Canadian Elites Are Engineering a Recession to Discipline Workers / by David Moscrop

Orthodox responses to recession favor “stabilizing” the economy through punishing workers and privileging capital. (Jens Büttner / Picture Alliance via Getty Images)

Economic orthodoxy blames inflation on everyone except corporations and their windfall profits. It’s time to think about responding to inflation and recessions with policies that make corporations pay, not average workers.

In some quarters, it is accepted as an article of faith that a recession is on the way — and that such an eventuality is a necessary corrective to economic imbalance. As inflation persists and central banks jack up interest rates, orthodox logic suggests short-term pain for long-term gain is the only way forward. Naturally, the pain isn’t to be spread around equitably or equally. It never is. We aren’t all in this together. We never are.

Economists and other observers warn the recession could become a global phenomenon. The World Bank warns that recession might be accompanied by a further economic shock. Stagflation — sluggish economic growth alongside soaring inflation — could follow the downturn. Canada is not immune to such risks and people know it. One survey suggests more than 80 percent of people worry a recession is coming, and many have started to behave accordingly.

Debates about whether a recession and stagflation are imminent occupy plenty of column inches and television hours. Just as important, however, is the question of who will suffer the most should the worst come about — and whether it is preordained to happen. Let’s start with who will bear the burden of recession. As Jenna Moon reports in the Toronto Star, Canadians who are carrying hefty consumer debt will be hit hard. That’s a lot of us. As Moon notes, non-mortgage consumer debt in Canada is roughly $591 billion — $1.81 for every dollar of income — with total debt resting at over $2.3 trillion.

The economic fundaments in Canada don’t look good. Debt is rising. Interest rates are increasing. High inflation is ongoing. Purchasing power is falling. More people are carrying mortgages they can’t afford. That’s a wicked brew that few can afford swallow — which is to say, it’s a prelude to bankruptcy, foreclosures, and unemployment.

Is a recession inevitable? Is it necessary?

In July, columnist Linda McQuaig called interest-rate hikes “class war.” Too many people in Canada have bought into the myth that class cleavages don’t exist in the peaceful, well-ordered north. Too many people have bought into the delusion that technocratic experts in the capital and financial centers of the country know what’s best and have the interests of Main Street at heart. That’s why so few are inclined to use the term “class,” let alone “class war.”

As McQuaig argues, unemployment stemming from an engineered recession is a tactic and not an inevitability. “High unemployment disciplines workers,” she writes. “A large pool of idle workers makes other workers insecure and reduces their leverage to demand higher wages. This tames inflation, even as it diminishes the overall bargaining power of labor, quietly advancing a class war.”

Economist Gustavo Indart makes a similar argument but highlights the gap between monetary policy designed to keep workers in their place and a lack of policy action to address corporate depredation. “The underlying intention is to increase unemployment — that is, to cause an economic recession — to prevent workers from demanding a wage hike similar to the price-increase that already took place,” writes Indart.

In other words, the intention is to avoid a wage-price spiral . . . at a cost to workers in the form of higher unemployment and lower real wages. And with almost absolute certainty, the size of [the recent] policy rate hike will achieve this goal, and real wages will remain low while corporations’ profit margins will remain high.

In the United States, critics of the Federal Reserve’s inflation strategy of aggressive rate hikes make the same point. University of Texas economist James Galbraith echoes McQuaig. He opposes interest-rate hikes as a means to restrain price increases, noting — and drawing on ideas offered by Democratic congressman Jamaal Bowman — that governments have policy tools at their disposal. Those tools include “steps to prevent price gouging and unjust enrichment.” These ideas barely register within the realm of consideration, let alone likelihood, in Canada. But they should.

Underlying critiques raised by McQuaig, Indart, Bowman, and Galbraith is the point that inflation is being driven by producers and what Indart calls the “pervasive exploitation of their market power.” The leverage producers and the wealthy class who backs them enjoy isn’t new. Indeed, it’s as old as the free market itself. What’s changed is that we are living through a series of overlapping crises — including the pandemic and supply-chain shocks caused by Russia’s invasion of Ukraine — that have caused the simmering exploitation of workers to boil over.

Odds are that orthodoxy will win the day. Central banks will get the recession they believe they need, producers will get the kneecapping of workers they want, right-wing Margaret Thatcher cosplayers will get a chance to preach — and introduce — austerity, and the gap between the wealthy and the poor will grow.

Eventually, things will stabilize, assuming some other catastrophe (for instance, of the nuclear variety) doesn’t render the classic cycle moot. But by “stabilizing” the economy through punishing workers and privileging capital, we’ll sink further into the mire. Not only will this hurt the vulnerable among us — a much greater cohort than one might think — it will also swell the ranks of right-wing populists. The prescriptions peddled by the likes of Pierre Poilievre are useless, but his rhetoric is tailor-made for moments like this one.

If, by some miracle, politicians in Canada and elsewhere decide to use public policy to break the cycle of recession orthodoxy, the worst of what may be coming might be moderated — or even largely avoided. But that won’t happen unless we collectively demand concessions from power, including the rejection of the same old ideas that continue to reproduce the same miserable outcomes. Instead, we must defeat the doctrinaire hydra as Hercules did the mythological one: by cauterizing the source of our despair. In our case, we must cauterize wounds made by elite economic orthodoxy with accurate analyses and new policy approaches.

David Moscrop is a writer and political commentator. He hosts the podcast Open to Debate and is the author of Too Dumb For Democracy? Why We Make Bad Political Decisions and How We Can Make Better Ones.

Jacobin, October 8, 2022,

Purchasing power of workers’ wages take biggest tumble in 40 years / by Masao Suzuki

Image credit: People’s World

Originally published in FightBack! News, July 15, 2022

San José, CA – Real earnings, or workers’ wages after adjusting for inflation, had their biggest drop in 40 years last month, as prices continued to rise faster than paychecks. Real average weekly earnings, which best reflect workers’ paychecks after adjusting for changes in wages, prices and hours worked, fell 1% in June of 2022 according to the U.S. Bureau of Labor Statistics. Over the last year, real average weekly earnings fell 3.9% as inflation outpaced pay raises and average weekly hours fell by almost an hour.

Prices paid by production and non-supervisory workers (the CPI-W) rose 9.7% as compared to June 2021, a 40-year high. This is even higher than the 9.1% for the headline Consumer Price Index for all urban consumers (CPI-U) which also hit a 40-year high. This CPI includes prices for goods and services bought by professionals, supervisors and managers, and businesspeople, as well as workers.

The increase in annual inflation from 9.2% in May to 9.7% in June has led many economists to predict that the Federal Reserve may raise short-term interest rates by a full one percent at their next meeting later in July. Before the latest inflation report, expectations were that the Fed would raise interest rates by 3/4 of one percent, the same as in their June meeting.

Higher interest rates make mortgages, car loans and credit cards more expensive, putting a drag on consumer spending. Interest rates for bank loans for smaller businesses as well as bonds sold by large corporations are also rising. 

For example, gasoline prices, which are up almost 60% from a year ago, reflect the higher oil prices in the wake of the U.S. economic sanctions on Russia. Western oil giants such as Shell, Exxon Mobil, Chevron and British Petroleum are not pumping more oil to make up for the lack of Russian oil, instead they are seeing their profits triple or more as prices rise but their costs do not. 

The cost of rents and owners’ housing is up “only” 5.5 to 5.8%, but this makes up a third of the CPI. While the price of homes and the cost of mortgages continue to rise, this just makes home buying less affordable. This increases the demand for rentals, causing rents to rise.

