A colleague keeps sending me articles about the dangers of inflation, including this op-ed today by Larry Summers. What's a good way to refute the argument Summers is laying out. I don't really know econ/finance stuff particularly well.
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Why does inflation only matter when money is spent on public programs, not when spent on tax cuts, military spending, or buying securities?
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You can prevent and reverse inflation by raising taxes. Why are people concerned about inflation never proposing this?
Aaaand TFA:
The consumer price index rose at a 7.5 percent annual rate in the first quarter, and inflation expectations jumped at the fastest rate since inflation indexed bonds were introduced a generation ago. Already, consumer prices have risen almost as much as the Fed predicted for the whole year.
Inflation was wildly under-target last year. If you view it as a two year period, literally nothing happened.
Thank you for this answer. What does TFA mean though?
And when you suggest raising taxes, I assume you mean on the mega wealthy?
when you suggest raising taxes, I assume you mean on the mega wealthy?
I'd prefer to raise taxes on the wealthy, but that is not what I mean.
The value of the dollar is (loosely, don't @ me economists) the total value of things you can purchase with dollars divided by the number of dollars in circulation. When the government prints money to do things, there are more dollars in circulation, so the value of each dollar goes down (inflation). When the government collects taxes, it removes dollars from circulation, so the value of each dollar goes up (deflation).
If someone is worried about inflation, increasing taxes is just as logical a solution as decreasing spending. (But they're not actually worried about inflation, so they'll never suggest this.)
Yep, that's the kicker. We're in a hard monetarist ideology that says the only way to deal with inflation is interest rate hikes, but whoever is crafting budgets has the ability to take money in and out of the system.
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Inflation is already rampant, but in asset prices. Mostly because of how people like Larry Summers structured the post-2008 and post-2020 bailouts.
In my opinion, it’s important to keep in mind that Summers is a bourgeois economist, and thus writes for the upper echelons of society; this is not written for you or me, although he occasionally mentions us. It’s for policy makers, to comfort business elites, and to manufacture consent of the more well-employed (the types to read WP) so that when the fed does shit, they won’t be caught off guard and can have a mild reaction to it happening for real; so they can rest assured that (bad-faith) experts have been “thinking hard” about it, etc.
Stuff like this
Higher minimum wages, strengthened unions, increased employee benefits and strengthened regulation are all desirable, but they, too, all push up business costs and prices.
“You fucking moron, don’t you know that when good things happen to you that’s actually bad?”
But in general, a lot of this first portion, the “evidence”, is basically “look, stuff is happening so fast, X is growing and Y is falling at unprecedented rates!”. IMO, coming out of the most extreme economic downturn since the Great Depression, yeah, there’s a lot of room for all this shit to grow. And none of it will even reach the path we were on before the pandemic; there’s gonna be permanent “scarring” to both macroeconomic measures GDP etc, as well as employment prospects for so many workers.
So whatever, a bunch of shit I find questionable—since we know living conditions are not rising for the majority of Americans, except that those fortunate enough to get unemployment payments have had something of a brief respite (a huge issue I have is also focusing on big aggregate numbers that lump together the poorest and wealthiest so that when the number gets bigger he can say “we’re all doing great, look, it’s right there in the data!”)
What is he advocating?
First, starting at the Fed, policymakers need to help contain inflation expectations and reduce the risk of a major contractionary shock by explicitly recognizing that overheating, and not excessive slack, is the predominant near-term risk for the economy. Tightening is likely to be necessary, and it is critical to set the stage for that delicate process. Meanwhile, the administration needs to continue to respect the independence of the Fed as it changes course. Clear statements that the United States desires a strong dollar will also be helpful in anchoring inflation expectations.
I don’t fucking know what this means, it’s not for us, remember. The best sense of it I can make is that he’s saying we need to tell “job creators” (the mortal enemies of the working class, who expropriate the wealth that we create) that we’re gonna be tough on poors. “Slack” means that the economy isn’t running at full speed; that we can do more employment and make more stuff and profits. But business dicks can rest assured this is not the case cause, that in fact it’s the poors that have it too good; they have it so good that being able to pay rent has actually overheated the economy.
Third, it is essential to make long-term public investments to increase productivity and enable more people to work. It would be a grave error to cut back excessively on public-investment ambitions out of inflation concerns. That is not because of the immediate jobs they create, but because of the long-term increases they generate in productive potential, sustainability and inclusivity. But where possible, infrastructure investments should be financed by reprogramming of Rescue Plan funds, such as those now being used by some states to finance tax cuts. Additionally, current spending financed by future taxes might further stimulate an already overheated economy. The opposite — revenue increases ahead of spending, or at least parallel to spending — can ensure more sustainable growth.
I find this kinda confusing. Seems like he’s saying the feds shouldn’t stop investing, but cut back on investing. Just absolutely dogbrained “let the private market sort this stuff out!”. Also appeals to austerity; “we can’t spend money unless we have the money first; our great grandchildren are gonna be saddled in debt” shit
But here’s the real point of the article IMO. It’s the middle of three suggestions so you see it, but it doesn’t catch your attention too much by being either first or last.
