THE DISCURSIVE FRAME OF INFLATION AND WORKING PEOPLE
I’ve finally gotten around to listening to Larry Summers explaining to Ezra Klein why he hates to say he told us so, but…
In case you are among those strange people who thinks they have better things to do than spend their time scrolling through economic commentary, here’s a little background information. Back in 2021 when the global economy was first experiencing the throws of high inflation, many economists offered reassurance that what we were experiencing was transitory. It was the result of tied up supply lines tangled by disrupted commodity chains in combination with the economy spinning its wheels from the release of pent up demand.
Economics 101 suggested that the high prices in the market would spur investment in those areas and create avenues by which the supply chains would be straightened, the pent up demand would be spent and the market would right itself as if by an invisible hand (um…not sure if I’m allowed to use that in this context, but there it is). There was no need to worry. It was certainly not something the Fed needed to be involved in–at least not yet.
Larry Summers was the poop slinger at the ball telling us that all the stimulus from the myriad COVID rescue plans combined with rising wages was the real instigator of the inflationary trend. He predicted that inflation was a long term problem unless we got a handle on all of this money in the hands of working people.
Well, here we are. It sure seems that the poop slinger was right. Inflation continues to plague us and is increasing. Those wage gains are being eaten up by rising costs. It sure looks like the invisible hand of the economy is losing its grip. The only possible solution is tightening up monetary policy to slow the economy down.
By this, Summers and like minded economists mean that working people will have to bear the brunt of fixing the economy–as always. The Fed will put the breaks on the economy–with a little luck, this will be a so-called “soft landing“– by raising interest rates. This will discourage investment. There will be fewer jobs.
This sucks for workers, but there really is no other way. If the Fed does not do this then…workers will have to bear the brunt of not fixing the economy. Their wage gains will be eaten up by ever increasing inflation. It will be harder and harder for working people to make ends meet. Investment will dry up because the wealthy will just sit on their vast piles of money.
Funny how this works out. During periods of high inflation, working people bear the weight. During recessions, working people bear the weight.
Meanwhile, we have an increasing number of billionaires. Some of these billionaires have so much money they just up and launched themselves into space for…well…no f**ing reason whatsoever. They just had the money to do it, so they did it. Meanwhile, when they are not taking cowboy joyrides into space, they fight tooth and nail workers trying to form unions, because if billionaires can’t take joy rides into space, there’s really no reason to invest at all.
Corporations are making record profits. This statement belies the claim that high prices were simply the result of businesses passing on their increased production costs to consumers. Can’t blame the owners for wanting to make a buck. Of course, if they were just passing down the costs, profits wouldn’t be growing. Congressman Frank Pallone, Chairman of the House Energy and Commerce Committee states, “Corporate greed is motivating large companies to use the pandemic and supply-chain issues as an excuse to raise prices simply because they can,” Again, working people bear the brunt.
And the economic policy wonks just can’t see any other way. It’s about finding that sweet spot between wage gains for working people and inflation. Such analysis, for some reason, doesn’t apply to corporate profits.
We’ve seen this Larry Summers production before. Take, for instance the innovative monetary policy during the Great Recession. Irresponsible banks and investment firms tanked the economy by investing in ridiculous securities, derivatives, and swaps. No sensible regulatory system would have allowed such behavior, yet enough surreal investments were allowed to take place to tank the global economy all in the interest of not putting undo pressure on the investor class. It’s all about free markets.
When, by 2008, these investment firms were holding stacks of worthless paper–an entirely predable eventuality–the Fed rescued these “too big to fail” firms by buying up billions of dollars of worthless investments. The idea was to unburden the economy from the weight of these bad investments and, at the same time, get liquid assets into the hands of investors who would…well…do whatever the f**k they wanted with that money. It was a win/win for everyone.
Unless, of course, you were a working American. Then you were left to carry the weight of the recession on your broken back. There was just no other way.