An even faster increase in interest rates is increasing the chances of a recession in the near future. Scattered reports of large companies laying off workers finally showed up in the weekly new claims for unemployment insurance, which jumped to 244,000 for the week ending July 9. While low compared to some of the records set with the pandemic in 2020, it is still the highest number of new applications since November of 2021.

The next recession shows few signs of being as steep as the one in 2020 with COVID-19, or the 2007 to 2009 recession with the greatest financial crisis in the United States since the 1930s. However the typical Keynesian government responses of lower interest rates and more government spending are unlikely to happen. The Federal Reserve is focused on raising interest rates to fight inflation and has said that a recession may be necessary to bring inflation down. The massive federal government aid for extended and expanded unemployment benefits, eviction and foreclosure protections, and increased food stamps, as well as easier access to health insurance and a moratorium on student loan payments are almost certain not to come back with Republicans holding half the Senate and a couple of conservative Democratic senators, such as Manchin of West Virginia, able to block more social spending.

Masao Suzuki is Professor of Economics at Skyline College, San Bruno, California

Crisis in Cuba Requires End of US Blockade Now / by W. T. Whitney Jr.

Cuban Flag | Museum of the Revolution, Havana, Cuba, 2012. (Photo: Terry Feuerborn / Flickr)

Friends of socialist Cuba like good news about that country. Now bad news has its use. Grief and hardship currently are such that, clearly, the U.S. economic blockade of Cuba must end at once. The harsh details, appearing below, testify to potential destabilization in Cuba, danger to Cuba’s socialist project, and the nefarious role of the blockade. A major mobilization against the blockade is due. The need for action is obvious. 

The blockade, a 60-year-old relic of history, places few heavy demands on the U.S. public. No governmental funding is required. The Treasury Department issues fines and presidents make ritualistic declarations. People dodge travel restrictions. It’s a slow-motion affair. Distracted pro-Cuba activists may lose track of harassment details. Here they get a refresher course, for motivation toward action. It emphasizes blockade effects on people’s lives.

In the Beginning

Cuba’s vulnerability is the result mainly of U.S. policies directed at “denying money and supplies to Cuba … to bring about hunger, desperation, and overthrow of government.” The words are those of a State Department memorandum of April 6, 1960.

The flow of money to Cuba – international loans and export income –has long been feeble. International banks, financial institutions, and corporations handling dollars on Cuba’s behalf risk big U.S. Treasury Department fines. U.S. legislation blocks Cuba from importing the products of multi-national companies with branches in the United States – even food and medical supplies. For almost 30 years third-country ships docking in Cuba have been prohibited from entering a U.S. port for the following six months. Since 2019 the U.S. government has sanctioned Venezuelan ships carrying oil to Cuba.

The U.S. government harasses Cuba’s tourism industry, the source of most of Cuba’s foreign currency. Restrictions, variably regulated, operate against U.S citizens’ travel to the island. Why? They would spend money there. To discourage potential investors, U.S. legislation enables the heirs of properties nationalized in Cuba to take legal action in U.S. courts against investors who make use of such properties.

Cuba’s commerce with the United States has been nil for 60 years, except for heavily regulated Cuban agricultural exports. The northern neighbor used to be and still could be Cuba’s most convenient trading partner.

People are hurting

The U.S. blockade constitutes the main impediment to Cuba’s industrial production and overall economic development. Soviet Bloc nations formerly provided relief. Since then, strictures placed on imports have caused shortages of raw materials, replacement parts, consumer goods, new tools and machines, and reagents for drug and vaccine manufacture.

The blockade recently has complicated lives already beleaguered by the Covid-19 pandemic and an 11 percent economic recession resulting from the pandemic.

An Associated Press report of June 22 highlights a lack of new housing and impediments to repairing houses.  In 2019, 44,000 homes were built, in 2000, 32,000 homes, and in 2021,18,000. Building materials are in short supply. Hurricanes and the pandemic aggravated the situation.

Elderly Cubans experienced isolation and lack of supplies during the pandemic. For two years they’ve experienced weakened cultural and support services and reduced housing options. Fuel shortages in late 2021 led to fewer bus-runs in Havana. Wait-times were even longer.  Pharmacies in 2020 had available only 35 percent of their normal stock.

In recent times, infant death rates in Cuba matched the favorable rates of well-resourced countries, and were lower than U.S. rates. Astoundingly, Cuba’s infant mortality rate in 2021 was 7.6 infant deaths per 1000 births, up from 4.9 in 2000 and 5.0 in 2019. Cuba’s 2021 rate of mothers dying from pregnancy and childbirth difficulties was 176.6 – out of 100,000 mothers giving birth – up from 40.0 mothers in 2000 and 37.4 in 2019.

The increases stem from Covid-19 infection mortality added to deaths in non-Covid times. Experts say the deaths of children and mothers can reflect social factors – mothers’ low educational levels, reduced access to healthcare and other services, and poor nutrition. Therefore, the U.S. blockade, which does affect social well-being, may have taken a toll in this area too.

Cuba’s food supply is unstable what with reduced food production, inefficient distribution, marketing based on income levels, and quality variations.  At an annual cost of $2 billion, Cuba’s government still must import 60-70 percent of the food consumed in Cuba.

Production levels remain low despite reforms introduced after 2008, among them: land distribution, allowances for farmers’ permanent use of land, marketing reforms, governmental assistance to individual farmers and agricultural cooperatives, new distribution systems, local decision-making on assistance and policies, and ecologically sustainable methods.

The U.S. economic blockade is not responsible for soil deficiencies, officials’ inaction, drought conditions, overgrowth of invasive plants, and the appeal of urban life for rural youth. Blockade effects do show up in farmers’ reduced access to credit and lack of funds for fertilizer, seeds, breeding stock, spare parts, new equipment, and fuel.

Inflation holds sway in Cuba now. Prices, rising for two years, are up now by 70 percent and more. Access to essential goods is impaired. Frustration at high prices and shortages helped trigger island-wide protests on July 11, 2021 and has contributed to record emigration.

The U.S. blockade set the stage for inflation. After losing its commercial partnership with the Soviet Bloc, which disappeared in 1991, Cuba was in trouble.  The blockade blocked access to international loans and interfered with income derived from exports, the latter effect stemming from export restrictions. Consequently, funds have been short for importing essential products and for developing the economy.

Cuba desperately needed foreign currency and therefore brought tourists to the island to spend money that would end up with the government. From 1993 on, their money was captured via a new currency called the Cuban convertible peso (CUC). Tourists surrendered their own currencies in exchange for the CUCs.

Cubans, not all of them, acquired CUCs and were able to buy goods and dollars unavailable to Cubans without CUCs. Inequalities emerged. Responding, the government gradually withdrew CUCs from circulation, beginning in January 2021. Anticipating hardships, it raised salaries and pensions payable in Cuba’s “national peso.”

New money in circulation stimulates inflation, especially when goods for sale are in short supply, as in Cuba. The national currency lost value. Tourists, excluded during the pandemic, returned in late 2021. Their money, circulating, added to inflationary pressures. CUCs with a prominent role in Cuba’s informal economy, and still circulating, did likewise. The role of CUCs suggests the blockade’s indirect contribution to inflation.


Those defenders of Cuba worried about diminished Cuban-government commitment to bettering people’s lives may need reassurance. Of note:

·        Cuban president Miguel Díaz-Canel Bermúdez on June 21 addressed a meeting which elevated the role of social work. Discussion centered on mothers living in cities in “situations of vulnerability.”

·         Support programs are in place for elderly Cubans experiencing isolation, for example, the “Accompany Me (Acompáñame) project of telephone assistance and the National Program for Comprehensive Attention to Elders.

