Dealing with inflation, really

[Celerity]

Last edited Tue Jul 26, 2022, 04:02 PM - Edit history (1)

Jayati Ghosh bemoans the economics profession’s inability to think beyond crude analyses of inflation—and crude policies to stem it.

https://socialeurope.eu/dealing-with-inflation-really



The inflationary wave has revealed all sorts of things about governments but also, more tellingly, about economists. The number of economists, and consequently policy-makers, who remain wedded to the unyielding idea that inflation results from too-loose monetary policy—hence central banks should restrict the money supply and raise interest rates—is legion. It has become what JK Galbraith would have called the ‘conventional wisdom’. It is still wrong. The causes of inflation vary by context and period.

Tighter monetary policy is a blunt tool which risks generating recession and unemployment—harming workers even more than price increases. And besides this human suffering, if the drivers of inflation lie elsewhere, reducing the excess demand purportedly at fault will not even resolve the problem. These obvious facts seem almost forgotten in mainstream discussion. Even the respected economist Olivier Blanchard, in a series of tweets, suggested that increasing unemployment was the only way to control inflation. The problem, apparently, was how to get workers to understand and accept this:

Link to tweet

Link to tweet

Leave aside the highly problematic assertion that ‘unemployment has to increase to control inflation’, which has been effectively refuted, conceptually and empirically, over the past two decades. Consider only the possibility that the driver of price rises is not ‘excess demand’ or workers demanding higher wages because they are not being adequately ‘disciplined’ by unemployment, but corporate profiteering, along with financial speculation in commodities markets. There are good reasons to believe this is the case, especially in global markets and in the advanced economies. (In many low- and middle-income countries, the causes of inflation are more complex and mostly come from cost-push factors, including imported inflation from global prices and currency depreciations.)

Corporate profits

In the United States, for example, the Economic Policy Institute has shown that increasing corporate profits have contributed disproportionately to inflation. From the second quarter of 2020 to the last quarter of 2021, corporate profits were responsible for 54 per cent of overall inflation—a dramatic increase from the 11 per cent they accounted for in the previous four decades (1979-2019). By contrast, unit labour costs were responsible for less than 8 per cent of the inflation, compared with 62 per cent in the previous four decades. Indeed, because of the recent price rises, the real value of the federal minimum wage is now at its lowest point in 66 years! The contribution of non-labour input costs—the famous ‘supply-chain issues’ so widely advertised—was 38 per cent, compared with 27 per cent in the earlier period.

snip

[Mosby]

1. Dynamic pricing

Needs to be made illegal.

It's happening with every product, not just Springsteen tickets.

Supply can be manipulated, so you can't trust the demand curve.

[Celerity]

2. I added the article link, so sorry I forgot it

[Celerity]

3. I added the article link, so sorry I forgot it