Second, policies toward workers should be aimed at the labor shortage that is our current reality. Unemployment benefits enabling workers to earn more by not working than working should surely be allowed to run out in September; in some parts of the country they should end sooner. Re-employment bonuses should be considered, and a major focus should be on promoting mobility and training workers for occupations where labor is short. Where “made-in-America” requirements exacerbate labor shortages and raise prices, they should be reconsidered.
This is the big ass-showing by Summers. From above, we know the poors have overheated the economy (leading to inflation) by spending the great gobs of money they’ve been given, and now we’ve got the real solution: it’s time to shut off the spigot.
A good first thing to ask yourself is if this is someone who is actually worth putting the effort into. If you're just trying to prove someone wrong who is already entrenched then you will just get a brief moment of hollow self satisfaction and then they will reply with some ludicrous lib shit until you end up frustrated. It is our job to educate but to think you can educate everyone yourself is arrogant, it's okay to just give up at a point, you don't have to concede but try to disengage at the point you may have put a spark of an idea on someone's head and before you push that idea so far they react against it.
Isn't Summers the one whose predictions are almost always hilariously wrong or am I thinking of someone else?
https://img.ifunny.co/images/5093b31562522e190b2ebd4afac8affb63a56280e4c017e120a491762ff94f10_1.jpg
A picture of mr. summers with Jeffrey Epstein and the phrase “unindicted co-conspirators”
I think inflation is actually a very real possibility. I Don't know why you would want to refute this argument.
Summers should shut all the way the fuck up forever because we haven't recovered from the last time he did this shit:
The initial debate was framed by a fifty-seven-page memo to the President-elect, dated December 15, 2008, written by Larry Summers, his incoming director of the National Economic Council. Marked “Sensitive and Confidential,” the document, which has never been made public, presents Obama with the scale of the crisis. “The economic outlook is grim and deteriorating rapidly,” it said. The U.S. economy had lost two million jobs that year; without a government response, it would lose four million more in the next year. Unemployment would rise above nine per cent unless a significant stimulus plan was passed. The estimates were getting worse by the day.
Summers informed Obama that the government was already spending well beyond its means. Yet in the coming months Obama would have to sign, in addition to a stimulus bill, several pieces of legislation left over from the Bush Administration: a hundred-billion-dollar funding bill for the wars in Afghanistan and Iraq; perhaps three hundred and fifty billion dollars more in funds from Bush’s TARP program, to prop up banks; and a four-hundred-and-ten-billion-dollar spending bill that was stuck in Congress. Obama would need resources to save G.M. and Chrysler, which were close to bankruptcy, and to address the collapsing housing market, which he was told would be hit with five million foreclosures during his first two years in office. Summers cautioned Obama, who had run as a fiscal conservative and attacked his Republican opponent for wanting to raise taxes, that he was about to preside over an explosion of government spending: “This could come as a considerable sticker shock to the American public and the American political system, potentially reducing your ability to pass your agenda and undermining economic confidence at a critical time.”
Obama was told that, regardless of his policies, the deficits would likely be blamed on him in the long run. The forecasts were frightening, and jeopardized his ambitious domestic agenda, which had been based on unrealistic assumptions made during the campaign. “Since January 2007 the medium-term budget deficit has deteriorated by about $250 billion annually,” the memo said. “If your campaign promises were enacted then, based on accurate scoring, the deficit would rise by another $100 billion annually. The consequence would be the largest run-up in the debt since World War II.”
There was an obvious tension between the warning about the extent of the financial crisis, which would require large-scale spending, and the warning about the looming federal budget deficits, which would require fiscal restraint. The tension reflected the competing concerns of two of Obama’s advisers. Christina Romer, the incoming chairman of the Council of Economic Advisers, drafted the stimulus material. A Berkeley economist, she was new to government. She believed that she had persuaded Summers to raise the stimulus recommendation above the initial estimate, six hundred billion dollars, to something closer to eight hundred billion dollars, but she was frustrated that she wasn’t allowed to present an even larger option. When she had done so in earlier meetings, the incoming chief of staff, Rahm Emanuel, asked her, “What are you smoking?” She was warned that her credibility as an adviser would be damaged if she pushed beyond the consensus recommendation.
Peter Orszag, the incoming budget director, was a relentless advocate of fiscal restraint. He was well known in Washington policy circles as a deficit hawk. Orszag insisted that there were mechanical limits to how much money the government could spend effectively in two years. In the Summers memo, he contributed sections about historic deficits and the need to scale back campaign promises. The Romer-Orszag divide was the start of a rift inside the Administration that continued for the next two years.