·        As of 2021, 423 so-called Projects of Local Development promoted food production, small workplaces, and tourism along with socio-cultural, environmental, and research programs.

·        The government promotes its program known as “micro, small, and medium [size] businesses.” These mostly privately owned enterprises, numbering 1,188 last year, produce food products, building materials, furniture, textile products, footwear, cleaning supplies, computer accessories, recycling serves, and more.

·        The government in April 2021 approved 43 measures directed at increased agricultural production and food availability. Results are far from ideal, an observer notes.

The blockade, a 60-year-old relic of history, places few heavy demands on the U.S. public.

·        Prime Minister Manuel Marrero Cruz, on June 24 visited a district in Cardenas to assess progress toward “improvements of roads, water supply, housing construction and social work.”

What to do

Resistance to the U.S. blockade within the United States has been constant for decades, but to no avail. Thanks to the Helms-Burton Law of 1996, the hurdle now is forcing the Congress to act. For that to happen, masses of people must stand up together and weigh in.

But that won’t happen, it seems, as long as activists continue to view the blockade as an isolated issue. What’s needed is collective action on many issues toward changing the direction of the U.S. government itself. The common ground would be justice and decent lives for all people everywhere, Cubans among them.

Also required would be new understanding that U.S. assault on Cuba happens as part of the larger U.S. project of capitalism worldwide and imperialist domination. The big mobilization to end the blockade would be part of a larger mission to take apart that U.S. project. Oppressed and plundered nations would be rescued, Cuba among them.

One adjustment: U.S. progressives ought to reject that old dictum that “Politics stops at the water’s edge.” It sends the message that solidarity with and struggle for oppressed peoples overseas doesn’t matter. That’s not so.

By no means will these suggestions bear fruit in time to end the blockade soon. Hope and struggle will remain. U.S. public opinion favors ending the blockade. People in the United States now fighting the blockade are experienced and want to enlarge the movement. Maybe chaos attending capitalism’s failures, new wars, and international divisions will distract the U.S. government from bothering with Cuba. Maybe international solidarity with Cuba will continue growing. Revolutionary Cuba, with unity and effective leadership, is known for overcoming challenges.  

W. T. Whitney Jr. is a political journalist whose focus is on Latin America, health care, and anti-racism. A Cuba solidarity activist, he formerly worked as a pediatrician, lives in rural Maine. W.T. Whitney Jr. es un periodista político cuyo enfoque está en América Latina, la atención médica y el antirracismo. Activista solidario con Cuba, anteriormente trabajó como pediatra, vive en la zona rural de Maine.

The anatomy of inflation / by Jack Rasmus

Whether the Fed can succeed in taming inflation and do so without precipitating a recession remains to be seen but is highly unlikely.

The focus of the U.S. media and economists for the past several months has been increasingly on inflation. In recent weeks, however, U.S. policymakers awoke as well to the realization that inflation is chronic, firmly embedded, and growing threat to the immediate future of the U.S. economy.

A qualitative ‘threshold of awareness’ was reached this past week when the U.S. central bank, the Federal Reserve, accelerated its pace of rate hikes by 75 basis points—purportedly to bring the rate of price hikes under control. Whether the Fed can succeed in taming inflation and do so without precipitating a recession remains to be seen but is highly unlikely. Taming inflation without provoking a recession is thus the central economic question for the remainder of 2022.

Clearly some think this is possible—i.e. that further rate hikes will moderate the pace of inflation without driving the real economy into recession and result in what is called a ‘soft landing’. Clearly the Fed and the Biden administration believe that will happen. But a growing chorus of even mainstream economists and bank research departments don’t think so. Almost daily new forecasts by global banks and analysts appear indicating recession is more than 50-50 likely—and arriving sooner in late 2022 than in 2023.

This article concludes unequivocally that today’s Fed monetary policy of escalating interest rates is not capable of reducing inflation while avoiding recession—any more than similar Fed rate hikes in 1980-81 did. And this time rate hikes will not need to rise as high as in 1980-81 before they trip the economy into another bona fide recession.

As of June 2022 the Fed raised its benchmark federal funds interest rate to a high end range of 1.75%. It plans to double that at least by the end of 2022, to a 3.5% to 4% range. But the U.S. economy is already nearly stagnant and signs are growing it is becoming even weaker. As this writer has argued since the fall of 2021, a Fed rate to 4% or more will almost certainly mean a ‘hard landing’, i.e. recession. Moreover, it will not reduce inflation that much either. Prices will not slow appreciably until the U.S. is actually well into a recession. That means a condition called stagflation, a contracting real economy amidst rising prices and an economic scenario not seen in the U.S. since the late 1970s. Stagflation has already arrived if one considers the almost flat U.S. economy in the first half of 2022; and it will deepen once recession begins in the second half.

To understand why inflation won’t abate much in 2022, and why recession will occur sometime before the current year’s end, it is necessary first to understand the Anatomy of Inflation (i.e. structure and evolution) that has emerged over the past year. That anatomy, or structure, of inflation shows its current causes are not responsive to Fed rate hikes in either the short or even intermediate term of the next twelve months.

It is necessary to understand why monetary policy in the form of Fed rate hikes will not dampen inflation much before recession occurs—as well as why those same rate hikes will have a greater effect on precipitating a recession long before the Fed can bring the inflation rate down to its long run historic target of only 2%.

The Anatomy of U.S. Inflation: 2021-22

After rising moderately around 4% annual rate when the U.S. economy first opened in the spring of 2021, it is important to note the pace of consumer prices remained virtually steady for the following four months throughout the summer of 2020, at around 5.5%. (Bureau of Labor Statistics New Release, May 11, 2022, Chart 2). That pace began to rise steadily every month only after late August 2021.

Beginning last September 2021 U.S. Inflation not only began accelerating but has since become embedded and chronic. Even U.S. policy elites can no longer deny it. Earlier in 2022 Treasury Secretary Janet Yellen opined publicly that U.S. inflation would be ‘short lived and temporary’. In June she then recanted and apologized for the inaccurate prediction. And this past week admitted that inflation is now ‘locked in’ for the remainder of 2022.

What then are the reasons and evidence inflation has become permanent and chronic—at least until recession sets in?

There’s no doubt that Demand, due to the reopening of the U.S. economy after the worst of Covid in March-April 2021 contributed to the emergence of inflation last spring-summer 2021. But excess Demand is not the primary explanation for it. Demand for goods and services rose during April-May 2021 as workers returned to their jobs and wage incomes grew. However, the record shows after rising modestly in April-May 2021, consumer prices leveled off throughout the summer of 2021, June to August 2021, at just over 5%. It remained steady thereafter at that level for those months as the economy continued to re-open.

The surge in prices at a faster pace only began in the late summer, around August-September. That price escalation coincided with rising problems in Supply chains—both in the form of global imports to the U.S. as well as domestic U.S. supply issues associated with goods transport, warehousing, and skilled labor access. In short, as the U.S. economy attempted to reopen global supply chains were still broken and, domestically, U.S. Product and Labor markets were severely wounded by the impact of Covid events of March 2020 through March 2021.

Conservative politicians, business interests, and their wing of the mainstream media nonetheless claimed at the time—and mostly still maintain today—that it was the too generous, excess income support from the American Relief Plan (ARP) social safety net programs passed by Congress in March 2021, and their predecessor programs a year before, that was responsible for excess Demand in mid-2021 and thus the escalating inflation that followed after September of that year.

