These Aren’t the 1970s

We should put this current bout of inflation into perspective. The 5.4 percent year-on-year rise most recently recorded might be the biggest shift in over a decade, but it’s nowhere near the levels under Jimmy Carter — the president the Right is trying hard right now to turn Biden into, and who saw yearly inflation hit a peak of 14.8 percent.

It doesn’t even compare to the Right’s favorite president, neoliberal Ronald Reagan, who after his first year in office faced an annual inflation rate of 8.4 percent. That doesn’t mean inflation can be completely ignored, but it gives a sense of how over-the-top today’s inflation talk is, given how relatively unremarkable this uptick is in the scope of US history.

Besides this, many of this crowd’s arguments don’t make sense. It’s not clear where the GOP’s $5.5 trillion figure has been conjured out of — very likely from the Committee for a Responsible Federal Budget, the neoliberal body that exists to cut Social Security and Medicare — but given the bills that were meant to comprise that overinflated number still haven’t been passed (and that no taxes have actually been raised), this talking point is entirely made-up. Meanwhile, compare the total silence from these quarters on the more than $8 trillion set to be pumped into the economy over the same period through military spending.

As for Reni’s claim that climate policies are to blame, Biden has so far killed only one pipeline — Keystone XL, which had already been rejected by Obama in 2015 — while letting two others proceed and approving new fossil fuel drilling at roughly the same suicidal rate as Trump. There’s very little about Biden’s agenda that’s pro-climate. If Reni’s point is that Biden simply talking about shifting US energy production from fossil fuels is what did it, then why did it take until March, four months after Biden’s election, for this inflationary upswing to really get going?

The comparisons to the Carter years also fall flat given that economic stagnation, one half of the “stagflation” that defined that era, isn’t going on. Over the 1973–75 recession, which preceded Carter but whose effects remain associated with him, real GDP shrunk by 3.5 percent. By contrast, it grew at an annual rate of 6.7 percent over the second quarter of this year, well below expectations, but objectively good compared to nearly any other year. Yet listening to the neoliberal doomsdayers, this should’ve been exactly the period when the sky should’ve started falling.

Instead, pent-up demand already unleashed by what seemed to be a subsiding pandemic and rising vaccination rates was further juiced by the nearly $2 trillion relief bill’s stimulus, the resulting consumer spending driving economic recovery. Unfortunately, conditions created by the pandemic meant this ravenous US demand that helped rebound the national and global economies also helped feed inflation.

Broken Links

Few would argue the nearly $2 trillion relief bill had no effect on inflation. A recent widely (and misleadingly) cited economic letter from the Federal Reserve Bank of San Francisco, for instance, estimates the bill temporarily add 0.3 percentage points to one measure of inflation over 2021 and a little more than 0.2 points over 2022, which it calls a “minor impact.”

But looking closer, it’s clear the factors that have led firms to jack up prices were largely set off by the pandemic, most notably supply chain disruptions. The sudden, prolonged, and often periodic lockdowns implemented by governments everywhere to deal with the coronavirus, and their knock-on economic effects, led to slowdowns or even pauses in production, as well as factory closures and shutdowns at shipping ports.

That’s translated into shortages and bottlenecks for a wide variety of products and materials used to make an even wider variety of consumer goods. It turns out redesigning our supply chains at the close of last century by simply assuming we’ll always be able to get whatever we need, as needed, and just when we need it, turned them into a row of dominos that could be derailed as soon as one toppled over.

Businesses ranging from manufacturers and restaurants to grocery stores and retailers have complained about the inability to or bigger expense of securing the ingredients and materials they use to make their products, higher costs they’ve passed on to us, the consumers, by raising their prices. All of this was made worse by erratic consumer demand over the pandemic, shifting from services to goods early on — and so putting even more pressure on these supply chains — and generally lurching back and forth with the ups and downs of the pandemic. In some cases, companies are responding to these issues by ordering too early or over-ordering, leading to even more disruptions.

Labor shortages have played a role here, meaning fewer workers to manufacture, transport, and load and unload goods. Inflation alarmists blame this on the relief bill — that its generous unemployment insurance gave workers more motivation to stay home and collect government checks than to go out and look for work. But this narrative’s been demolished by what happened in the real world when this expanded insurance was either cut early by Republican governors or allowed to expire in September: the states where it disappeared consistently saw no meaningful uptick in job growth, and that month proved the worst for job growth since Biden took office, suggesting that factors like a lack of childcare and concern over the pandemic have been far bigger obstacles to employment rebounding and, so, drove these shortages. Let’s also not forget nearly seven hundred fifty thousand people have died.

A host of other factors have added to these price pressures. All the factors listed above led to a global slowdown in fossil fuel production and, now, a surge in energy prices as demand suddenly rebounded, another cost passed on to the consumer through prices. With trucking shortages and seaports backed up, businesses have turned to more expensive shipping options. Meanwhile, shortages of wooden pallets and other packaging products have similarly raised costs for grocery stores and other businesses.

