We are currently seeing a fair bit of inflation, driven by supply chain issues. A recent comment by commenter Che Pasa is instructive.
Already, our local grocery store is charging $4.00 for a pound of broccoli, $3.00 for a head of lettuce, and 10 percent more for everything that hasn’t increased in price by 30-50 percent or more already. On the other side, they’ve lost literally half of their staff — who quit because their pay was too low. It was costing some of them more to work (what with transportation, child care, basic living expenses, etc.) than they were being paid.
The entire comment is worth reading.
Inflation happens all the time. During the New Deal and post-war eras, and up through the late 60s to mid- seventies, what happened is that wage inflation was stronger than the inflation of most things people needed to buy, and especially including important things like houses, cars, and tuition.
When stagflation hit, elites decided that the core problem was “ordinary people are buying too much,” so ever since 1979 (42+ years), the Federal Reserve and other central banks have had a policy that whenever people’s wages rise faster than the inflation of basic necessities, they strangle wages, which they call “wage push inflation.” I’ve written about strangling wages a bunch of times, a longer version is available for those who want the whips and chains version.
There were, in the 70s, basically two choices: Strangle demand, or fix the supply issues by transitioning off carbon based fuels. They chose to strangle demand, and make the rich richer, because it seemed easier and it had the side-effect of making everyone the decision makers cared about filthy rich.
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What we have right now are supply chain disruptions caused by Covid. Ports in China get shut down when Covid strikes, there aren’t enough truckers, there isn’t enough production of many goods due to health-related disruptions (people being sick, dying, or under quarantines, and so on). Once that begins, folks begin to hoard, and in a “just in time” production and shipping system, there is no slack. Small disruptions cascade across the system as a result and warehouses have no inventory to make up for even slight disruptions in supply.
Most “value chains” to use management and trade speak, are spread out over multiple countries: parts are manufactured in many places, then gathered to be assembled. A snarl at any of a number of locations, or in shipping between them, causes delays all down the line.
In other words, we have a structural logistical problem caused by our systems being over-engineered for efficiency as measured by profits, without any built-in slack or even being designed to make sense. The people I talk to who are familiar with the system tell me that no one understands it; it’s too complicated and dispersed.
But for 42 years, we’ve relied, almost completely, on financial solutions to economic problems, run primarily through central banks, with finance and treasury departments occasionally assisting. The solution to every problem has been to give rich people and corporations more money and assume that will create “supply,” while crippling everyone else to manage “demand.”
That methodology won’t work for this. Giving rich people more money won’t fix things, because the people who run the logistics system are making a lot of money off of these shortages; their profits are up. They’ll take money if the Fed wants to give it to them, but they have no reason to fix anything.
In principle, I suppose one can cut even more money off to ordinary people, and that’s what is being done, in stages, and as pandemic support is removed. However, the shortages are so severe that this may lead to even Americans and Britons, some of the most supine people in the world, deciding that rioting is better than starvation.
Or maybe it won’t. Maybe they are so beaten down, that unlike Indian farmers (who recently forced their leader Modi to back down), they will simply sit and take it.
But this isn’t a problem which can be fixed by the usual, “If we just give more money to rich people and privatize some more, the market will sort it out” solution that has been essentially the only policy method modern elites have ever known.
It requires, instead, actually restructuring logistics and manufacturing, actually forcing ports, shipping, trucking, railroad companies to change how they operate — including probably busting up various oligopolies, (many of which aren’t just dragging their feet, but are using this as an excuse to raise prices even when supply isn’t short). It requires forcing merchant marines to stop flagging in countries of convenience and to re-flag with major countries, rather than be, effectively, controlled by those countries.
It requires nuts and bolts understanding of how the system works, the re-engineering of it, and — if it’s too complicated to understand– making it simple enough to fix.
Elites, in other words, would have to understand how the actual economy works and not just assume that printing more money or changing interest rates or selling public facilities will make everything okay.
This comes back to what I wrote after 2008, that by refusing to let incompetent losers like the entire financial industry go out of out of business, by saying “we will print as much money as is required to keep current elites in power,” the central banks of the world had made real economic collapse, not just financial, inevitable, because they had made it impossible to change who was making the decisions, and the people making the decisions were incompetent fools.
Because, darling Virginia, there exists a real economy, not just numbers in a ledger. Food must be grown, processed, and sent to shelves. Ores must be mined and refined. Products must be made, shipped, and sold. People must eat and have power and water.
Every time our elites fail to manage the actual economy, as for example when Texas lost power this past year due to the power companies’ failure to repair and maintain their infrastructures, what happened? Instead of being punished for it, instead of losing power, they were rewarded either by windfall profits or — if somehow they would have lost money — they were bailed out. So, after the bailout they became even more rich and powerful.
