On Inflation

[Res Ipsa]

Cory Doctorow wrote a piece about a new paper on the causes of the current bout of inflation and why initiating a recession is the wrong response. It's long, but is one of the more thoughtful pieces on the recent inflation in the U.S.https://pluralistic.net/2022/12/14/medi ... id-economy

Some choice quotes:

Here's the inflation story you're expected to believe (advance warning: this story is entirely false): America gave the poors too much money during the lockdown and now the economy is awash in free money, which made those poors so rich that now they're refusing to work, which means the economy isn't making anything anymore. With all that extra money and all those missing workers, prices are skyrocketing.

To hear ghouls like Lawrence Summers tell it, there is only one answer to this. We have to immiserate the poors: jack up interest rates, kick off a recession, destroy millions of jobs, until the poors are stripped of their underserved fortunes, and, humbled, they return to their labors:

https://pluralistic.net/2021/11/20/quie ... ofiteering

As noted: this is BS. Countries all over the world experienced inflation during and after the lockdowns, irrespective of whether they handed out relief money to keep people from starving to death while their workplaces were shuttered. America has slightly higher inflation than some other OECD countries, but the causes have nothing to do with overly generous relief packages.

The five root causes of today's US inflation are:

I. energy and food price-spikes;

II. changes in the kinds of goods we want;

III. supply interruptions (mostly for cars);

IV. higher rents (resulting from work-from-home moves);

V. market power (a.k.a. price-gouging).

None of these can be fixed by jacking interest rates or forcing workers into unemployment.

But if we are worried about a contracting workforce, there are more humane – and more rational – remedies than using interest-hikes to put the country into recession and force workers into unemployment. Instead, we could build the US capacity to produce goods and services by making it easier for workers to enter the workforce:

https://pluralistic.net/2022/06/01/fact ... -not-money

For example, the US ranks near the bottom of rich countries when it comes to female workforce participation. This is no mystery: America's refusal to provide childcare, combined with low wages and poor conditions for female-dominated occupations, means that many women can't afford to work. If America doesn't have enough workers, it can lure this reserve army of laborers into the workplace with childcare subsidies and minimum wages.

By contrast, forcing the country into recession with interest-rate hikes will remove workers from the workforce, and the last hired (women, racialized people) are the first fired, and the last to be re-hired. Forcing the country into recession won't build America's capacity to produce the things its people demand – it will permanently reduce that capacity.

Here's a link to the paper: https://rooseveltinstitute.org/wp-conte ... 202212.pdf

[Morley]

For example, the US ranks near the bottom of rich countries when it comes to female workforce participation. This is no mystery: America's refusal to provide childcare, combined with low wages and poor conditions for female-dominated occupations, means that many women can't afford to work. If America doesn't have enough workers, it can lure this reserve army of laborers into the workplace with childcare subsidies and minimum wages.

When will we ever figure this out?

There's a portion of our electorate who wishes every woman to be a stay-at-home mom, whether these women are actually mothers with pre-school children or not. Intelligent, educated women in this country are under-employed, under-appreciated, and little rewarded. Mothers who work in lower paying jobs have it even worse. They are the last to be hired and the first to be let go.

Additionally, many of the same folks who loudly claim to be "for the working man" strangle labor by embracing state right-to-work-laws, are unwilling to vote for government funding for childcare, and are against mandating a living minimum wage for everyone. If you say you're for the common laborer, but are unwilling to back policies that actually help that person, you're a fecking fraud.

/rant

edit: Fecking. I learned that word last night while watching The Banshees of Inisherin.

edit 2: Teaching myself spelling and grammar. Proofread, Morley, proofread.

[Res Ipsa]

For example, the US ranks near the bottom of rich countries when it comes to female workforce participation. This is no mystery: America's refusal to provide childcare, combined with low wages and poor conditions for female-dominated occupations, means that many women can't afford to work. If America doesn't have enough workers, it can lure this reserve army of laborers into the workplace with childcare subsidies and minimum wages.

When we ever figure this out?

There's a portion of our electorate who wish every woman to be a stay-at-home mom, whether these women are actually mothers with pre-school children or not. Intelligent, educated women in this country are under-employed, under-appreciated, and little rewarded. Mothers who work in lower paying jobs have it even worse. They are the last to be hired and the first to be let go.

Additionally, many of the same folks who loudly claim to be "for the working man" strangle labor by embracing state right-to-work-laws, are unwilling to vote for government funding for childcare, and are against mandating a living minimum wage for everyone. If you say you're for the common laborer, but are unwilling to back policies that actually help that person, you're a fecking fraud.

/rant

edit: Fecking. I learned that word last night while watching The Banshees of Inisherin.

I think it's a righteous rant. I don't think we have anything resembling a coherent labor policy in this country.

[Vēritās]

I've said it before somewhere on this forum that in the near future, maybe 10 years or 40 years, economists are going to start realizing that the reason for inflation isn't simply an increase in money supply. The reality is an increase in money supply is often a precursor to the real reason: when demand (consumer spending) far outpaces supply.