But even U.S. government data don’t support that view. The ARP authorized only $800 billion spending in the entire next twelve months. The 3rd quarter—the first full quarter when ARP program spending hit the economy and when prices began their accelerations around August—saw probably no more than $200 billion from ARP programs entering the economy. The supplemental income checks had already been distributed and mostly spent in the 2nd quarter. What remained in the 3rd of any magnitude were supplemental unemployment benefits, modest rental assistance, and the child care subsidies for median and low income families introduced that July. $200 billion injection was probably high as well. Certainly not all the $200 billion income injected was actually spent that quarter. (As economists admit, consumers’ marginal propensity to spend added income is always less than ‘one’—i.e. they don’t immediately spend it all). $150 billion or so was probably actually spent. That $150 billion compares to a 3rd quarter overall GDP of more than $5 trillion! There’s no way an economy that size could result in the price acceleration that began at that time from an injection of $150 billion on more than $5 trillion.

Moreover, $150 billion may be too high an estimate as well. Much of the ARP stimulus was cut off significantly by early September, the last month of the 3rd quarter: for example, supplemental unemployment benefits provided previously for 10 million workers was ended, along with rental assistance, the Payroll Protection Plan grants for small businesses, and other lesser injections.

In short, to the extent Demand contributed to the rise in prices in both the 2nd and 3rd quarters, that Demand effect is explainable far more by the continued reopening of the economy rather than attributable to the income support programs of the American Rescue Plan that amounted to no more than $100-$150 billion throughout the entire 3rd quarter when prices began to accelerate. So much for arguments that workers were too flush with income from jobs they were returning to and the government over-generous ARP income programs! The data just don’t support the view it was Demand and government spending Demand in particular that was responsible for the onset of escalating prices last September 2021.

The more likely explanation behind escalating prices in late summer 2021 was global supply chain bottlenecks, especially involving goods imports from Asia and China in particular. In August-September it was mostly goods prices driving inflation. Consumer spending on services again was just emerging. A problem with Supply chains was corporations around the world had shuttered their operations during the worst of Covid, allowing workers and suppliers to drift away. When the economy began to reopen in the summer of 2021, many of these workers and suppliers were not available. That was especially true with global container and other shipping companies. There just weren’t enough ships available to deliver goods from Asia to North America. What shipping was available was initially dedicated to transport between Asia countries first. In addition, USA West Coast ports had a similar problem: the ports were short of traditional workers and transport. Not only port workers but independent truckers that carried the freight from the Los Angeles port, for example, to inland central warehouses. And from those mega-warehouses to regional warehouses from which goods are then distributed to companies’ storage and stores. Like the trucker shortage, there was an insufficient return of workers to warehouses as well. A similar, somewhat lesser labor shortage problem existed with railway workers. In other words, domestic U.S. supply chains were still broken—along with global supply.

As inflation rose and the public was increasingly aware of it, corporations with monopolistic power (i.e. where four or five or fewer companies produced 80% or more of the product or service in the economy) manipulated and took advantage of that public awareness of rising inflation in order to raise their prices—even when their respective industry was not experiencing supply chain issues.

A good example is the U.S. oil corporations that didn’t have a supply problem at all at the time and still don’t. U.S. oil corps were capable then, as now, of raising their output of oil in the U.S. (i.e. supply) by at least 2 million more barrels/day. They chose instead to leave that oil in the ground, not to expand production at U.S. refineries, and refused to reopen many of the drilling wells they had capped during the worst of the preceding 2020-21.

In the months preceding the onset of Covid shutdowns in March 2021 U.S. oil corps were producing more than 13 million barrels per day; by fall 2021 they were producing barely 11 million per day (and still are). Nevertheless, U.S. oil corporations raised their prices faster than perhaps any other industry. By the fourth quarter 2021 energy prices were rising at 34.2% annual rate, according to the U.S. GDP accounts (U.S. Bureau of National Economics, NIPA Table 2.3.7).

With prices now surging after September 2021 the important new factor also driving prices was thus neither supply nor demand related. It was price manipulation by U.S. corporations with market power to do so. And it was not just oil corporations, although they were responsible for more than half of the price index surge at the time—and still are. Other food processing corporations, airlines, utilities, and so forth with monopolistic power did so as well. This political (market power) cause, combined with Demand and Supply forces, after August resulted in yet a further surge of prices through the remainder of 2021.

Beginning in 2022 further forces also began to determine the U.S. Anatomy of Inflation:

Commencing March 2022, added and overlaid onto 2021 inflation drivers was U.S. and EU sanctions on Russia commodities, which were especially critical as the global economy was still in the process of trying to reopen and restore and heal Covid shattered global supply chains.

Russia supplies 20% to 30% of many key global commodities—including oil, gas and nuclear fuel processing in the energy sector. But also industrial metals commodities like nickel, palladium, aluminum and other resources required for auto, steel and other goods manufacturing in the U.S. and EU. Also agricultural commodities like 30% of the world’s wheat; 20% of global corn production used in production of animal feed; 75% of critical vegetable oils like sunflowers; and 75% potash fertilizer—to name the more important.

Even before U.S./EU sanctions on these key Russian commodities began affecting actual supply, global financial commodities futures market speculators began driving up commodity inflation in anticipation of the sanctions eventually taking effect. Speculators were quickly followed by global shipping companies that jacked up their prices before actual sanctions. They were joined in turn by shipping insurance companies. All along the commodities supply chain, capitalists in sectors capable of exploiting the coming sanctions-driven shortages began manipulating prices in anticipation. Physical shortages from sanctions thereafter began to have a further impact late in 2nd quarter 2022 as war in Ukraine intensified and sanctions were implemented. The speculators, shippers and insurers thereafter added further price increases to the general sanctions effect.

When U.S. Treasury Secretary Yellen voiced her prediction earlier in 2022 that inflation would be temporary she no doubt did so based on the erroneous assumptions that somehow the global and domestic supply chain problems of late summer 2021 would be resolved in 2022, and corporate price gouging that overlaid supply chain issues would also somehow abate. She clearly did not factor in to her inflation prediction the very significant effect of war and sanctions.

President Biden called the now further escalation of prices in spring 2022 as ‘Putin’s Inflation’. That claim might be laid on shortages of some agricultural products directly disrupted in Ukraine war zones, but can’t be laid on global energy prices which were virtually all from within Russia’s economy not Ukraine’s. Thus to the extent inflation is due to rising energy prices—which accounts for more than half the total price rise at the consumer level—it is more attributable to Biden’s sanctions and thus is ‘Biden’s Inflation’ rather than Putin’s.

By the 2nd quarter 2022 all the above combined forces driving inflation (i.e. moderate Demand, global & domestic broken Supply chains, widespread corporate price gouging, oil, energy & commodities prices) converged to produce an embedded, chronic, and continued rise of inflation.

For the period for which latest prices are available, March-May, consumer prices (CPI Index) have been rising at a steady 8.5% rate while producer prices that eventually feed into consumer prices have been rising at an even faster rate of 10-11% for the three months. Furthermore, pressure on producer prices (that feed into consumer prices) may accelerate even that 10-11% current producer price hike average. For example, the most recent Producer Price Index released for May shows the category of ‘Intermediate’ goods and services prices are rising even faster. Intermediate processed goods (e.g. steel) have been rising at a 21.6% annual rate over the past year, while intermediate unprocessed goods (e.g. natural gas) have risen at a 39.7% annual rate.

Supply chain and Demand forces of the past year, May 2021 through May 2022, will likely continue driving prices at similar rates through this summer 2022 and likely the rest of the year as well. There appears no end in sight, for example, for the Ukraine war and the Sanctions on Russia which continue to tighten. Price gouging in these commodities impacted by war and sanctions will certainly continue as will the general phenomenon of monopolistic corporations price gouging. Commodity futures financial speculators will continue to speculate; shipping companies continue to manipulate price to their advantage; and insurers continue to hike their rates on bulk commodity shipping worldwide.