The people who are in charge of the world logistics system are getting rich because of their failures. Central banks cannot fix that. The people who are in charge of the world health system are getting rich because of their failure to handle Covid. Central banks cannot fix that.
Your rulers are impoverishing and killing you, because it benefits them.
Incompetent or evil? Why not both?
StewartM
Hmm, for me, at this time, the huge “inflation problem” I keep reading about isn’t.
My mortgage is a fixed cost, and now my bank is eating a loss as my interest rate is lower than what the CPA says inflation is. I’ve not seen any rises in utility prices–yet–though they may come later. Gasoline has gone up, but then again I drive a fuel-efficient car by deliberate choice (I bought it new in 2004 and it’s lasted 17 years and is still going strong with, I finally had to replace one non-routine item (an air conditioner compresser) after 15 years of use). But gasoline prices are still far below their Katrina peak in 2006 and really within the usual “noise” of gas prices bumping up and down.
I’ve been told that food prices have skyrocketed. Last night I went out and bought groceries–$128 for a cart full. Mind you, I’m vegetarian, and I’ve been told it’s meat prices that have skyrocketed, but to me that also is something you can control. Neither have I noticed price increases in the takeouts orders I do in restaurants (though I do see the labor shortage, which I regard as a good thing, because the recent data I’ve read says what is happening instead of the ‘Great Quitting’ is that low-wage workers are dumping low-paying jobs for higher-paying jobs, which is a good thing.
Maybe I’ll see this personally in time. And while I’m not ‘rich’ by any means, I have higher-than-average income and wealth. But I am not seeing it personally now, and I have the sneaking suspicion that a lot of this political buzz is all about our elites trying to bring back austerity politics complaining the poors are getting it too good.
I also agree with everything you said, Ian, in regards to supply chains and ‘just in time’ BS on inventory, and just the crappy customer service USians endure all for the sake of more profit for Wall Street paper shufflers (and don’t know it, until you go to a place like Taiwan and see what good customer service is like). The real US economy has been gutted by capitalism (and don’t pretend that Wall Street controlling companies isn’t the essence of capitalism, because that’s exactly what capitalism in its pure form is all about). The only salvation is for the real producers (those who work and create) to wrest back control from the Wall Street “useless eaters” who only know how to manipulate numbers on paper. A truly functional economy puts customers and workers first, their communities second, and their investors third.
Z
Our rulers run their power game over us by using this simple equation: trading market gains must be greater than inflation gains which must be greater than wage gains. As long as they can maintain this equation … and they are able to do this because they have a drive-up window at the Fed to get the money required to maintain the trading market inflation, they have consolidated the most crucial industries so that only a few companies control them and therefore can collude to raise consumer prices, and they route the working class through the rigged obstacle course of Congress to keep the equation in place … they can maintain their power over us on paper in a capitalistic system.
The strikes are the most promising thing that’s threatening to destroy this equation and impose some real life restrictions to our rulers’ paper power that is backstopped by the Fed because they are uniting the working class to some extent. Our rulers will continue to try to divide and subjugate us though by using their “non-profits” (((they are not non-profits to the people who are employed by them nor their funders, who primarily fund them to control the narrative and atomize the working class))), media, and political consultant complex to create divisive narratives so that we direct our frustrations at each other instead of them.
The more of an emotional frenzy they can whip us into the greater chance we will act on our anger at each other because we are readily available to each other, we bump shoulders with one another, while our rulers are nebulous and protected so it takes patience, research, and preparation to get at them. In other words, an angry working class person who has been wronged by the system is much more likely to go into work and shoot his supervisor and co-workers to release his seething frustration, of which the primary source is the economic system that our rulers run us through, than to take the time to research and find out what private equity head bought the company and imposed the rules that the manager must enforce in order to keep his own family off the streets.
Z
Z
Here’s a story in the Prospect about a promising bill designed to reign in the shipping cartel: https://prospect.org/economy/inflation-fighting-bill-you-dont-know-about/
Z
Trinity
Inflation. StewartM may be right, but they are (and have been) gaming all systems for quite some time.
My example is not the cost of things, it’s the quality/quantity of things, which has been steadily in decline for many, many years. The insistence on the IoT means a chip is required in everything, with the ability to literally (not just guesstimate) determine when something stops working. They also either refuse to allow repairs, or insist that non-corporate repairs negates warranties.
For food, cracker sleeves are inches shorter than they were ten years ago. Since I make chili every year, and eat it with crackers, i’ve noticed this for over a decade now. My cottage cheese is now mostly whey. It didn’t use to be this way, but it sure changes the price/quality which is by volume or weight, take your pick. Unless you prefer the whey over the cheese, in which case the price of whey has definitely gone up.
