Yes. A rising cost of living hurts working-class households, and the main policy response is to raise interest rates and unemployment. None of this is good.

At this point, the answer can change by the day, but the story has to start with the pandemic. Suddenly, the virus disrupted everything that for decades had conspired to keep prices stable. The supremely complex global supply chains, which had enabled just-in-time delivery of cheaply produced goods, didn’t stand a chance at enduring a convulsion of this scale. On top of that stress, add the heightened demand for durable goods by consumers stuck at home who were using fewer services. Inevitably, this was going to lead to bottleneck upon bottleneck in some sectors and underutilized capacity — like empty hotels, bars, and restaurants — in others. That’s why, as of last fall, inflation in goods was about four times that in services, with vehicles alone accounting for much of this.

It seemed reasonable to think that these pressures would alleviate somewhat as spending patterns revert to their pre-pandemic norms, but that isn’t going as smoothly as initially hoped, and the latest COVID surge in China and the war in Ukraine haven’t helped. It’s possible, moreover, that these aren’t just hiccups but rather previews of what is to come, as climate change and geopolitical tensions further constrain supply and elevate the price of energy and other commodities.

Well, for starters, it’s worth reflecting on how extraordinary the economic policy response to the pandemic has been. The COVID relief bills prevented unimaginable human suffering, making a really bleak time at least a little bit more materially secure for the average worker. In 2020, the number of people living below the federal poverty line fell by roughly eight million. The fact that people got less poor during a monumental economic collapse is incredible, and we ought to be pointing to it as a precedent to build on. All that public expenditure paved the way for the really strong recovery over the past year, and while inflation is getting most of the attention, we should remember that wages also grew at their fastest rate in years — though not fast enough to keep pace with the cost of living.

This wage growth has contributed to inflation, both through greater demand — especially as it comes on top of constricted supply — and through higher costs that companies pass on. But the idea that workers’ bargaining power has raised “inflation expectations” and is about to set off a wage-price spiral seems unlikely.

Private sector union density is 6 percent, cost-of-living adjustments (COLAs) are uncommon, and production has been internationalized to the point that domestic wages don’t affect the price of goods as much as they once did. Also, profits rose by more than wages in 2021, so, if anything, the danger is a profit-price spiral.

It’d be great to see a real shift in the balance of class forces, but we aren’t quite there. Still, the fact that fears of a wage-price spiral abound after decades of stagnation and de-unionization should stand as a reminder that inflation will emerge as a political challenge anytime things start going well for workers. If the successes at Amazon and Starbucks continue, which will hopefully be the case, we’re likely to hear more and more talk about the specter of a wage-price spiral.

A word about the Federal Reserve’s monetary policy is also due. The $5 trillion in fiscal stimulus was made possible not by taxes on wealth but by central bank bond purchases and low interest rates. Lots of newly printed money sloshing around the financial system has fueled speculative manias in all manner of assets (including stocks, real estate, and cryptocurrency), and it would have been better if this had been accompanied by strict regulations and taxes. But that was unlikely to happen, so we have to ask what the alternative would have been. Going forward, we need to reform finance and tax the rich, but in the heat of the crisis, this was a contradiction worth living with.

It has been good to see so much attention paid to the role of profits. Whatever the underlying structural dynamics, inflation is ultimately a mechanism for transmitting competing claims on income and is therefore always an issue of distribution. Most of the time, economic commentary focuses exclusively on wages, so the corporate power narrative is welcome. In some areas, like shipping, concentrated power is an inflationary factor. And price gouging by meat processors, pharmaceutical companies, and the like hits working-class household budgets hard, even if its effect on overall inflation is modest.

However, while a revitalization of antitrust enforcement may help with some of this, it isn’t terribly efficient, and it has some real drawbacks. For one, more competition doesn’t always have positive effects on employment, as garment workers in the mid-twentieth century and nail salon workers today can attest. Second, a bigger problem than pricing power is corporate control over investment. Given the supply-side nature of inflation today — which, again, could worsen with climate change and trade wars — it’s clear that the real solution is to expand our productive capacity. And that requires a greater state role in directing investment. If nothing else, Build Back Better put this on the political agenda for the first time in a long while.

A few months ago, I would have laughed off the suggestion that stagflation was on the horizon. Now, I’m not so sure. The mainstream narrative of what happened in the 1970s derives from Milton Friedman’s argument that delusional Keynesians thought they could keep unemployment below its “natural rate,” an effort that raised inflation expectations and triggered the decade-long wage-price spiral. Only Federal Reserve chair Paul Volcker’s ruthless commitment to raising unemployment through high interest rates got the situation under control. That story largely omits what many economists then and now have seen as the roots of the crisis: the supply shocks, namely in oil and food, and a secular productivity decline that together contributed to driving prices up and slowing growth down.

If the supply shocks that began during the pandemic continue, and if they are worsened by climate change (and the transition away from fossil fuels) and trade restructuring, we could be in for a bumpy ride. Structurally higher prices might dampen the potential for growth, and the standard policy response to inflation — austerity of one form or another — would have adverse effects on employment without doing much to bring prices down. These are the ingredients of stagflation.

There’s really no winning here — especially because interest rates don’t address the supply problems and may just make them harder to resolve — but it probably could have been worse. The Federal Open Market Committee’s March 2022 announcement that they planned to begin raising interest rates and shrinking the balance sheet represents a significant shift that could threaten employment. As recently as September 2021, they had projected no interest rate hikes this year and only modest increases in 2023. Now they anticipate regular quarter-point adjustments for the foreseeable future, with some of the more hawkish central bankers calling for more. That’s not nothing.

Still, their plan to go from close to zero to around 2.5 percent is a long way from the response in the 1970s and early 1980s, when Volcker sent the federal funds rate to almost 20 percent (and interest rates were pretty high before Volcker, too). There was a different order of magnitude back then because there was a different balance of class forces: Volcker intended for his monetary policy to be a weapon in the war against a still-influential labor movement, which he saw as the principal inflationary factor (he celebrated Ronald Reagan’s attack on PATCO for the same reason).

Current Fed chair Jerome Powell may be worried about labor shortages, but he doesn’t have to contend with unions capable of wielding macroeconomic power. And the asset managers at the commanding heights of global capitalism, like BlackRock, don’t mind a bit of inflation, which probably counts for something. So, at least as of this spring, it doesn’t look like a Powell Shock is immediately forthcoming.

What should be done and what we have the power to do are two separate questions, but we should start by understanding inflation in class terms: it can only be resolved, or prevented in the first place, through an active state role in managing income shares. For decades, this has been done through monetary and fiscal measures aimed at creating employment insecurity and limiting wage growth. It goes without saying that this approach has had tragic consequences.

An alternative could be price controls — which were never far from the mainstream through the mid-twentieth century — or taxes on excess profits. But going after corporate pricing and profits requires confronting the issue of investment. Orthodox economists have a point when they say that suppression of prices prevents firms from increasing supply and results in shortages. But even without getting to a showdown over profits, the supply-side dimension of the current inflation has also underscored the importance of investment. So we may be best off thinking about inflation the same way we think about other crises of our time, like climate change, secular stagnation, and economic inequality: dealing with it in a just way requires democratic planning, public investment, and downward redistribution.