Din-flation đ
We make a lot of noise about inflation, but don't have a great moral sense about it.
Itâs election season in our tiny corner of the biospheric bubble, in our much (much!) tinier corner of our solar system. If thereâs ever a time for nonsense opinion pieces from executives, academics, pundits, and lobbyists, itâs now.
I bring this up because Iâve been skim-reading a few of these page-wadding opinion pieces about our nationâs No.1 Election Issueâliving costsâsince writing an earlier piece about lazy subsidies on fuel and fruit.
And, because we live in 2023, thereâs always âA Comments Sectionâ.
Every comments section on these pieces is a veritable feast of brain-dead takes from people who are apparently just Angry About Everythingâ˘. From both sides. Thereâs all the standard stuff about whose at âfaultâ, âthe cost to taxpayersâ, or how we need to âban all [insert service/commodity/class of person] to save humanityâ.
Still, occasionally, some silly fool will even chime in with something that seems rational and balanced enough that it should be able to defuse the polarised rage, like âAn EV is better for the environment, and you donât have to worry about the cost of fuel!â
And, of course, the full weight of the idle-internet tumbles onto them, in a hogwash of âcobalt mines!â, ârecycling!â, âethical consumption doesnât exist!â, ânot enough electricity!â, and âbattery fires!â. Fun.
One comment grabs my attention.
âŚAnd, if youâve ever read my stuff before, youâll be unsurprised to know itâs going to take us off in a direction that has really nothing to do with fuel or fruit subsidies!
Iâm paraphrasing hereâbecause otherwise, youâll need to spend the same four minutes I did, parsing an unpunctuated or spell-checked 64-word sentenceâbut the comment broadly said:
âThe Government keeps over-regulating business, and running taxpayer-funded market enquiries into profit taking. The result is higher costs! Fortunately, some smart people know whatâs going on and are working to dismantle it. For everyone else, the best solution is stop being a lazy welfare recipient and get working, or get by without!â
Obviously, itâs a lot. It covers several key crazy-talking pointsânicely detouring into the âwake-up sheepleâ dip, on the way to indignantly blaming both government elites for the cost-of-living, and welfare recipients for their own bad luck.
What gets me most about this whole thing though is, we actually donât need the market enquiries, the conspiracy, or blame, to know whatâs going on: The numbers representing âpricesâ on things are just bigger than they were. The problem is governments and mediaâand the reserve banksâworldwide, benefit from framing that as a âcost of livingâ issue.
Now, why would they do that? High prices are actually not the same as a high cost of living. On the contrary, high prices mean someone is getting richer. If youâre suffering from a high cost of living, all it means is itâs not you.
âŚBut first, a wee explainer
In New Zealand, in 1989, the Reserve Bank Act was passed, handing off responsibility for interest rate setting to an âindependentâ Reserve Bank. At the time it was pretty essential to do somethingâthe previous Prime Minister, Robert Muldoon, literally tried to hold the country to ransom with large foreign debts and his own agenda. Aotearoa New Zealand had become one of the most âcontrolledâ economies in the world, resulting in some good (at one stage just 28 people were considered âunemployedâ across the whole country), and some bad (you basically needed permission from the Prime Minister himself to take an overseas holiday).
Credit where it was due, the Act was fairly innovative (in a neo-liberal way), because it gave the Reserve Bank independence from the ruling government, and did it alongside strict accountability and goals, such as an annual inflation target in low single-digits (roughly 0-3%).
âŚAn aside, inside an aside, inflation is an important part of the way we run modern economies. From the perspective of a peanut-butter-buyer, it seems crappy that peanut butter keeps going up in price every year, because of inflation. But, what inflation is designed to do is get you to spend money now (because you expect prices to be relatively cheaper compared to what theyâll be next year), and to borrow money to invest now (because, again, the burden of your loan will be relatively lower in the future when it needs to be paid back).
One of these days, Iâll do a whole series on debt and fill this out more. But, in the meantime, just a reminder that:
âA primary goal of a governmentâŚshould be to maintain the value of money at a level that maximises its motion.ââyou can read more about that here.
Anyway⌠The Reserve Bank Act gave the RB a mandate to target inflation following the high (and genuinely damaging) inflation of the 1970s. The full reasons for high inflation in the 1970s are still hotly debated, but itâs undeniable that many of the actions taken to reduce itâincluding squashing worker unions, and shifting economic power (in most developed-world economies) into the hands of private owners (âcapitalâ)âare responsible for where we are today: Socially, and economically.
I personally think many of these outcomes have been a bit shit; but if you live in a gated community in Florida, with a portfolio of investment properties, youâre probably ok with it all.
Inflation came down into the target range (whether, because of the Act or other cyclic things is, again, hotly debated), and the Act proved popular among the global political classâinspiring similar approaches in a bunch of other places, like the UK and Canada.
And, we all lived Happily Ever After!ÂŽ
Well. Not exactly.
The Act was updated in 2021 to improve the transparency of the RBâs activities, and some other minor tweaks, but otherwise stuck largely to the intent of the original. And, donât forget, the original was built when neo-liberal capitalists had captured the flag. So, the thinking behind itâto this dayâremains pretty focused on the idea that âeconomic growth is the only kind of growth we needâ; that is, private ownership and money should be the main turn-signals on our countryâs road to success.
So, with all that in mind, itâs been childâs play for most pundits to link our current cost of living âcrisisâ directly to inflation.
Letâs be clear, the thing that creates genuine uncontrolled inflation is a shock to supply which causes it to be outstripped by demandâa volcano erupts covering a bunch of solar panels with ash and electricity prices might need to go up to prevent black-outs. This forces a snowball of money-signals (prices) to go up, in a way that is really disconnected from any boardroom or government chamber decision-making.