My point is that even without inflation, the cost of almost everything has gone up because of the financial games they play with everything. Boxes that used to contain six now contain five, bags that contained 8 ounces now contain 7 ounces, etc. My store charges over $1 for a single apple, and it’s hard to find bagged apples for less per apple. And if they keep six in a pack, they just raise the price. They literally charge whatever they want, do whatever they want. Since I have to operate on a budget, yes. It’s noticeable.
js
The smaller package sizes are also noticeable if you cook from recipes. It makes following any recipe more than a few years old impossible. That’s been going on, rent and housing price increases have been going on for a long time and if anything rent increases are somewhat subdued now compared to how they have been many years, it’s been much worse. Housing prices aren’t but they’ve been going up like crazy for years. Gas bounces around but it’s reached these peaks before and that was years ago when wages were less. Healthcare prices have been increasing for years. I’m not saying there aren’t supply chain issues. But for the average person, why should we be concerned about inflation only now? Because the poors got a wage increase. Inflation was fine when it was just inflating asset prices, including shelter beyond people’s reach, but when it started inflating wages, it was the end of the world. It seems we are being played and quite content to go along with it.
Ché Pasa
The key notion is that those in charge are getting richer the more things deteriorate for the Lower Orders. Funny, that.
So their incentives are all for making our lives less secure and more miserable. Not too fast, mind you. Oh no, just one small ratchet notch at a time, hardly noticeable, barely perceptible. Give us time, just enough time, to get used to the New Reality, then notch another slight tightening.
Works, doesn’t it?
And note, it’s not everybody who experiences the same tightening at the same time. Oh no, it’s sector by sector, a little bit here, a little bit there, bit by bit, but not all at once — unless something bad-wrong happens, say like a hurricane, earthquake, tornado, nuclear meltdown, Brexit or what have you. Then, well, Jose Andres to the rescue, right?
Now I understand the Fed is going to raise interest rates next month to “curb inflation” ie: 1) force people back to shit jobs at shit wages; 2) stop the common people from buying things; 3) ensure abundance and comfort for the Overclass; 4) encourage the elimination of surplus eaters.
The testimonies that the current “inflation” panic is largely a media trope and mirage is true enough. Those of us on limited incomes have been facing and coping with real inflation for many years; we know all about it, and we know that official inflation statistics are fraudulent. Things we need and require to live reasonably decently (food, housing, medical care, transportation, utilities, etc.) have been increasing in consumer cost much faster than official inflation rates for a generation, while in many cases nonessentials and “luxury” items (depending on your point of view) like TeeVees and computers and such have fallen in price quite a bit. Wages have stagnated or gone down through most of this period, and only within the last few months have they started to increase slightly above the rate of living cost inflation.
As Ian says: PANIC TIME!
We, the Rabble, cannot be allowed to have nice things or be even partially liberated from the grindstone. The squeeze is on. Herding us back to our place in the scheme of things.
Our Overlords believe that the sudden injection of income support for the masses during the initial phases of the pandemic was a terrible mistake that has led to all sorts of unpleasantness, most especially the idea among the rabble that they/we don’t have to put up with shitty bosses and shitty jobs at shitty wages. They think we bought drugs and guns and ammo, went on crime sprees at Lamborghini dealerships and Nordstroms, and liberated ourselves from crushing debt with the money. How often I heard the whining complaints of the financiers that the rabble were paying down their debts with the relative pittances they received. HORRORS!!
And so it goes. Rebellion among the petit bourgeoisie may be the vanguard of something yet to come. Our Rulers are pondering how best to manage the multiplicity of crises. So far, they still have the whip hand, but for how much longer?
NL
If I may rephrase the famous statement: ” inflation always and everywhere is a monetary phenomenon that starts with the workers getting more money than usual”. To put it in another way, the investors believe that the workers have spare cash hanging around because of the massive cash influx owing to the pandemic and want to separate the said workers from the extra cash by increasing prices rather than providing additional products and services. Everything else are excuses and propaganda to hide this simple fact.
Kids, here’s a question for you — what do you think companies charge for a product? If you said “what it costs to make it + a fixed % profit” — you failed, go stand in the corner. No, no — companies make thing as cheaply as possible and charge as much as possible.
This bout of inflation will miraculously end, when your pockets are empty and the cash is gone…
Baryonic Being
StewartM: Where approximately do you live? I can’t find it now, but there was a state-by-state breakdown of inflation, and east/west coast states had the lowest inflation rates, while most states in between had much higher.
And one additional, highly anecdotal, point: Burger King now sells chicken nuggets in groups of 8 instead of 10. Seems minor, but that’s a big change for a major fast food chain.