Since 2009, some economists have insisted that the stimulus was too small. White House defenders have responded that a larger stimulus would not have moved through Congress. But the Summers memo barely mentioned Congress, noting only that his recommendation of a stimulus above six hundred billion dollars was “an economic judgment that would need to be combined with political judgments about what is feasible.”
He offered the President four illustrative stimulus plans: $550 billion, $665 billion, $810 billion, and $890 billion. Obama was never offered the option of a stimulus package commensurate with the size of the hole in the economy––known by economists as the “output gap”––which was estimated at two trillion dollars during 2009 and 2010. Summers advised the President that a larger stimulus could actually make things worse. “An excessive recovery package could spook markets or the public and be counterproductive,” he wrote, and added that none of his recommendations “returns the unemployment rate to its normal, pre-recession level. To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.”
Paul Krugman, a Times columnist and a Nobel Prize-winning economist who persistently supported a larger stimulus, told me that Summers’s assertion about market fears was a “bang my head on the table” argument. “He’s invoking the invisible bond vigilantes, basically saying that investors would be scared and drive up interest rates. That’s a major economic misjudgment.”
The reason we haven't seen inflation (among other things) is because of wage stagnation. The idea that pure money supply drives inflation so complete bullshit. That said I think we will see inflation if wages start to rise. It sucks but it 100% fits into marxism.
ELI5 why wages drive inflation:
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Inflation isn't in a vaccumn, it is only felt when the price of things go up
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Higher wages mean things cost more
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Higher wages mean consumers have more money which means they are willing to spend more
FWIW marx himself disputed that increasing wages leads to inflation in Value, Price and Profit. "A general rise in the rate of wages would result in a fall of the general rate of profit, but not affect the prices of commodities."
They tell you it will, they have beautiful curves on graphs that say it will, but all increasing wages does is cut into the rate of profit.
That's true, but the rate of profit was much higher in Marx's time for commodities. There is less to cut from nowadays.
I don't know about that...
You could maybe argue that they'd raise prices on some specialty consumer goods, but the only way they can raise prices on other things is through fraud.
Definitely recommend reading that pamphlet, it's really short
They don't really have any choice but to raise prices on commodities. The rate of profit is low enough that even a modest increase in wages will either lead to price increase or negative profit rates.
But général increase in wages would be in the international economy, not in a national economy. In a national economy it is certainly possible that prices do not increase much.
The values of necessaries, and consequently the value of labour, might remain the same, but a change might occur in their money prices, consequent upon a previous change in the value of money. By the discovery of more fertile mines and so forth, two ounces of gold might, for example, cost no more labour to produce than one ounce did before. The value of gold would then be depreciated by one half, or fifty per cent. As the values of all other commodities would then be expressed in twice their former money prices, so also the same with the value of labour. Twelve hours of labour, formerly expressed in six shillings, would now be expressed in twelve shillings. If the working man's wages should remain three shillings, instead of rising to six shillings, the money price of his labour would only be equal to half the value of his labour, and his standard of life would fearfully deteriorate. This would also happen in a greater or lesser degree if his wages should rise, but not proportionately to the fall in the value of gold. In such a case nothing would have been changed, either in the productive powers of labour, or in supply and demand, or in values.
Nothing would have changed except the money names of those values. To say that in such a case the workman ought not to insist upon a proportionate rise of wages, is to say that he must be content to be paid with names, instead of with things. All past history proves that whenever such a depreciation of money occurs, the capitalists are on the alert to seize this opportunity for defrauding the workman. A very large school of political economists assert that, consequent upon the new discoveries of gold lands, the better working of silver mines, and the cheaper supply of quicksilver, the value of precious metals has again depreciated. This would explain the general and simultaneous attempts on the Continent at a rise of wages.
The value of the commodity will not change with a change in wages. The price may increase or decrease due to externalities (in Marx's case the price of gold, in our case oil and debt). We're in a situation where defrauding is talking place. The minimum wage is artificially deflated and an increase to $15 or even $20 would not effect cost of goods as that's the true value of the old wages (adjusting for inflation).
I think we agree here, then. Of course the labour value and use value doesn't change, only the price, hence inflation.
I think you should read the whole pamphlet. Price doesn't mean anything and fighting for higher wages when they've been supressed for so long is just fighting for the old value of your labor and not something that will cause a negative rate of profit.
So there's the thing. In value terms, there is paid labour, there is surplus value, and there is land labour.
If you increase the value term of wages, you will decrease surplus value. That means that the profit rate will fall.
Labour previously did not buy any more commodities as it does now. On average they stayed the same for decades, that is, in the US.
What did become more expensive are things such as housing prices, education, healthcare, and public services decreased.
Because of this increasing wages at least in the US of everyone across the board will reduce the profit rate, if it doesn't then it will cause inflation, ie, not increase at all in value terms.
The value term of labour in the US in commodities didn't decrease, it just stopped increasing while rent seeking increased and consumed more of that outside of the relationships of production.
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There is no refutation because Keynesianism is a dead end, the only ones who realize this are the upper class but only for self-interested reasons