All of this has been compounded by an intensifying climate crisis, an ill omen for what we can expect in the coming decades. Grains are at the center of a lot of higher food prices, having been disrupted by widespread drought, along with a number of other key crops. In Louisiana, Hurricane Ida damaged key supply chain infrastructure, as well as hundreds of thousands of acres of crops like timber and sugar cane, raising the cost of sweeteners.

This has made it a somewhat inconvenient time for the rebound in US consumer demand. On the one hand, it’s what made the economic recovery possible. But as Gregory Daco, chief US economist at Oxford Economics argues, by coinciding with these unusual supply shocks, it’s led to the kind of inflation that, by themselves, neither of these factors likely would’ve produced.

It might not be ideal, but it’s better than the alternative: cutting or entirely foregoing a stimulus to avoid inflation. And though that might be what neoliberal voices are calling for now, they would’ve been the first ones braying over the sight of employers laying off workers en masse or shuttering in the face of weak consumer demand.

All this also helps explain why similar upticks in inflation, albeit not as dramatic, are being felt in countries all around the world right now, including in countries like New Zealand that have embarked on a program of austerity rather than stimulus. The office of the US president is unusually powerful, but even it can only do so much against pandemic-driven supply issues that are causing inflation in many other countries.

Where Biden Failed

This doesn’t let Biden off the hook. It’s just that his actual failure is not that he ignored the advice of the neoliberal axis, but that he listened to them, as when he gave up on the $15 minimum wage, allowed GOP governors to end extended unemployment insurance early, and is now paring back the size and scope of his infrastructure bills.

We’ve already seen that cancellation of unemployment insurance didn’t lead to a mass reentry into the workforce. That means that millions of Americans remain outside paid employment, but with a sharply reduced financial backstop to deal with these rising costs.

A recent Deloitte survey found that the number of Christmas shoppers planning to spend nothing for the coming holidays has jumped nearly seven points since last year to 11.5 percent, two-thirds of whom make less than $50,000 a year. It suggests that despite whatever savings they’ve accrued over the course of the pandemic, many working Americans’ finances are still in rough shape. Fulfilling his promise of raising the minimum wage to $15 an hour might’ve rectified this, but unfortunately, Biden didn’t even bother fighting for it.

This might all be music to the ears of the anti-inflation crowd (though probably not to the businesses hoping for strong holiday sales after a hard year). But consider that, according to several studies, the majority of Americans spent the stimulus checks they’ve gotten over the course of the pandemic on paying off various outstanding bills, while total household debt climbed to a record $14.96 trillion in this year’s second quarter, the largest nominal increase in fourteen years.

Together with Americans’ reduced holiday shopping ambitions, it suggests any more government support wouldn’t pave the way for runaway inflation so much as help Americans who are drowning in bills and expenses — support that’s been delayed and left uncertain thanks to months of fruitless negotiations when Biden, unlike with his first relief bill, split his infrastructure package into two bills.

In the long term, the cuts to the reconciliation bill that inflation hawks have engineered to shrink its price tag and supposedly stop the economy from “overheating” will, ironically, leave Americans even more at the mercy of price increases. With the long-standing promise to let Medicare negotiate with drug makers for lower prices dropped from the bill, Americans will continue to pay uniquely extortionate prices for life-saving drugs.

The gutting of its paltry Medicare expansion proposals leaves many at the mercy of the United States’ ever-rising health care costs. And with free college gone, and Biden dragging his feet on forgiving student debt, it means young Americans will continue entering adulthood for the foreseeable future while servicing a massive debt burden.

Every dollar a household has to spend on ever more costly drugs, bankruptcy-inducing health care, and student loan repayments is one less dollar they have to cover skyrocketing costs for groceries, heating bills, rents, and more. Meanwhile, the gutting of virtually any realistic attempt to prevent climate catastrophe from the bill means that extreme weather events will only wreak greater havoc on supply chains in the years to come, while leaving Americans reliant on the same volatile energy supplies that are helping drive the inflation we’re seeing right now.

Beware the Neoliberal Narrative

The Tucker Carlsons and Larry Summers of the world would love you to believe there’s no option in this crisis but to let Americans simply fend for themselves. It’s part and parcel of the plutocratic agenda they and others have been pushing for decades: less government, lower taxes for the rich, and a desperate, demoralized workforce less likely to rebel against their bosses.

The current inflation campaign is the same strategy this neoliberal alliance uses every time someone in power suggests using government power to alleviate the country’s economic woes, as in 2008, when they successfully hobbled the economy by suppressing government stimulus for years, even as their inflation predictions never happened. Now, they’ve been lucky that the unique conditions of the pandemic have given their warnings, for once, the faint ring of truth.

The tragedy is that this campaign has worked, striking fear, clearly, into Biden and his team, but also persuading many Americans that it’s government action that’s driving their struggles with rising costs, when it’s not enough government action which is at fault. If the neoliberals’ inflation attacks stick, Biden and the Democrats have no one but themselves to blame. But that doesn’t mean we should let these forces mislead Americans and tie the hands of future leaders who really will fight for the working class.