In addition, new forces are also emerging this summer 2022 that will contribute still further to chronic inflation throughout the rest of 2022 and possibly even further beyond.

One such new factor is rising Unit Labor Costs for businesses, which many will try to pass through to consumers this summer and beyond. Unit labor costs (ULCs) are determined by productivity change for businesses and/or wages. If wages rise, ULCs rise; similarly if productivity falls, ULCs rise. While wages appear to be moderately rising in nominal terms, productivity is falling precipitously. The most recent data on productivity trends in the U.S. indicate productivity collapsing at the fastest rate since data was first gathered in 1947. That’s because business investment is stalling in the face of growing economic uncertainty about inflation as well as likely recession. Wage rise contribution to rising ULCs is on average modest, as Fed chair Jerome Powell has admitted. Wage pressures are mostly skewed to the high end of the labor force where highly skilled professionals are ‘job hopping’ to realize wage income gains of 18% on average; meanwhile, low paid service workers’ wages are also rising some as many have refused to return to work at the U.S. minimum wage of only $7.25/hr which hasn’t changed since 2009. Service businesses have had to offer more. But the great middle of the U.S. labor force is not experiencing wage gains to any significant extent. Thus the ‘average’ wage hikes, as moderate as they are, do not account for the rising ULCs which businesses will soon, if not already, begin to ‘pass on’ to consumers in higher prices for the remainder of 2022. Treasury Secretary Yellen herself now admits inflation will continue high throughout 2022—no doubt in part reflecting the new forces adding to inflation pressure.

Another emerging factor of growing importance to the continuation of inflation trends throughout 2022 is the now emerging ‘inflationary expectations’ effect. Cited by Fed chair, Jerome Powell, in his most recent press conference following the Fed’s latest interest rate announcement, Powell referred to the recent University of Michigan consumer survey showing inflationary expectations now definitely emerging as well.

As inflation continues to rise, inflationary expectations mean consumers will purchase early, or even items they had not planned to buy, in order to avoid future price hikes. That means another Demand force that adds to the general anatomy of inflation, just as falling productivity and higher ULCs represent an additional Supply force contributing to future price hikes.

In short, now entering the mix of causes in 2022 are inflationary expectations, falling productivity driving up ULCs and cost pass-through to consumers, and the growing pressures on commodity inflation due to the Ukraine war and sanctions on Russia.

When all these emerging 2022 factors are added to the 2021 economy reopening and Supply chain causes of inflation—as well as the continuing corporate price gouging—the broader picture that appears reveals multiple causes of inflation—many of which mutually feed back on the other; some political, some unrelated to market supply or demand, and none of which appear to be moderating significantly. In fact, corporate price gouging, manipulation of commodities markets by speculators, Ukraine war, and sanctions on Russia all represent contributions to inflation that may well accelerate over the next six months.

Stagflation May Have Already Arrived

Stagflation is generally defined as inflation amidst stagnate growth of the real economy. That is already upon us in its first phase: U.S. GDP for the 1st quarter of 2022 recorded a decline of -1.5% while the Atlanta Federal Reserve bank’s ‘shadow’ GDP estimates zero GDP (0.0%) growth for the current April-June 2nd quarter! Should the Atlanta Fed’s forecast prove accurate, that’s stagnation at best. And if the 2nd quarter actually contracts, then it represents a yet deeper phase of Stagflation.

Just as mainstream economists and media debated for months whether current inflation was chronic or temporary, the same pundits now debate whether stagflation will soon occur when in fact it’s actually already arrived. (see Larry Summers’ latest pontification to the business media where he warns of stagflation around the corner when it’s already turned it).

The next phase of stagflation coming late 2022 and early 2023 will reflect the contraction of the real economy—i.e. a recession. GDP won’t simply stagnate with no growth, but decline. Indeed, recession is already damn close if we are to believe the Atlanta Fed’s 2nd quarter GDP forecast and the various early economic indicators now appearing. Stagflation may already be here, as the 1st quarter U.S. GDP -1.5% contraction is followed by another contraction—not just zero growth—in the current 2nd quarter. Two consecutive quarters of contraction define what’s called a ‘technical recession’. Actual definition of a recession is left to the National Bureau of Economic Analysis, NBER, economists to call. They always wait months after the fact to make their call. But ‘technical recessions’ almost always result in NBER declarations subsequently of actual recession. And the U.S. economy is clearly on the cusp of a technical recession at minimum.

Biden’s Empty Inflation Solutions

Biden’s various solutions to date are more public relations events designed to make it appear something is being done instead of actions that directly address the problem of embedded and chronic U.S. inflation.

Biden’s proposed solutions include getting U.S. oil corporations and other global producers of oil to raise their output; somehow convincing countries who agree with U.S. sanctions in Russia to enforce a ‘cap’ on the price of oil worldwide; reducing tariffs on imports from China to the U.S.; offsetting the price of energy productions for U.S. consumers by lowering the price of other consumer goods; increasing competition among U.S. monopolistic corporations by subsidizing new competitors to enter their industries; introducing a federal gas tax suspension.

Despite Biden’s railing against the oil companies, shipping companies, and other obvious price gougers, it’s been all talk and no action. All his proposals have not been implemented to date. They’ve been either just ideas raised with no actual executive or legislative proposals. Or they’ve already been rejected by Congress. Or, even if implemented, will be ‘gamed’ and absorbed by corporations with little net impact on consumer prices. Or will produce insufficient additional global output of oil, gas, and energy products to dampen energy price escalation much.

Biden’s strategy has been to ‘talk the talk’ without the walk, as the saying goes.

The only actual solution the administration has quietly agreed upon, but dares not admit publicly, is to have the Fed precipitate a recession by means of its record level of rapid interest rate hikes over this summer 2022 now in progress. And as they say, ‘that train has left the station’. It’s a done deal. Biden’s ‘solution’ is to have the Fed precipitate a recession.

Enter the Federal Reserve

The Fed itself has already decided on recession! Moreover, it’s a policy template that’s been employed before.

The origins of the coming recession appear very much like the 1981-82 recession. At that time the Fed also precipitated a recession by aggressively hiking interest rates with the objective of ‘Demand destruction’ as it is called. In other words, then as now, the strategy was to make households’ and workers’ pay by destroying wage incomes by means of layoffs, for what was essentially at the time a Supply caused inflation associated with rising global oil access destruction by OPEC and middle east oil producers.

At 75 basis points Fed rates are already rising at a pace not seen since 1994. !981-82 rate hikes were even more aggressive. However, as this writer has argued, the global economy is more fragile and interconnected today than it was in 1980-81 when the Fed raised rates to 15% and more. Today’s global capitalist economy won’t sustain rate hikes even a third of that 15% before contracting sharply.

It is more likely than not that the Fed will continue raising interest rates at the 75 basis points when it next meets in July, and possibly the same in the subsequent meeting. At 4% for its benchmark federal funds rate (not at 1.75%) the economic damn will crack. It won’t even get to the one-third of 1982 level, the 5%.

Why the economy will slide into recession well before the 5% rate level was discussed by this writer in 2017 in the book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press.

In the sequel to this essay, why the U.S. real economy is quite fragile today is addressed including most recent evidence of a weakening U.S. real economy. Also addressed is why Fed federal funds rate increases to 4% or more will precipitate a serious U.S. recession sooner rather than later, and, not least, why Fed rate hikes of that magnitude will likely have severe negative impacts on financial asset markets as well, provoking serious liquidity and even insolvency crises in the global capitalist financial system.

