People have been talking about inflation lately, and for an obvious reason. This month's inflation report by the Bureau of Labor Statistics determined that consumer prices rose "4.2 percent from April of last year and 0.8 percent from the prior month." The responses to this report from the mainstream left and from the right as a whole (as there is no such thing as the moderate right in such matters) have been predictable.
The leading or most visible left-wing economist, Paul Krugman, basically sees it as "blip" that is similar to the 3.8% bump that happened in 2011 as the US began pulling out of a recession that had the massive 2008 crash as its gravity. He attributes the current blip to a similar circumstance, but this time the conventional economy (as opposed to the asset economy—homes, bonds, shares) is pulling out of the crash of 2020. The result is the rise of very specific (or COVID-sensitive) services and commodities that were repressed during the pandemic. (Krugman mentions used cars; People's Policy Project includes hotels and airline fares).
The right, of course, is describing the rise in consumer prices as evidence that the economy is overheating from too much stimulus, which is free money. In being "free," the stimulus money is even worse than another inflation fuel: cheap money in the form of low interest rates.
Fox News wastes no time beating this very old drum:
'There’s so much money out there in the economy that the demand is high, and it’s outpacing supply and it’s starting to push prices up,' Sen. John Thune, R-S.D., told Bloomberg on Wednesday. 'We need to be a little more cautious and restrained.'
Thune is reheating the Quantity Theory of Money (QTM). If you do not like reheated coffee, you will also not like reheated economic theories of this kind. QTM, which was formalized 100 years ago by the Fisher Equation, basically says this: "Price changes in relation to the supply of money in an economy." This is, of course, pure nonsense, because it assumes a value system that is background-independent. Meaning, it describes inflation as a technical problem ("M×V=P×T") and not a political one. And politics is always a part of a cultural background that structures our class relations.
Meaning, you should not ask, "Is this inflation really happening?" Instead, you should ask, "Who says inflation is really happening?" Here's why.
This is the mayor of San Diego, Todd Gloria. Though he is a Democrat, the "proud son of a maid and a gardener," and a "Native American-Filipino-Latino-Dutch-LGBTQ," his economic thinking is essentially neoliberal. There is really no difference between his theory of scarcity value and the monetarist doctrine of "too many dollars chasing too few goods." Both identify inflation as a background-independent technical matter. Inflation indicates an imbalance that requires a correction. In the case of San Diego, the fix is an "increase [of] the supply."
But what should give us some pause in the San Diego context, which is by no means isolated, but experienced by all major cities and burbs in the US, is this: the inflation of housing values is not something that economists, most of whom are trained in the neoclassical school, are really worried about. Nor does the political right or the market or the business press ever really howl about rising house values. But this really is a form of inflation. The rise of the price of an airplane ticket is inflation; the rise of a house's value is inflation.
Indeed, the whole stock market was rapidly inflated during Trump's time in office, but this "overheating" had mostly positive political implications. Trump boasted about it, as did the Dems when rapid asset-value inflation occurred under Obama. But why are these other forms of inflation considered fine when the one concerning commodity prices is not?
Bruce Bartlett of The Soap Box:
Predictably, conservatives are once again warning about inflation. This happens every time a Democrat takes office—even if he merely continues the identical policies of his Republican predecessor. Unfortunately, these concerns, which always receive wide media attention, are costly, politically and economically. Bill Clinton was forced to adopt a deficit reduction plan in 1993 that led to the defeat of many Democrats in 1994 and the installation of Newt Gingrich as speaker of the House. Barack Obama was forced to scale back his stimulus plan in 2009 and was browbeaten into deficit reduction in 2011.
As with Krugman's, the problem with this analysis is that it maintains the importance of keeping the prices of commodities stable. This is just a given. We should not even bother questioning it. The sun always rises. Inflation is always bad. But clearly someone or a group decided which inflation is positive and which is negative. Assets, yes; apples, no. When choices are involved, then culture is involved, and the defining form of capitalist culture is a hierarchical structure that repeatedly collapses into class struggle.
The reason there's so much noise about commodity prices is they are directly locked into class politics. And in a major way, we can blame moderate-left economists for this. They are the ones who, by a theory called the Philips Curve, emphasized a generally harmful link between the price of labor and the price of goods.
The idea was that inflation was fine as long as the economy was growing (more and more jobs). This was the tradeoff. The Philips Curve, however, hit a wall in the middle of the 1970s, because inflation rose along with slow to no growth. This sorry episode got the name stagflation. It cost the moderate left power in policy matters, and opened the way to the right's monetarist agenda (inflation as money supply). The right's solution, which began under Jimmy Carter, was a sharp increase in interest rates, which effectively killed business investment, the source of job growth in a capitalist economy. The fall in jobs equaled the deflation and eventual stabilization of commodity prices.
This all happened in the early 1980s. It has a name: The Volcker Shock. It eviscerated union power even before the decade was over. And it made inflation targeting (and not full employment) the key economic concern for the Federal Reserve. Indeed, one thing that's noticeable in this round of inflation fever is the absence of much talk about labor, which has been confined to discourse around allegedly lazy fast food workers refusing to take open, risky, low-wage jobs. Union power isn't the problem here. It's now all about that free government cheese.