etc.
Dear me – what a lazy argument. It’s all down to those evil lizards who masquerade as humans and are sufficiently cunning to control the world economy in order to pursue their overriding obsession with suppressing the working classes. Fortunately, though they’re cunning enough to always come out on the right side of this eternal class conflict, they are at the same time so foolish as to identify themselves by wearing top hats and attending top private schools. So all we have to do is out them, replace them with – errrrr,well we’ll worry about that when the first part of the job is done – and all will be well.
Haven’t I heard this superficial nonsense somewhere before? Oh yes, I remember, it was the 1970s …
We have seen this playbook before and the very last thing to do is get the government in the business of attempting to control anything. The energy markets do relate to rising costs but the pressure of ESG investment decisions made several years ago have resulted in a decrease of capital directed toward fuels. That effect is now apparent as production, despite being high, is not adequate now because of the lack of investment. The delay is apparent and the ‘huge’ 8% profit margin of the producers is minimal compared to the risks involved. Look at Apple (or Alphabet) with 20% margin with minimal risk.
Workers have been compensated by the government passing out unearned money. Money that eventually will require debt service and future obligations. Whether the labor/capital balance can ever be ‘fair’, compensation for no labor is unfair to capital. Capital seeks the best returns. Some of that has been corrupted by financial engineering that really does demand some government control and restraint, but price control will simply harm the market.
If you listen to Budd’s video which has the ‘quote’ from him, he actually says that he ‘worries’ that it may have been the case. He also says that none of it may be true but that he still worries that it might be. That’s a long way from the quote, which is now being circulated by many on Twitter as ‘fact’. Journo’s like this have a responsibility to report factually and not be selective to the point of generating fake news. There’s enough of that about!
The other alternative is nihilism and social unrest.
I can’t trade citations with the author or the many commentators. But it appears to me that the author’s prescriptions have been instituted many times in my 80 years. With absolute consistency everyone other than the ruling clique gets poor, while little or nothing creative or advancing culture results. Capitalism is certainly imperfect, but in the US has resulted in so much wealth that obesity is a curse of the poor. I prefer an imperfect system wherein I can live well without feeling any need to resent the wealth of creative geniuses like Walton, Gates, Bezos and many others who employ tens of thousands and drive efficiencies that have made life better millions. Hooray for reality, not a failed theory.
Well said, even if some of those capitalist elites do sometimes talk a lot of nonsenseof their own (eg Elon Musk).
It’s interesting how UnHerd journalists are so good at writing cultural pieces and so bad at writing financial ones. I think it is because markets are proactive whereas critique is reactive.
The author is wrong about oil and oil reserves (amongst others) and follows Biden’s transparent ploy to blame oil companies for high energy prices – very convenient when you are yourself to blame. ESG policies, lack of investment in fossil energy and hubris regarding climate targets are the main causes of the price hike (the reserves are dwindling and OPEC has reached peak capacity; they are not making this up). On top of it… the self-sanctioning policies of the UK, EU and US are another ‘small’ issue. The oil and gas embargo of Russia will only hit America, but even more severely Europe, because we don’t produce a lot of the stuff ourselves.
While it’s good that “Unherd” publishes opinions that are under-represented in the mainstream media, one of the reasons that publishing these essays is a social good is that we can knock bad ideas on the head.
The authors opinion that oil firms are using Ukraine as “an excuse” to raise prices is silly. If oil firms can raise prices, they will. They don’t need “an excuse” for public relations purposes.
The author is confused by the fact that the oil companies are making more money. But that’s what happens when your product becomes scarce, because the scarcity allows you to sell the oil at higher prices. The author presumably wonders why the oil companies don’t choose to make less money – surely, he implies, if the oil companies had the public good in view, energy prices could remain low and oil companies would make no extra profit? But that wouldn’t work, because that would create an energy shortage, as in, people would try to buy more oil than was available for delivery.
The “oil company conspiracy” line is a bad one. Unfortunately, it was pushed by the White House itself (by the lauded former Press Secretary, Psaki).