Should financial asset contraction occur along with a contraction of the real economy, then the 2022 recession will almost certainly deepen in 2023. And in that case the economic crisis will appear more like 2008-10 as well as 1981-82. Or perhaps a merging of the two recession dynamics into one.

Jack Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, 2020.

L.A. Progressive, June 21, 2022,

While Elites Fret About Inflation and Worker Wages, CEOs Are Robbing Us Blind / by Branko Marcetic

The already massive CEO-worker pay chasm only widened over the course of 2021. (Alexander Mils / Unsplash)

The Fed has embarked on an anti-inflation policy designed to destroy jobs and keep wages low. But a new report shows just how exorbitantly CEOs are profiting from the price hikes.

As an impending war on workers’ wages gathers steam, there’s comparatively little talk about the gargantuan pay packets of corporate executives. That’s too bad, because a new report suggests those pay packets have ballooned to new, ever-higher levels even as worker pay has stagnated.

The report from the Institute for Policy Studies (IPS) is the latest of the organization’s annual series of Executive Excess reports, this time examining CEO pay at three hundred publicly held US corporations that recorded the lowest median wages in 2020. What the IPS found is as depressing as it is unsurprising: the already massive CEO-worker pay chasm only widened over the course of 2021, and worker pay at many of the companies has fallen behind inflation, even as corporate profits have been turned into millions of dollars more for individual executives.

According to the report, CEO pay at these low-paying firms rose by 31 percent to an average of $10.6 million, pushing the average ratio of CEO-to-median-worker salary to 670-to-1, up markedly from 2020’s gap of 604-to-1. Forty-nine of the firms even recorded pay gaps of an astounding 1,000-to-1.

Few reading this will be surprised to hear who the worst offender was: Amazon, whose CEO-to-worker pay gap grew an unfathomable 11,062 percent over 2020. CEO Andy Jassy, who took over from Jeff Bezos in 2021, at least nominally — Bezos and Amazon have made clear he’s staying involved in the company and was mostly handing over day-to-day responsibilities — ended up making $212.7 million last year, or 6,474 times the average Amazon worker pay of $32,855. Besides union-busting efforts directed by the exorbitantly compensated Jassy, Amazon workers have to contend with intense workplace surveillancediscrimination and harassment,  and notoriously hectic working conditions that force them to pee in bottles or skip bathroom breaks.

Other top offenders include Abercrombie & Fitch, whose CEO takes home a salary 3,282 times the size of that of his median employee, toy maker Mattel (2,705), tobacco supplier Universal Corporation (2,683), the Gap (2,485), footwear brand Skechers (2,265), and McDonald’s (2,251).

Some firms in particular saw their CEO-to-worker pay gaps widen astronomically over the course of 2020, like digital payment services company FleetCor Technologies (a 3,595 percent rise in the CEO-to-worker pay gap), clothing retailer Urban Outfitters (3,400 percent), casino and racetrack operator Penn National Gaming (1,145 percent), electronics multinational Methode (1,096 percent), and hair salon operator Regis Corporation (969 percent). Jay Snowden, the CEO of Penn National Gaming, which is planning to take full ownership of Barstool Sports next year, took home the third-largest payday of all the CEOs covered in the report, with $65.9 million.

At the same time they were doling out massive paydays to their CEOs, 106 (35 percent) of these 300 hundred low-paying firms paid their workers a median wage that fell behind the 4.7 percent average US inflation rate over 2021, states the report. In fact, sixty-nine of these firms saw their worker pay fall.

It’s not that these firms didn’t have the money to pay their workers better while inflation soared. As the report points out, of those 106 firms where median worker pay didn’t keep up with inflation, sixty-seven spent a collective $43.7 billion on stock buybacks to pump up their CEOs’ stock-based paychecks. According to the report, Lowe’s, Target, and Best Buy, for instance, could’ve given all of their employees a raise of $40,000, $16,000, and $32,270 each respectively, if they had spent the billions they blew on stock buybacks on their workforce instead.

The report’s findings come amid a national debate over inflation that has consistently stressed the impact of higher worker wages and government policies that put money into average people’s pockets. Meanwhile, the idea that corporate price gouging has played some role has been cast by some as a “conspiracy theory.”

Of course, the biggest risk of further inflation comes from the supply shocks caused first by the pandemic and now Moscow’s invasion of Ukraine and the Western sanctions that came in response. But the impetus has also come from opportunistic price hikes by profit-hungry companies taking advantage of the widespread public awareness of inflation to sneak through added price hikes. A recent Guardian investigation based on Securities and Exchange Commission (SEC) filings and investor calls for a hundred US corporations found executives disclosing they were raking in massive windfalls as profits far outpaced inflation, with executives openly admitting their price increases outstripped inflationary costs.

Meanwhile, the Federal Reserve is embarking on a series of interest rate hikes that will at minimum cause job losses and at worst stagflation and a recession. The main target of these rate hikes is what Fed chair Jerome Powell called “an extraordinarily strong labor market,” which has given workers the leverage to get the higher pay Powell believes is now driving runaway price increases.

Powell has said his strategy for tackling inflation will involve “some pain” and declared in a May press conference that outlined his belief in the need to stifle wage growth that “we can’t allow a wage-price spiral to happen.” An imbalance in supply and demand for the job market means “wages are running at the highest level in many decades,” he explained, and the Fed’s policies would enable “further healing in the labor market” to bring them “back into balance.”  The “healing” Powell is euphemistically referring to in reality means the erasure of job opportunities, which will erode workers’ bargaining power and make them more willing to take on jobs with substandard working conditions, including low pay.

While all of this is taking place, the IPS report reminds us, the price gouging and extravagant salaries of corporate executives go conveniently ignored in the debate over inflation and the government’s seemingly willful failure to tackle them. The report notes that the Joe Biden administration has dragged its feet on using the federal government’s contracting power to tackle the widening CEO-to-worker pay gaps, which it could easily do: 119 (40 percent) of the 300 companies examined got federal contracts between October 2019 and May 2022, to the tune of $37.2 billion, a massive sum that could be leveraged to force the firms elbowing for a place at the trough to put in place fairer pay practices.

We seem to be on an irreversible course to repeat the disastrous economic shocks of the 1970s and early 1980s, all in the quest of suppressing whatever meager advances low-wage workers have seen in their paychecks these past couple of years. And meanwhile, the corporate profiteers robbing us blind laugh all the way to the bank.

Branko Marcetic is a Jacobin staff writer and the author of Yesterday’s Man: The Case Against Joe Biden. He lives in Chicago, Illinois.vely little talk about the

Jacobin, June 10, 2022,

The already massive CEO-worker pay chasm only widened over the course of 2021.

Neo-liberalism and anti-inflationary policy / by Prabhat Patnaik

Federal Reserve Board of Governors | Photo: Wikipedia

Central banks all over the capitalist world are raising, or are about to raise, interest rates as a means of countering the currently rampant inflation, which is certain to push a world economy that is barely recovering from the effect of the pandemic, back towards stagnation and greater unemployment.

Of course the Federal Reserve Board of the U.S. which sets the standard in this respect for all other central banks, claims otherwise. It argues that the rise in interest rate it is decreeing will have little impact, or at the most a transitory impact, on the real economy; the recovery will be largely unimpaired. But this is based on reasoning which is fundamentally flawed and goes as follows.

The current inflation in the U.S., Fed chairman Jerome Powell argues, is because of a money wage push, which in turn arises because people are expecting inflation to occur; the rise in interest rate, by making people expect an abatement of inflation, will end this money-wage push, and hence actually bring down inflation. Since all adjustments will thus remain confined to the sphere of expected prices, and hence by that route to the sphere of actual prices, the real economy of output and employment will hardly face any recession. This entire argument however is wrong because of one simple fact: the workers’ money wages have lagged behind inflation, because of which they have suffered real wage declines. Hence to argue that inflation in the U.S. is because of a money-wage push, is a gross error.

