The Warped Politics of Inflation

The recurring mantra from Fox, the Republican Party and the mainstream media is that Joe Biden, government spending, and the rising incomes of ordinary people are responsible for our increasing inflation rate. That is incorrect and this error is preventing an effective national response to inflation.

What is not talked about are the ever growing profits of banks, financial institutions, and corporations and the wildly increasing incomes and shrinking tax responsibilities of the wealthy.

This misconception about inflation leads to policy errors similar to those made in response to the 2008 housing mortgage crisis and economic recession. Somehow the media and the politicians understood that crisis to be the result of unwise decisions by consumers and overly generous government housing policies. In other words, ordinary Americans were the problem. As a result of this thinking, the government responded to the crisis by providing banks and other financial institutions with huge amounts of stimulus money while doing very little for everyday homeowners who were losing their savings and their homes.

Today's economic problem is a slightly high inflation rate (6-8% or so) driven, everyone seems to agree, by the rising price of oil, selected commodities, and essential services such as health care and education. Conservatives, the media, and even many so-called liberals seem to agree that prices are rising because the government has allowed ordinary people to have too much money.

Doesn't hearing these explanations make you want to ask what country these people live in? Do you and your neighbors have too much money? Working people do not control prices. Corporations control prices and they increase them to protect their profits.

Still, our politicians and other "talking heads" in the news are focusing on everything but corporate profits. Their focus is on how rising oil prices are increasing production costs (cost-push inflation, really "profit push"); how supply chain problems are pushing prices up by creating a situation where too much money is chasing too few goods (demand-pull inflation, really "profit pull"); and, how things like the national debt, low interest rates, human psychology, the rising cost of imports, and the declining worth of the dollar are causing higher inflation. In short, Joe Biden is to blame: he gave too much money, directly and indirectly, to ordinary people, which overlooks the fact that inflation and government spending are at best only weakly correlated.

What is not talked about are the ever-growing profits of banks, financial institutions, and corporations and the wildly increasing incomes and shrinking tax responsibilities of the wealthy. It is never recognized that neither Biden nor us ordinary folks control the cost of oil, health care, education, or the operation of international and national supply chains.

Finally, the argument is made that the only thing to be done is for government and the federal reserve to tighten the money supply by increasing interest rates, increasing taxes on the middle and working classes, and decreasing government spending (except, of course, for defense and the military spending). These austerity policies, it is said, will reduce inflation, protect returns on investment, and maintain the value of our currency. These are all issues of concern to banks and corporations; they matter much less to the middle and working classes who do not derive their incomes from loans and investments.

Could it be that the overblown and disturbing talk about inflation from the media and the political Right reflects the corporate fear of low unemployment, rising wages, low interest rates, and subsequent falls in profits and "rents" (meaning payments received from then ownership of debts and material resources). In the new American economy dominated by finance, natural resources, and exports, corporations do well when interest rates are high and wages are low. When unemployment is low and wages go up, corporate profits are threatened. So they raise the alarm about so-called "hyperinflation," hoping to convince the Fed to increase interest rates, decrease spending and slow the economy in order to raise unemployment, decrease wages, and protect their rents and profits.

These are the hidden politics of inflation.

So, what would a government truly interested in ordinary folks do? It would adopt economic policies that allow a healthy rate of inflation (around 2% or so) but avoid hyperinflation. Government could regulate the markets and control the prices of the main drivers of inflation, such as health care, education, housing, and energy. It could use the power of Medicare and Medicaid to control the cost of health care. It could use federal agencies to insure that basic needs and life chances are available at an affordable price. It could promote moderate and low-income housing. It could subsidize new environmentally-friendly forms of energy and demote fossil fuels. It could control the money supply by taxing wealth and higher incomes while increasing wage minimums. It could respond to increasing demand by spending money in ways that increases the production of the things we need. It could use price controls to stop obvious profiteering, as was done during World War Two, the Korean War, and even during the Nixon presidency. It could focus on how profits fuel inflation, seeing wage increases as an indicator of the improving quality of life of ordinary working people.

Inflation is a result of corporate decisions to protect profits by raising prices.

It's time to change the politics of inflation by no longer blaming inflation on ordinary people, their wages, and their needs.