The author also writes about how recent price rises are a result of supply-side issues. This is correct. However, he uses this to imply that there are no demand-side issues. This might be true in some places, but it isn’t true in the United States. The USA saw high inflation some time before the rest of the world, and it also saw both a scatter-gun approach to pandemic spending under both Administrations (eg. a $1000 cheque to everybody, several times, rather than focusing funds on the most affected), and an unprecedented stimulus bill once the Democrats came to power in early 2021. Even pro-Democrat media sources came to agree that there was a connection. Moreover, the USA should be amongst the economies most sheltered from the coming economic crisis – it consumes home-grown grain and home-derived energy – yet its inflation is as high as that abroad.
As a final remark, the author writes that food prices are rising only because speculators are hoarding grain. This is not an historically unprecedented theory, because, of course, when high prices are expected, speculators do hoard grain. However, the belief that shortages are due to hoarding has historically led to disaster – for instance, this was the British theory about the cause of the Great Famine in Bengal in 1942. It was essentially untrue, but it provided an excuse for inaction. The fact is, that if speculators are driving up prices for no reason, then the speculators themselves will lose money, for they will possess unsold grain, and when they all sell together, there will be a bread crash.
hi
hi
While it’s good that “Unherd” publishes opinions that are under-represented in the mainstream media, one of the reasons that publishing these essays is a social good is that we can knock bad ideas on the head.
The authors opinion that oil firms are using Ukraine as “an excuse” to raise prices is silly. If oil firms can raise prices, they will. They don’t need “an excuse” for public relations purposes.
The author is confused by the fact that the oil companies are making more money. But that’s what happens when your product becomes scarce, because the scarcity allows you to sell the oil at higher prices. The author presumably wonders why the oil companies don’t choose to make less money – surely, he implies, if the oil companies had the public good in view, energy prices could remain low and oil companies would make no extra profit? But that wouldn’t work, because that would create an energy shortage, as in, people would try to buy more oil than was available for delivery.
The “oil company conspiracy” line is a bad one. Unfortunately, it was pushed by the White House itself (by the lauded former Press Secretary, Psaki).
The author also writes about how recent price rises are a result of supply-side issues. This is correct. However, he uses this to imply that there are no demand-side issues. This might be true in some places, but it isn’t true in the United States. The USA saw high inflation some time before the rest of the world, and it also saw both a scatter-gun approach to pandemic spending under both Administrations (eg. a $1000 cheque to everybody, several times, rather than focusing funds on the most affected), and an unprecedented stimulus bill once the Democrats came to power in early 2021. Even pro-Democrat media sources came to agree that there was a connection. Moreover, the USA should be amongst the economies most sheltered from the coming economic crisis – it consumes home-grown grain and home-derived energy – yet its inflation is as high as that abroad.
As a final remark, the author writes that food prices are rising only because speculators are hoarding grain. This is not an historically unprecedented theory, because, of course, when high prices are expected, speculators do hoard grain. However, the belief that shortages are due to hoarding has historically led to disaster – for instance, this was the British theory about the cause of the Great Famine in Bengal in 1942. It was essentially untrue, but it provided an excuse for inaction. The fact is, that if speculators are driving up prices for no reason, then the speculators themselves will lose money, for they will possess unsold grain, and when they all sell together, there will be a bread crash.
That’s some tall tale, right there. Maybe you’re right…OR maybe central banks and policy makers move too slowly and then move too much, and then reverse too slowly and too much. Again. And again.
The idea that this is all The Man sticking it to the downtrodden is as Trumpian as it gets. The Man doesn’t make bank breaking down the downtrodden. That is what The Man has theology for.
Sounds plausible: the government striving to achieve the one thing that is guaranteed to make them unelectable.
Very interesting and well put
‘War profiteers’ etc. Language straight out of Lenin. I’m not sure why this unhinged Marxist is writing on UnHerd. We know where his policy prescriptions led.
‘Socialism’ – the bad idea that never dies.
To be fair Thomas this is either an under researched article or you have your own agenda … to ignore QE and before that the loosening of mortgage terms under the Blair Govt is wilfull negligence.