Think back to George Bush's Great Recession in 2008. Republicans on Right Wing media went nut, by insisting Obama's massive spending bills would cause not only inflation, but rather "hyper" inflation. For about two years straight it was a daily episode of "the world is coming to an end any minute now because of Democrat spending" on FOX News, usually courtesy of Glenn Beck. Hindsight is 20/20, and we now know that was all BS. Yet, this economic myth persists.

Not only did hyper inflation never occur, we didn't even get inflation, and we damn near got deflation. So how does that compute that we see money supply skyrocket and yet no inflation? It is because government spending in and of itself doesn't translate to increased consumer spending. Prices of goods aren't going to go up with an oversupply of something no one is buying.

Now, after two years of a depressed economy caused by the pandemic, post-pandemic America has been seeing consumer spending take off with a vengeance which would in and of itself cause inflation. Yet, that was exacerbated even more by (a) supply chain disruptions combined with (b) the war in Ukraine. Hence, the inflation we're seeing today.

[Gadianton]

yes, right-winger and trump appointee Jerome Powell is really putting demand-side policy to the test against a mostly supply-side problem.

If too many people are trying to get on the freeway at the same time, then putting up those lights to let one or two cars on at a time to even the flow makes sense. But the freeway has to fundamentally have the capacity for the traffic.

[Res Ipsa]

I've said it before somewhere on this forum that in the near future, maybe 10 years or 40 years, economists are going to start realizing that the reason for inflation isn't simply an increase in money supply. The reality is an increase in money supply is often a precursor to the real reason: when demand (consumer spending) far outpaces supply.

Think back to George Bush's Great Recession in 2008. Republicans on Right Wing media went nut, by insisting Obama's massive spending bills would cause not only inflation, but rather "hyper" inflation. For about two years straight it was a daily episode of "the world is coming to an end any minute now because of Democrat spending" on FOX News, usually courtesy of Glenn Beck. Hindsight is 20/20, and we now know that was all BS. Yet, this economic myth persists.

Not only did hyper inflation never occur, we didn't even get inflation, and we damn near got deflation. So how does that compute that we see money supply skyrocket and yet no inflation? It is because government spending in and of itself doesn't translate to increased consumer spending. Prices of goods aren't going to go up with an oversupply of something no one is buying.

Now, after two years of a depressed economy caused by the pandemic, post-pandemic America has been seeing consumer spending take off with a vengeance which would in and of itself cause inflation. Yet, that was exacerbated even more by (a) supply chain disruptions combined with (b) the war in Ukraine. Hence, the inflation we're seeing today.

I’m not sure that your description of the cause of inflation differs that much from the supply siders: too much money chasing too few goods. I think the key is that there isn’t just a single cause of inflation that requires the same response every time we see prices increase. As you point out, there are several causes of the current inflation, most of which we should expect to be temporary.

The one that wouldn’t be temporary is a chronic shortage of labor. That’s why draconian immigration restrictions are so crazy under current conditions. The same with making it uneconomical for many women to enter the work force.

A lesson that US businesses should have learned is that outsourcing everything to the cheapest source of labor comes with its own set of substantial risks. And those risks could easily lead to business failure.

[Hawkeye]

yes, right-winger and trump appointee Jerome Powell is really putting demand-side policy to the test against a mostly supply-side problem.

If too many people are trying to get on the freeway at the same time, then putting up those lights to let one or two cars on at a time to even the flow makes sense. But the freeway has to fundamentally have the capacity for the traffic.

Perhaps Jerome Powell's past politics is the only reason Biden doesn't replace him. Who else will be left for Democrats to blame for the current and future state of the economy? Joe Manchin?

[Gadianton]

I'm just kidding Hawkey. I realize that you're deadly serious, though. It's a complicated issue and I'm not really keeping up with it, to be honest. It's people like you who think in simplistic terms that party affiliation explains everything. That's the joke. I'm just having a good laugh at you, that's all.

[Doctor Steuss]

III. supply interruptions (mostly for cars);

I think they may be looking too far down the chain on this one. I would personally put microchips as the most influential aspect of supply-chain interruptions (and the thing that hobbled cars as well).

This article is behind a paywall, but in a single week last month, US automakers had to reduce planned production by 79,000 because of chip shortages. One forecast puts the global impact for 2022 at 4.4 million vehicles that were knocked out of production plans because of a lack of microchips. Volkswagon is projecting that the necessary chips for the auto industry might not be back up to demand until 2024 ( ).

Anecdotally, I upgraded the stereo in my truck about a year ago, and finding higher-end systems that were available was an Indiana Jones-esque quest. Spelunking from one strip mall to the other, in hunt of the illusive stock, because of an inability to source microchips.

[Hawkeye]

I'm just kidding Hawkey. I realize that you're deadly serious, though. It's a complicated issue and I'm not really keeping up with it, to be honest. It's people like you who think in simplistic terms that party affiliation explains everything. That's the joke. I'm just having a good laugh at you, that's all.

I bet your laugh is even sweeter knowing that many of us are taking on second and third jobs in a futile effort to keep up with the inflation and tax increases.