Likewise the other common explanation given for inflation is that the Russo-Ukraine war has created scarcities of various commodities, especially of oil and food-grains in the world market. This explanation too however is unconvincing: while the war may cause such scarcity, there has as yet been no such scarcity. In fact there is little evidence of any decline in supplies of such commodities in the world market due to the war; hence to attribute the inflation to such war-induced scarcity is erroneous, certainly in the context of the U.S..

The reason why there is inflation in the U.S. is because prices are rising faster than wages owing to an autonomous rise in profit-margins. Profit-margins are supposed to rise when there is a scarcity of some commodities, but in the present case there is no shortage of a range of commodities that are witnessing inflationary pressures; and even in the case of commodities where there may be immediate shortages because of supply-chain disruptions on account of the pandemic, the rise in price is more pronounced and persistent than warranted. There is in other words an autonomous profit-margin push underlying the current inflation in the U.S. which is indicative of speculative behaviour.

There is a tendency to think of speculative behaviour as characterising only traders and middlemen but not manufacturers; but this has no basis. Speculation underlies pricing behaviour of multinational corporations too, and the reason why speculation-induced inflation is afflicting the world’s largest economy, is because of the easy availability of credit as a result of the extraordinarily easy monetary policy pursued until now. “Quantitative easing”, namely pushing money into the U.S. economy by the Federal Reserve and its maintenance of near-zero short-term and long-term interest rates, has created a liquidity overhang in that economy that has been conducive to an autonomous profit-margin push, and is manifesting itself in the form of inflation even before production has reached anywhere near full capacity. Further, against the inflation caused by this history of monetary policy, the only measures available are either “fiscal austerity” or a rise in interest rates (as is occurring now), both of which cause recession and unemployment.

Here we come to the nub of the problem. The economic arrangement under contemporary capitalism is such that to beat down the fall-out of the behaviour of a handful of speculators in the U.S., mass unemployment has to be generated not only in the U.S. economy (which is absurd enough in itself) but in the entire world economy. This last point arises because under neo-liberalism with global cross-border mobility of capital, especially of finance, the array of interest rates all over the world must move up when the U.S. interest rate moves up (for otherwise finance will keep flowing out of peripheral economies into the U.S. causing a continuous depreciation of the former’s exchange rates vis-à-vis the dollar). Speculation in the U.S. in other words, instead of being directly tackled through other means, is tackled, under a regime of financial “liberalisation”, through the generation of mass unemployment all over the world. This is the acme of irrationality.

John Maynard Keynes, writing under the shadow of the Bolshevik revolution and in the midst of the Great Depression, was acutely aware of this irrationality. To save the system which was his goal, he wanted what he called the “socialisation of investment”. For this fiscal intervention by the State was essential as was an appropriate monetary policy, both of which required the subservience of financial interests to the needs of society as a whole.

In this intellectual ambience, many newly-liberated third world countries after the war erected innovative financial structures that directly curbed speculation without causing any reduction in activity, let alone mass unemployment. In India for instance long-term finance for investment was provided by a whole range of specialised financial institutions at interest rates that were generally lower than the rates on short-term credit given out by banks. A range of instruments was also used by the banks, to curb speculation other than merely the interest rate (and traditional instruments like the reserve ratio). One such was the direct restriction of credit-flows to specific, speculation-hit, sectors or what was called “selective credit controls”. Inflation control was effected not only through fiscal and monetary policies but also through “supply management” and putting in place a system of public distribution and rationing. All these ensured that investment, output and employment were largely insulated from the behaviour of speculators.

The Bretton Woods institutions and its loyal neo-liberal economists were staunchly critical of all these arrangements. They called such financial arrangements “financial repression” and wanted instead a “liberalisation” of the financial system where all such direct interventions in financial markets were eschewed. They even wanted a jettisoning of public distribution and rationing that still continues in the case of foodgrains, and got the Modi government to pass the three infamous farm laws towards this end. Though they did not succeed in their endeavour to jettison public distribution and rationing, they did enforce “financial liberalisation” as part of the neo-liberal “reforms”.

“Financial liberalisation” virtually meant an exclusive reliance on the interest rate as an instrument of monetary policy, and even here since the interest rate in a world of relatively easy financial flows is linked to the U.S. rate (as noted earlier), the country did not have much leeway. And since “fiscal responsibility” meant that government spending got linked to government revenue and government revenue itself could not be raised through heavier taxes on the rich (for they would then look elsewhere for locating their investment projects), the same interest rate that was used for inflation control was also a key determinant of investment, output, employment and growth.

This meant going back to a world where not only do we have the behaviour of a bunch of domestic speculators determining output and employment in a particular country, but the behaviour of a handful of American speculators determining the output and employment in every country of the world, that is, in the entire world economy.

The eminent economist Dr KN Raj had once lauded the financial system we had under the dirigiste era on the grounds that it did not allow the whims of a handful of speculators to determine the employment prospects of millions of workers. Financial liberalisation destroyed precisely this insulation; and, what is more, it linked every country’s level of employment to the whims of a few American speculators.

Much is being written all over the world debating the wisdom of raising interest rates as a means of combating inflation. This discussion generally presumes a neo-liberal setting and then takes positions on what particular point should be chosen in the trade-off between unemployment and inflation; but the trade-off itself arises because of the neo-liberal setting that removes a range of other instruments from the government’s hands. The whole point therefore is to avoid such a trade-off altogether by transcending the neo-liberal setting itself; but this scarcely figures in the discussion.

Originally published: Peoples Democracy on June 4, 2022

Prabhat Patnaik is an Indian political economist and political commentator. His books include Accumulation and Stability Under Capitalism (1997), The Value of Money (2009), and Re-envisioning Socialism (2011).

MR Online, June 5, 2022,

The great inflation debate rages on / by Michael Roberts

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. Image from Shutterstock.

The inflation debate among mainstream economists rages on. Is the accelerating and high inflation rate of commodities here to stay for some time and or is it ‘transitory’ and will soon subside? Do central banks need to act fast and firmly to ‘tighten’ monetary policy by cutting back purchases of government bonds and hiking interest rates sharply? Or is such tightening an overkill and will cause a slump?

I have covered these issues in several previous posts in some detail. But it is worth going over some of the arguments and the evidence again because high and rising inflation is severely damaging to the livelihoods and prosperity of most households in the advanced capitalist economies and even a matter of life and death for hundreds of millions in the so-called Global South of poor countries. Being made unemployed is devastating for those who lose their jobs and for their families. But unemployment affects usually only a minority of working people at any one time. Inflation, on the other hand, affects the majority, particularly those on low incomes where basic commodities like energy, food, transport and housing matter even more.

In a recent book, Rupert Russell pointed out that the price of food has often been decisive historically. Currently the global food price index is at its highest ever recorded. This hits people living in the Middle East and North Africa, a region which imports more wheat than any other, with Egypt the world’s largest importer. The price of these imports is set by the international commodity exchanges in Chicago, Atlanta and London. Even with the government subsidies, people in Egypt, Tunisia, Syria, Algeria and Morocco spend between 35 and 55 percent of their income on food. They’re living on the edge: small price rises bring poverty and hunger. Russell reminds us that grain was key to almost every stage of the First World War. Fearing the threat to its grain exports, imperial Russia helped provoke that global conflict. As the conflict dragged on, Germany also suffered from a dearth of cheap bread and looked to seize Russia’s bountiful harvest. “Peace, Land, and Bread” was the Bolshevik slogan, and success had much to do with bread and the control of the new grain pathways inside Russia. Now the Russian invasion of Ukraine puts the harvest of these two leading grain exporters in jeopardy.