Asset prices, along with taxes this last 22 years have gone inexorably upwards.
If we are to protecting working people from inflation and taxes then we have to reduce the size of the state and the the iniquitous tax levels working people are having to pay … aka 20% and over 50% on fuel … I could go on but you get my point?
Nice post. Thanks for sharing this.
Thanks for drawing attention to the outstanding analyses on these issues by good Servaas Storm. And yes, there’s no question that back in the 70’s elites exploited inflation to hurt and weaken the working class. Michał Kalecki had foresaw that happening as far as 1943 – Keynesian policy would lead to the working class gaining a record share of profits, also gaining excess power and losing their deference for their “betters”.
But it’s a totally different situation today. As per your own Storm source, workers now “almost completely lack the power to redistribute product market rents from capital owners to labor”. The working class are already suffering intensly,its been recently reported for example that 9% of parents say their kids have started self harming due to the stress caused by the cost of living crisis. Granted, recent studies have found the modern upper class may be the least altruistic in at least some countries, but there’s no reason to think they’ve developed the kind of sadism to needlessly inflict more pain on working class people. A perfect storm of events & conditions have came together to create this crisis, but most unlikely intentionality is a significant one, IMO.
Of course, conservatives are always going to make self serving nonsense arguments like claiming stimulus packages are a major cause, but that’s a different thing, and doesn’t mean they’re intentionally trying to make things worst for working people.
Please not another ‘grievance mongering issue’! That ‘study’ sounds utterly bogus to me. Almost one in ten kids self harming because of the ‘cost of living crisis’?!. It’s a wonder then anyone survived the 19th century or the hungry 30s.
Why are arguments you disagree with ‘ self serving nonsense’? The West HAS actually been spending and printing money like there is no tomorrow, the problem is, or at least one of the main.problems is that this is completely detached from any notion of productive investment.
We are certainly harming production and productivity in a lot of ways, but the idea that the main response should be government should be spending even more propping up this or that seems crazy to.me. These arguments are then deployed for example on favour of the rail unions holding the country to random (except they increasingly are making rail irrelevant) at the expense of ordinary much less well paid people. You can see that I am intensely suspicious of this crisis being used to justify old failed policies that so hobbled the UK in the 1970s. We then had nationalisation, prices and incomes policies, union power, all the things the new economic Left wants to reintroduce. It was not a good place!
Yes, ‘self serving nonsense’ was a poor choice of words. Sorry about that. I still think its accurate with regards to some elite American conservatives who for the last 6 months or so have quite successfully pushed a narrative high US inflation is almost entirely the fault of Biden. And for more than a decade now, various hedge funds have been trying to replicate the success some had with shorts in 2007 / early 2008, claiming year after year that Q.E. has caused an ‘everything bubble’, trying to cause a stock market collapse so they could profit.
But of course many good faith conservatives sincerely belief fiscal & monetary stimulus is a major source of issues. Huh, even several die high Corbyn supporters think the same about Q.E. , saying it massively benefits certain types of rich asset holders (which is true) but that it’s a strong negative for regular people (which is most unlikley IMO.)
GREAT article T. Fazi. I am 63. Surviving this Stagflation via retirement in Sun City AZ and my modest fixed income (about 27K yearly) is comfortable and financially stable because I owe very little (7K credit card debt – less than a third of credit available) AND EVERYTHING IS OWNED. So, in the Biden Recession we (I live with and care for my 84-year-old Mother) a little less than $1K a month – as opposed to $700 a month when DJ Trump was in charge. We also have sizeable – less than a million but several 6 figures – and – two properties over 200 sq ft – with acreage – in this inflated real estate market.
I am a conservative, a Christian, and an unabashed unionist.
My grandfather was a coal miner who lived the coal wars of western Pa starting as a child worker (coal sorter born 1908) who escaped the mines via a broken back in a cave in (which by the way was rumored to be deliberate – managements version of ‘negotiations’) via self-taught (in those days recovering from a broken back did not include Pell Grant eligibility) car mechanic – which he parlayed eventually into a 30-year post WWII UAW career and (with a modest UMW – because he started non-union but ended Union) very good defined benefits pension.
