I am no big city economist, but it’s really annoying how deeply inflated everything is. We see regular inflation at the market, the mall (do people even go to those anymore?), and sadly in our rents. We even shrink-flation which I heard on NPR about how a beverage for example is smaller but higher price. It a really fuckin’ lame.
Whenever I say “ :improve-society: man I wish didn’t have to pay so much for XYZ” I often hear the classics like “supply and demand” , or “global supply chain”, or “you be happy you can afford XYZ” which got me thinking how would leftists solve this.
Off the top of my head I would imagine things like CEOs would have some pay cap, stopping C-levels from siphoning their profits up, stronger labor unions, and some other stuff but I really don’t know. Professor Wolff always talks about worker co-ops and I would imagine workers owning stuff is better (which it is of course) but how ideally would it look? :wolff-shining:
What do leftist thinkers say would curb inflation? How would even lightweight leftist economic policies help keep prices for stuff reasonable? I just curious as I would like to think about how leftist theory would address this real problem we all experience.
What have smarter leftist people than I said would fight inflation.
Very, very interesting, thank you! I take it the Khrushchev reforms that ended the dual circuit monetary system were basically what enabled the growth of the secondary economy? I feel like I've read something to that effect before but it didn't really click until I read your explanation.
I should probably write an article about this
please do 🙏🏻🙏🏻🙏🏻
Could you point me towards some easy to understand reading about this?
In the good old days of the Soviet Union the price of a bicycle was stamped directly into the frame of the bike. There wasn't any concern about the price changing because the labor inputs that went into it were all well-known.
If you don't have money, you can't have monetary inflation. :think-about-it:
Assuming a capitalist or market socialist economy:
Depends on the cause. The current high inflation in consumer goods is pure opportunism, and can be fought with price controls. Inflation caused by an increased money supply can be fought with taxes (and isn't actually that big of a deal if wages are going up). Inflation caused by supply/demand is actually hard and can't be fixed in the short term; you're stuck with investing in the industries that create those goods (or substitutes for them) and providing the impacted people direct economic aid until industry can catch up.
It depends on the source of inflation. In this case there a two big ones, though interrelated. There are still supply disruptions because of the pandemics, both because of lockdowns as well as dead workers, and exacerbating that is massive price gouging by suppliers who are using the "natural" inflation to get one over on workers.
Reducing ceo pay won't really fix either problem. Even if they are paid less you aren't magicing new workers or factories in existence and cutting their pay wouldn't stop the price gouging. In the a similar way boosting workers wages wouldn't solve the inflation because you have a supply problem. All giving workers more money would do is drive prices up as people fought over the same insufficient number if goods. The only thing to really do is improve production and distribution. Why capitalists ARENT doing this I don't know, I suppose they don't see profit in increasing the availability of goods for consumption, or the rop is too low if there is profit to be had.
The solution would be to take the decisions out of the hands of capitalists and democratically plan for what we need and then produce it regardless of profitability. At the end if the day inflation is the financial manifestation of the struggle for control of the economy between workers and capitalists and between different capitals.
I'll assume you are talking about a capitalist country like China.
First an explanation of what is "inflation". Michael Roberts makes writes excelent posts on the subject.
Michael Roberts:The inflation debate I recommend reading his blog regularly but specificaly also this entire post,I'll quote the most relevant bits
On capitalist inflation and the root causes
Current inflation is not the product of ‘excessive demand’ (Keynesian) or ‘excessive monetary injections’ (monetarist). It is the result of a ‘supply shock’ – a dearth of production and supply chain breakdown, induced by the COVID pandemic and then by the Russia-Ukraine conflict.
Central banks have little control over the ‘real economy’ in capitalist economies and that includes any inflation of prices in goods or services. For the 30 years of general price disinflation (where price rises slow or even deflate), central banks struggled to meet their usual 2% annual inflation target with their usual weapons of interest rates and monetary injections. And it will be the same story in trying this time to reduce inflation rates. As I have argued before, all the central banks were caught napping as inflation rates soared. And why was this? In general, because the capitalist mode of production does not move in a steady, harmonious and planned way but instead in a jerky, uneven and anarchic manner, of booms and slumps.
I would argue that this supply-side ‘shock’ is really a continuation of the slowdown in industrial output, international trade, business investment and real GDP growth that had already happened in 2019 before the pandemic broke. That was happening because the profitability of capitalist investment in the major economies had dropped to near historic lows, and as readers of this blog know, it is profitability that ultimately drives investment and growth in capitalist economies. If rising inflation is being driven by a weak supply-side rather than an excessively strong demand side, monetary policy won’t work.
US inflation is much higher than wages which are only growing at between 3-4%, that means real wages are going down for most Americans. Financial assets are rising even faster. Housing prices are up by roughly 20% on an annualized basis. Just before the pandemic, in 2019, American non-financial corporations made about a trillion dollars a year in profit, give or take. This amount had remained constant since 2012. But in 2021, these same firms made about $1.73 trillion a year. That means that for every American man, woman and child in the US, corporate America used to make about $3,081, but today makes about $5,207. That’s an increase of $2,126 per person. It means that increased profits from corporate America comprise 44% of the inflationary increase in costs. Corporate profits alone are contributing to a 3% inflation rate on all goods and services in America.