Except, of course, there was another way. The money that the Fed used to buy up worthless paper investments could have been used to buy valuable houses. The Fed could have purchased the upside down mortgages and restructured the loans to help keep millions of Americans in their homes. They could have lowered interest rates to one percent. The Fed would have actually made money from the deal–or at the very least not lost nearly as much as they had to swallow to buy up worthless swaps. Americans would have stayed in their homes. Housing values may have declined, but wouldn’t have collapsed. Furthermore, this strategy still would have infused liquidity into the finance system by resecuritizing the very mortgages that were at the root of the financial collapse.
Why wasn’t this strategy put into place.
The answer is not economic. On one hand, the answer is premised on a moral discourse. We can’t just bail out mortgage holders. That would incentivize irresponsible behavior on the part of consumers.
Yes. It was part of the elite discourse of 2008 that working people losing their homes were simply suffering from their own irresponsibility. They shouldn’t have invested in homes they couldn’t afford. Of course, they often could afford the homes before losing their jobs. In many cases, they were shunted into variable rate mortgages despite qualifying for prime rates. Nevermind. We simply cannot afford to reward irresponsible behavior in a capitalist economy. Unless, of course, the irresponsible party was “too big to fail.” Then, whattayagonnado?
It turns out that Larry Summers may have been right about inflation. It may not be transitory. At the very least, it’s taking much longer to transition than most people realized.
That folks like Larry Summers can’t see solutions for high inflation that does not require sacrifice on the part of working people, however, is not just cold, dispassionate economic reasoning. It’s a discursive frame that precludes sacrifice on the part of the investor class. The same economic reasoning by which Summers can say we need to slow down wage growth in order to get an handle on inflation, can be applied slowing down profit growth, or dividend growth. For experts like Summers, who have spent their lives serving elite interests, however, an analysis from a working person frame is an atrophied muscle. Summers is likely sincere in his desire to help working Americans. His discursive frame, however, precludes him from doing so.
Instead of the Fed applying the breaks to slow the economy, a policy that might just cause a recession,1 there are alternatives. These alternatives all involve placing checks against corporate power.
Economist Robert Reich is, of course, beating the drum against corporate monopoly power. “The underlying problem is not inflation. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.” Strategies such as enforcing anti-trust laws and taxing excessive profits are being floated by more worker friendly economists. Senator Bernie Sanders has introduced the Ending Corporate Greed Act that would raise taxes on the excess profits made by our largest corporates to 95%. The very threat of such a law might induce businesses to lower their prices. Of course, it’s unlikely that this legislation will pass the Manchin Test.
Furthermore, the best check against corporate power is union power. Unions can help guarantee wage growth for employees while limiting corporate profits, a net wash for inflation. Corporate profits remain secure because higher wages for working Americans also secures a sound demand base in the market, ensuring that investors have something to invest in.
Larry Summers and like minded economists can’t just keep feeding us the same discursive frames. They can’t lament apologetic over limiting the gains of working people whenever labor starts to gain traction and average Americans start to get a little ahead of the economic curve. They can’t keep saying that every economic crisis must be borne by the workers with zero to any responsibility for the owners. They are, in essence, admitting that capitalism does not work for working people–working people, however, are the only thing sustaining capitalism. If that’s their premise then the only thing for working people to do is reject this frame and demand a better system.
Finance has had a good run. For the last forty years or so they have been allowed to reap the benefits of the new economy without having to pay the bills due. Maybe it’s time to let working Americans enjoy half a century of economic gains and the occasional bailout when things go wrong. Maybe the economic challenges of the future should be borne by those who can afford to carry the weight.
The post by Adam Tooze only confirms my thesis above. There’s no good reason to have to sacrifice wage gains for the sake of perpetuating profits in the face of this inflationary period. It may be, as Tooze points out, that companies are already factoring in future wage gains into their profit calculations. However, they sure seem to be factoring high if that is the case.
- This recession would hit at the worst possible time. A recession at this point would further empower the GOP. Republican control of congress would cripple the Biden Administration and set the stage for a complete takeover of the federal state after the 2024 elections. A recession, even one created by the Federal Reserve, could deliver the nation into the hands of a party intent on dismantling American democracy. This is a topic I will explore later.