My father – his youngest of three sons – was a Pipefitter local 120 in Cleveland Ohio- again 30+ yrs – excellent pension. (Both his brothers were likewise union – one a Machinist – the other Telecommunications – AT&T including once entering management – and each had 20 and 30+ years to their careers and again – DEFINED PENSION BENEFITS)
I will tell you as an educated ‘hillbilly’ with a much more intimate connection to prior extended family that far exceeds J.D. Vance’s storied recollections – that nothing has destroyed the American Middle class as has the death of American Labor.
The cost of that debris field is what the current generation is awakening to – and it is fomenting a populism to rival the last great such uprising (which in large measure led to the Unionism that underwrote America’s post WWII prosperity – in my humble view).
I am unsurprised few see the connection to the 1880’s rather than the 1980’s Americans are coping with today – because as a dedicated Unionist I have had a substantive conversation on par with this fine article with as many as 3 people in the past 20 years. Maybe five.
Unionism is that dead in America today.
In my view Unionism – effective Unionism of the kind that helped deliver America from the deprivations of the Great world-wide Depression of the 30’s and the kind that helped build and innovate us to victory in WWII – that kind of effective unionism ended the day the post Bobby Kennedy (the real Bobby Kennedy – not the deified ‘saint’ Bobby that died running for President in ’68) Justice Department managed to put James Riddle Hoffa in jail.
It is so dead that there is not even a hint of a memory of how important it once was when delivering the opportunity for prosperity – not the guarantee of it – which is unfortunately what the remaining bastardized form still around -the Teachers cabal and the Government ‘Pension plans’ (Gangs really) sadly bestows.
Whether one reads Thomas Piketty or Charles Murray or any number of astute minds on similar subjects – there is an unmistakable stench to the similarities of the Post Civil War economics that beleaguered a then prosperous American middle class – most being of the yeoman farmer sect Jefferson and the many other Founders underwrote with their version of constitutional government – as well as the post Reagan/Thatcher revival of robust American Style Democratically Ruled Capitalism.
Overwhelmingly in that equation Labor – the primary (next to of course the right to believe and worship God) RIGHT IN THE RIGHTS OF MAN – has been utterly destroyed – reduced as I mentioned to the equivalent in America to the old version of ‘company’ unions – unions that even FDR dismissed as unworkable folly – that being the government union.
The food and energy inflation we now suffer (and is far worse on your side of the Atlantic) is on par with what my Great Grandfather (mothers’ side) described – as a child not only of the post-Civil War period – but a far worse disaster for him and his farm family – that being the panic of 1978.
And the truth of the matter – the one issue I will take up with You Mr. Fazi – is that the ruling elites today don’t deserve the credit you imply – because it is less about diabolical intent and more about abject incompetence and arrogant self-dealing – much more 1914 than 1898 if you will.
A lot less Sir Robert Peel or even Lord Halifax than Atlee and here in America President’s Buchanan or Harding.
And come November we shall find out just how much fight really still exists in the voting population here. Or wither there is any inclination to revive what it was Unions once stood for and worked to accomplish.
Thank you again for such fine work.
Yes, but quite why you as an American are praising a Marxist so highly beats me. We keep restricting production and competition. Stop oil and gas production (but not in China!). The new tech companies don’t provide much employment for middle skilled workers
The asset owners can price gouge. Productivity stalls, wages flatline. Etc. Lots of things wrong, but if you have think Mr Fazi and his ilk have the answers (price controls – that’ll be the fantastic Venezuelan model!) it is even more worrying…..
Yes, but quite why you as an American are praising a Marxist so highly beats me. We keep restricting production and competition. Stop oil and gas production (but not in China!). The new tech companies don’t provide much employment for middle skilled workers
The asset owners can price gouge. Productivity stalls, wages flatline. Etc. Lots of things wrong, but if you have think Mr Fazi and his ilk have the answers (price controls – that’ll be the fantastic Venezuelan model!) it is even more worrying…..