Then there is the ‘psychological’ explanation of inflation. Inflation gets ‘out of control’ when ‘expectations’ of rising prices by consumers takes hold and inflation becomes self-fulfilling. But this theory removes any objective analysis of price formation. Why should ‘expectations’ rise or fall in the first place? And as I mentioned before, the evidence supporting the role of ‘expectations’ is weak.
All these mainstream theories deny that it is the failure of capitalist production to supply enough that is causing accelerating and high inflation. And yet, evidence for the ‘supply shock‘ story remains convincing. Take used car prices. They rocketed over the last year and were a major contributor to US and UK inflation rises. Used car prices rose because new car production and delivery was stymied by COVID and the loss of key components. Global auto production and sales slumped. But production is now recovering and used car prices have dropped back. Indeed, prices of home electronics are now falling.
On his Marxist theory of inflation
A Marxist theory of inflation looks first to what is happening to supply and, in particular, whether there is sufficient value creation (exploitation of labour) to stimulate investment and production. Guglielmo Carchedi and I have been working on a Marxist inflation model, which we hope to publish soon. But the key points are that the rate of price inflation first depends on the growth rate of value creation. Employing human labour creates new value and using technology reduces the labour time involved in the production of goods and services. So more output can be produced in less labour time. Therefore prices over time will tend to fall, other things being equal. Capitalist production is based on a rise in investment in fixed assets and raw materials relative to investment in human labour, and this rising organic composition of capital, as Marx called it, will lead to a fall in general profitability and an eventual slowdown in production itself. This contradiction also means price deflation is the tendency in capitalist production, other things being equal.
But other things are not always equal. There is the role of money in inflation. When money was a (universal) physical commodity like gold, the value of commodities depended partly on the value of gold production. In modern ‘fiat’ economies, where money is a unit of account (without value) created by governments and central banks, money becomes a counteracting factor to the tendency for falling prices in value creating production. The combination of new value production and money supply creation will ultimately affect the inflation rate in the prices of commodities.
In our initial research, we showed that when money growth was moderate, but value creation was strong, inflation rates were high and rising (1963-81); but when value creation weakened, money creation avoided deflation but was not enough to stop price inflation from subsiding (1981-2019). This tells you that if the major economies slow down sharply or even enter a slump by the end of this year, inflation too will eventually subside – to be replaced by rising unemployment and falling real wages.
His conclusion:
There is an alternative to monetary or wage restraint, these policy proposals of the mainstream, acting in the interests of bankers and corporations to preserve profitability. It is to boost investment and production through public investment. That would solve the supply shock. But sufficient public investment to do that would require significant control of the major sectors of the economy, particularly energy and agriculture; and coordinated action globally. That is currently a pipedream. Instead, ‘Western’ governments are looking to cut back investment in productive sectors and boost military spending to fight the war against Russia (and China next).
So with that understanding we know that the "bad" inflation is mostly a consequence of neoliberal financial capitalism i.e the banking system, the stock market, the asset/credit pipelines created for corporations/%1 capitalists and investors but also even more importantly the supply side shocks due to A)capitalism is shit at producing things consistently B)COVID and Ukraine war C)the good ol Marx's tendency of the rate of profit to fall means less investment in productivity and more money into fictional ways to boost revenue i.e financial capitalism.
So how does a country like China(though not always specifically China here) deals with this? I wont list everything because it would be A)too long B) require a bit more sources but this maybe 50-75% of it.
1- A large part of credit creation is destine towards things that will create a net benefit to the economy, essentially infrastructure but also things that give "non-financial" returns in the long run that helps the economy grow regardless e.g schools, hospitals.
2-The second part was and still is credit for individuals in areas that fuel the these expanding areas. It is no wonder they created a housing bubble because there is double dipping between government infrastructure and new housing that will exist in new/renovated areas with that infrastructure. Even though this housing "bubble" was not a good thing on its own, in the grand context of the larger economy it was a net positive.
3- Following #2 sometimes you will have problems with debt growing out of control threatining both businesses and consumers. When that happens the government is ready to take upon that burden of debt. This means in practice you wont see the development of a feedback loop of zombie corporations like in the west.
A "zombie" corporation is a corporation that is not profitable and only makes enough money to service the debt. When you take new debt to help pay for old debt you are expanding the money supply(see M2 money supply and inflation) and that naturally leads to inflation.
4- Some leftist/leftist adjacent economists have proposed MMT as a solution. This isn't "Marxist" but it does tackle the inflation problem in a limited similar way to #2 and #3 above. A country must be powerful enough to print its own money with no regards to actual government debts because ultimately the government can wipe clean that debt or otherwise is impossible to default since, well infinite money duh!
This means you can keep spending on things that are actually tied to real world economic growth i.e infrastructure, research, government investment in bleeding edge technology applications for military/civilian applications etc.
In this case inflation is not a problem because it would be directly tied to real economic growth, not just indicators but actual real things the government builds.
Destroy as much debt (actual debt like medical debt and student loans not national debt) as possible and price controls
Just tax the rich :shrug-outta-hecks: take all that cash out of the money supply
market socialism would still have inflation.
labor vouchers can have issues with arbitrage and hoarding but i dont' remember if those trials lasted long enough to have inflation
China's inflation rate in 2022 was 2.1% so they're clearly doing something right :xigma-male:
Inflation is baked into the capitalist system as a way to steal money from the poor. The only way out of it without harming workers is a socialist policy: state investment into critical resources. Building government housing, building factories, communally owned farms. Investment by the state and keeping it in workers hands.
