Inflation: What’s it good for? Absolutely nothing!

The title of this post is a modification of an old antiwar song from the 1960s which was chanted at rallies, “War, What’s it good for? Absolutely nothing”. As it turns out the slogan was clearly wrong about war in the 1960s and today. War was, and still is, good for the military industrial complex and, as evidence is mounting, it is also wrong about inflation today.

In an earlier post I asked “What’s so bad about inflation?” In my response, I pointed out how inflation, under certain circumstances, can actually be beneficial for working people. That’s because for debtors, which include almost all working Americans, inflation reduces the value of their debts. For example, if you have a mortgage for $100,000 and inflation is 10%, after a year that debt will still be $100,000, but the $100,000 will only be worth $90,000 in terms of the previous year’s value. The happy home owner has paid off approximately 10% of his mortgage (or for another example, her student loan) without doing anything. (I realize this is an over simplification, but nonetheless, it’s true – moderate inflation is good for debtors)

The value of the assets held banks and other creditors, on the other hand, goes down as a result of inflation. The $10,000 that comes off the value of the homeowner’s loan means a $10,000 loss for the lending institution. The banks respond to inflation by raising interest rates and offering variable interest rates on new loans, but still face losses on existing loans. This is what happened in the 1960s and 70s in the US.

Of course, if you are a working stiff or on a fixed income, say Social Security, inflation also means your income is worth less. Unless, as was the case in the 60s and 70s, there are significant forces at work to protect that income from the “ravages” of inflation. These included a strong labor movement and a federal government that provided a safety net for ordinary Americans.

In the 1950s and 60s, labor unions demanded higher wages to offset inflation, and the inclusion of cost-of-living clauses in their contracts. This rising tide affected all boats for the most part, and wages kept pace with (and even exceeded) the rise in the cost of living. In addition, the federal government greatly expanded the safety net, which had been established during the New Deal, with programs like Medicare and Medicaid; it significantly increased Social Security benefits; and it raised the minimum wage (which now hasn’t been raised since July 2009).

The capitalist class was horrified and responded with an orchestrated campaign of both short-term and long-term measures to protect their profits and their power. It began with laying out a plan for the complete capture of the political and economic institutions of American society. That plan was the brainchild of Louis Powell, future Supreme Court Justice, and he presented it to the US Chamber of Commerce in 1971. You can read the Powell Memo in its entirety on Greenpeace’s website https://www.greenpeace.org/usa/democracy/the-lewis-powell-memo-a-corporate-blueprint-to-dominate-democracy/

This corporate blueprint provided the path to neoliberalism which came to dominate both political parties and unleased corporate power and consolidation, globalization and the financialization of every nook and cranny of the economy. Just a note: the profits of the financial industry now represent around 30% of the entire US corporate profits and are an incredible drain on possible productive investment. The result was runaway inequality in the US and much of the advanced capitalist world which brought us to our current situation.

The main safeguards against inflation for the working class have been effectively eroded. Union membership in the private sector has declined to its lowest level in over 100 years, due to globalization, deindustrialization and the progressive evisceration of protections for union organizers under the NLRB. The current tiny wave of unionization will have to grow into a torrent before it can affect the situation and the “Great Quit” will also have little overall effect because of the large reserve labor force in the US. Thus, despite an occasional genuflection by the Democratic Party, we are on our own to try and reverse course of runaway inequality and to provide a defense against rising prices.

Based on the above, it should come as no surprise that the corporate elite would seize the opportunity presented by the COVID pandemic and now, the war in Ukraine, to suck even more profits out of the economy by raising prices. Because most industries are dominated by monopolies, there is no worry about competition, which according to the neoliberal doctrine and the laws of supply and demand, should keep prices in check.

Today corporate big wigs see no problem in boasting about their success at the earnings calls for their companies (where, according to federal law they are required to tell the truth, although I wonder who’s watching). For example, a Barclay’s Bank executive recently crowed, “The longer inflation lasts and the more widespread it is, the more air cover it gives companies to raise prices.” Executives on their earnings calls bragged to investors about their blockbuster quarterly profits resulting from “successful pricing strategies” and patted their teams on the back for a “marvelous job in driving price”. As one C.F.O. put it, they were “not leaving any pricing on the table.” We’re greedy and we’re proud of it!

The effects of this can be seen in one startling statistic:  according to Bloomberg, despite some rising costs of labor, energy and materials, etc., profit margins reached a 70-year high in 2021, with the fatter profit margins, not the rising costs of labor and materials, driving the price increases. The return to the high rate of profit from the post WWII era (when the US capitalist class dominated the entire world) is particularly concerning since it appears that the politics of neoliberalism have taken us back to the Gilded Age of the 1890s, when the Robber Barons dominated both the economy and the politics of the nation.

In the 1890s a mass working class political movement arose known as the Populists, which worked to bring together forces from the Farmers Alliances and the nascent labor movement and challenge the two political parties, which were both under the control of big business. Although it had weaknesses (the most glaring one being its failure to target white supremacy as the impediment to working class unity), it can provide some ideas on how to move the struggle forward today.

As we build such a movement, we need to put forth working class demands that Congress pass the necessary legislation to give regulators the power to prohibit price gouging during emergencies and to levy an excess profits tax, increase the corporate tax rate and pass a wealth tax on billionaires. On the administrative end, the feds need to ramp antitrust prosecutions and beef up the IRS to permit more audits of the very wealthy. Finally, in what would be a major strike against the massive accumulation of wealth by a tiny fraction of our society, the SEC must ban stock buybacks, which, until 1982, were considered stock manipulation and were subject to strict regulation.

Those of us who have chosen to work within the Democratic Party to fight for these demands and those of us who have chosen to build alternative political structures, can work together, in an inside/outside strategy, to weaken the power of the capitalist class to impose the costs of its continued dominance (and of its Empire of Liberty) on the working class. The struggle continues.