Indeed, when you consider food prices (one of the key contributors—along with energy prices—to the current inflationary spiral), it exposes the inadequacies of mainstream explanations of inflation and their policy remedies. 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. The recovery after the COVID slump in the major economies has been faltering. Every major international agency and analytical research consultancy has been lowering its forecast of economic growth and industrial production for 2022. At the same time, these agencies and central banks have revised up their forecasts for inflation and for the length of time it will stay high.

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 two percent 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. But also, they misread the nature of the inflationary spiral, relying as they do on the incorrect theories of inflation.

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 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.

The hardline monetarists call for sharp rises in interest rates to curb demand while the Keynesians worry about wage-push inflation as rising wages ‘force’ companies to raise prices. But inflation rates did not rise when central banks pumped trillions into the banking system to avoid a meltdown during the global financial crash of 2008-9 or during the COVID pandemic. All that money credit from ‘quantitative easing’ (QE) ended up as near-zero cost funding for financial and property speculation. ‘Inflation’ took place in stock and housing markets, not in the shops. What that means is that US Federal Reserve’s ‘pivot’ towards interest rate rises and reverse QE will not control inflation rates.

The other mainstream theory is that of the Keynesians. They argue that inflation arises from ‘full employment’ driving up wages and from ‘excessive demand’ when governments spend ‘too much’ in trying to revive the economy. If there is full employment, then supply cannot be increased and workers can drive up wages, forcing companies to raise prices in a wage-price spiral. So there is trade-off between the level of unemployment and prices. This trade-off can be characterised in a graphic curve, named after A.W. Phillips.

But the evidence of history runs against the Phillips curve as an explanation of the degree of inflation. In the 1970s, price inflation reached post-war highs, but economic growth slowed and unemployment rose. Most major economies experienced ‘stagflation.’ And since the end of the Great Recession, unemployment rates in the major economies have dropped to post-war lows, but inflation has also slowed to lows.

Keynesian Larry Summers takes the ‘excessive demand’ approach. His view of inflation is that government spending is driving price hikes by giving Americans too much purchasing power. So it’s the Biden administration’s fault; the answer being to re-impose ‘austerity’ (cutting government spending and raising taxes). Again, you could ask Summers why there was no high inflation when governments spent huge amounts to avoid a banking collapse in the Great Recession, but only now.

Following the Keynesian cost-push inflation theory inevitably comes the policy call for ‘wage restraint’ and even higher unemployment. For example, Keynesian guru Paul Krugman advocated raising unemployment to tame inflation in one of his recent New York Times columns. So much for the claim that capitalism can sustain ‘full employment’ with judicious macro-management of the economy, Keynesian-style. It seems that the capitalist economy is caught between the Scylla of unemployment and the Charybdis of inflation after all.

As for wage restraint, both Keynesians and central bankers have been quick to launch into such calls. Keynesian Financial Times columnist Robert Armstrong called for monetary policy to be “tight enough to … create/preserve some slack in the labour market.” In other words, the task must be to create unemployment to reduce the bargaining power of workers. Bank of England governor Bailey made the same call in order, he said, to stop runaway inflation. But there is no evidence that wage rises lead to higher inflation. We are back to the chicken and the egg. Rising inflation (chicken) forces workers to seek higher wages (egg). Indeed, over the last 20 years until the year of the COVID, US real weekly wages rose just 0.4 percent a year on average, less even that the average annual real GDP growth of around two percent plus. It’s the share of GDP growth going to profits that rose (as Marx argued way back in 1865).

US inflation is much higher than wages which are only growing at between three to four percent, that means real wages are going down for most Americans. Financial assets are rising even faster. Housing prices are up by roughly 20 percent 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 percent of the inflationary increase in costs. Corporate profits alone are contributing to a three percent 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? As a paper by Jeremy Rudd at the Federal Reserve concludes:

Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.

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.

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.

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).

Michael Roberts is a Marxist economist based in London, England. He is the author of several books including The Great Recession: A Marxist view (2009), The Long Depression (2016), and Marx 200: A Review of Marx’s Economics 200 Years After His Birth (2018).

Canadian Dimension, April 19, 2022,

‘Their Inflation Strategy Is Working’: Corporate Profits Soared to Record High in 2021 / by Jake Johnson

Outgoing Starbucks CEO Kevin Johnson was pictured at an annual shareholder meeting in Seattle on March 20, 2019. (Photo: Jason Redmond/AFP via Getty Images)

Federal data released Wednesday shows that U.S. corporate profits jumped 25% to record highs in 2021 even as the coronavirus pandemic wreaked havoc on the nation’s economy, disrupting supply chains, hammering low-wage workers, and helping to push inflation to levels not seen in decades.

According to the Commerce Department’s Bureau of Economic Analysis (BEA), domestic corporate profits adjusted for inventory valuation and capital consumption reached $2.8 trillion last year, up from $2.2 trillion in 2020—the largest increase since 1976.

Employee compensation also increased in 2021, just not at the pace of corporate profits. Citing the new BEA data, Bloomberg reported that “employee compensation rose 11%, but the so-called labor share of national income—essentially, the portion that’s paid out as wages and salaries—fell back to pre-pandemic levels.”

“That tends to undermine the argument that soaring labor costs are what’s driving the current surge in inflation, a case the Federal Reserve is starting to make as it accelerates interest-rate increases,” Bloomberg noted.

Lindsay Owens, executive director at the Groundwork Collaborative, argued in a statement that the new profit figures show that corporate America is successfully weathering inflationary pressures across the economy by pushing higher costs onto consumers—a tactic some CEOs have openly touted during recent calls with investors.

“CEOs can’t stop bragging on corporate earnings calls about jacking up prices on consumers to keep their profits soaring—and today’s annual profit data shows just how well their inflation strategy is working,” Owens said. “These megacorporations are cashing in and getting richer—and consumers are paying the price.”

The American Economic Liberties Project expressed a similar view on Twitter:

A number of major U.S. corporations, from Amazon to Starbucks to the Dollar Tree, have announced in recent months that they’re moving to hike prices on consumers, often blaming the broader “inflationary environment.” Outgoing Starbucks CEO Kevin Johnson—who saw his compensation soar by 39% to $20.4 million in 2021—said during his company’s fourth-quarter earnings call that impending price increases are aimed at mitigating “cost pressures including inflation.”

But recent survey data indicates that Americans aren’t buying the companies’ justifications for higher costs. A Data for Progress poll released last month found that a majority of U.S. voters believe that “large corporations are taking advantage of the pandemic to raise prices unfairly on consumers and increase profits,” a position also taken by progressive members of Congress.

Next week, Senate Budget Committee Chair Bernie Sanders (I-Vt.) is planning to hold a hearing titled, “Corporate Profits Are Soaring as Prices Rise: Are Corporate Greed and Profiteering Fueling Inflation?”

During a separate hearing Wednesday on President Joe Biden’s latest budget proposal, Sanders said that “to a significant degree, pathetically, large corporations are using the war in Ukraine and the pandemic as an excuse to raise prices significantly to make record-breaking profits.”

“This is taking place at the gas pump, at the grocery store, and virtually every other sector of the economy,” said the Vermont senator. “This is why we need a windfall profits tax, and why this committee will be holding a hearing on Tuesday of next week on the unprecedented level of corporate greed that is taking place in America today.”

Common Dreams, March 21, 2022,