GREAT article T. Fazi. I am 63. Surviving this Stagflation via retirement in Sun City AZ and my modest fixed income (about 27K yearly) is comfortable and financially stable because I owe very little (7K credit card debt – less than a third of credit available) AND EVERYTHING IS OWNED. So, in the Biden Recession we (I live with and care for my 84-year-old Mother) a little less than $1K a month – as opposed to $700 a month when DJ Trump was in charge. We also have sizeable – less than a million but several 6 figures – and – two properties over 200 sq ft – with acreage – in this inflated real estate market.
I am a conservative, a Christian, and an unabashed unionist.
My grandfather was a coal miner who lived the coal wars of western Pa starting as a child worker (coal sorter born 1908) who escaped the mines via a broken back in a cave in (which by the way was rumored to be deliberate – managements version of ‘negotiations’) via self-taught (in those days recovering from a broken back did not include Pell Grant eligibility) car mechanic – which he parlayed eventually into a 30-year post WWII UAW career and (with a modest UMW – because he started non-union but ended Union) very good defined benefits pension.
My father – his youngest of three sons – was a Pipefitter local 120 in Cleveland Ohio- again 30+ yrs – excellent pension. (Both his brothers were likewise union – one a Machinist – the other Telecommunications – AT&T including once entering management – and each had 20 and 30+ years to their careers and again – DEFINED PENSION BENEFITS)
I will tell you as an educated ‘hillbilly’ with a much more intimate connection to prior extended family that far exceeds J.D. Vance’s storied recollections – that nothing has destroyed the American Middle class as has the death of American Labor.
The cost of that debris field is what the current generation is awakening to – and it is fomenting a populism to rival the last great such uprising (which in large measure led to the Unionism that underwrote America’s post WWII prosperity – in my humble view).
I am unsurprised few see the connection to the 1880’s rather than the 1980’s Americans are coping with today – because as a dedicated Unionist I have had a substantive conversation on par with this fine article with as many as 3 people in the past 20 years. Maybe five.
Unionism is that dead in America today.
In my view Unionism – effective Unionism of the kind that helped deliver America from the deprivations of the Great world-wide Depression of the 30’s and the kind that helped build and innovate us to victory in WWII – that kind of effective unionism ended the day the post Bobby Kennedy (the real Bobby Kennedy – not the deified ‘saint’ Bobby that died running for President in ’68) Justice Department managed to put James Riddle Hoffa in jail.
It is so dead that there is not even a hint of a memory of how important it once was when delivering the opportunity for prosperity – not the guarantee of it – which is unfortunately what the remaining bastardized form still around -the Teachers cabal and the Government ‘Pension plans’ (Gangs really) sadly bestows.
Whether one reads Thomas Piketty or Charles Murray or any number of astute minds on similar subjects – there is an unmistakable stench to the similarities of the Post Civil War economics that beleaguered a then prosperous American middle class – most being of the yeoman farmer sect Jefferson and the many other Founders underwrote with their version of constitutional government – as well as the post Reagan/Thatcher revival of robust American Style Democratically Ruled Capitalism.
Overwhelmingly in that equation Labor – the primary (next to of course the right to believe and worship God) RIGHT IN THE RIGHTS OF MAN – has been utterly destroyed – reduced as I mentioned to the equivalent in America to the old version of ‘company’ unions – unions that even FDR dismissed as unworkable folly – that being the government union.
The food and energy inflation we now suffer (and is far worse on your side of the Atlantic) is on par with what my Great Grandfather (mothers’ side) described – as a child not only of the post-Civil War period – but a far worse disaster for him and his farm family – that being the panic of 1978.
And the truth of the matter – the one issue I will take up with You Mr. Fazi – is that the ruling elites today don’t deserve the credit you imply – because it is less about diabolical intent and more about abject incompetence and arrogant self-dealing – much more 1914 than 1898 if you will.
A lot less Sir Robert Peel or even Lord Halifax than Atlee and here in America President’s Buchanan or Harding.
And come November we shall find out just how much fight really still exists in the voting population here. Or wither there is any inclination to revive what it was Unions once stood for and worked to accomplish.
Thank you again for such fine work.