And, for a short time, with pandemic disruptions, that was probably the case.
I mean, you could point to inadequate and underfunded national resilience, profit-concentrating outsourcing, and monopoly supply chains as being the reason why supply couldnât adapt to the pandemic, but letâs give globalisation the benefit of the doubt⌠for now⌠Regardless, the supply of most things should be back at âmeeting demandâ now.
Except for one niggling little shit-of-a-thing: Labour (that is âworkersâ, not the political party).
And that big loop brings me back to that comment. See, if you dropped that whole original comment into Chat-GPT and prompted it to âsummarise the salient point in 10-words or lessâ1, youâd get something like:
âGovernments should just concentrate on punishing lazy bludgersâ
The assumption that skulks behind this kind of thinking, labour supply is not meeting demand because âsome people donât want to workâ.
Like most of the ningnong-narrative, thereâs no real subtlety. Politicians say it; talkback radio callers (and hosts) say it; think-tank-funded opinion pieces say it. It doesnât even cross their mind that anything other than âlazinessâ might be a factor in someone working or not.
So, we have all these imagined forces that feed into the way we view a cost of living crisis. To bring it all together, you need just combine this stigma toward (the propagandised definition of) âlazinessâ with another NZ economic innovationâA. William Phillipsâ âCurveâ which, simplistically, correlates high employment and (assumed) high wage pressure with high inflation. And we have arrived at the, wonderfully contradictory, situation where:
For the good of our economy (that is, low inflation), we must have thousands of suffering unemployed people. Also, unemployed people are lazy bludgers who should get off their asses and get a job!
Quick interruption to clarify: Caring for someone else, mental health issues, a criminal record, insufficient education, physical health issues, lack of transport, bigotry, lack of local jobs⌠these are all reasons why actual people might not be working.
The trouble is, the Reserve Bank canât afford for everyone to have a job.
Because of their faith in the Phillipsâ Curve, what they think âeveryone having a jobâ does, is fuck up their carefully-managed inflation âtargetsâ by giving power back to the employees: If you know you can leave a crappy job today, and get a better one tomorrow, employers have to try harder.
And, because we havenât made a concerted effort to measure value using anything other than private property and money, âtry harderâ basically just amounts to âpay moreâ.
In a âThere is No Alternativeâ world, this all sounds fair and logical. Employers need some pool of reserve workers so the âLabour Marketâ works efficiently. Otherwise, wage prices keep spiralling up and we get inflation. And, in that world, inflation can only be managed by reducing demand via the mechanism of âsufferingâ. Hence, inflation is solved via a cost-of-living crisis.
And that is all good noise for politicians and the media.
But, in essentially no disingenuous discussion about inflation risk is there ever anyone who points out this simple equation:
Money - Productivity = Inflation
Essentially, inflated prices just arenât a problem provided the distribution of productivity increases at the same rate as as the distribution of money.
The world now largely operates without physical limits on the amount of money that can be produced. If my bank manager wants to lend me money, she types opposite numbers into two sides of a spreadsheet. She doesnât even need to stand up or open a safe. Thereâs a good chance sheâd go days without handling physical money.
We do need to keep track of money that is created of course, and make sure risks associated with it are accounted for, but the only limit on its âcreationâ is the management of risk.
So where does âproductivityâ fit in? You probably understand the literal definition of âproductivityâ as something like value-added-per-hour. But thereâs also a much more narrow economic way that term is used, which is basically just a financial measurement of money-added-per-hour.
As a result, real productivity is basically disconnected from value now. You might sometimes hear this described as âfinancialisationâ, but essentially it is just the idea that money is far-outrunning its usefulnessâin the form of expensive houses and overpriced shares and cryptocurrencies and bullshit managerial paper-pushing jobs, and so on.
After all, a mother breastfeeding her child represents extraordinary productivity, as does one prisoner teaching another to read, or a kind samaritan stopping to help change a flat tire for an elderly driver on the side of a rural road, a homeless person being given shelter during a deadly cold-snap⌠Yet none of those things could be measured as âproductiveâ in an economic sense.
I realise itâs taken a while to get here but, when you put all those threads together, our non-sensical solution to people struggling with price rises is:
We need to raise interest rates, in order to make life more painful for the indebted majority.
That will reduce spending and, in-turn, reduce the profits of (especially small) companies, who will then make a bunch of their employees redundant.
With an increased number of job seekers in the Labour Market, wages will remain competitively stagnant, preventing any new growth in spending and, thus, reducing inflation
Youâll note there is no mention of âproductivityâ in there; or any suggestion that an investment to produce more widgets-per-hour would actually be a better solution than making a bunch of people redundant.
Not that we need more widgets in the world, so feel free to substitute that for âhugsâ or âmalaria netsâ or whatever.
The point is, if you focus on redefining or growing distributed productivity, rather than growing concentrated profits, you actually disconnect the âcost of livingâ from âinflationâ. And, in the process, you prevent suffering. How you actually boost or reframe productivity is up for debate of course, but itâs not a debate we even get to have in a world where the default fix for a rising âcost of livingâ involves loud proclimations about punishing people until their optimism about the future fades and they stop spending!
Yes, Iâll concede, some tiny portion of people are genuinely lazy. But the vast majority of unemployed people would rather be working than being physically or mentally unwell, being an unpaid carer, discriminated against, inadequately educated, or otherwise stuck living in circumstances without a job to even apply for. Addressing those sorts of issues is quiet, considered work, not the cacophonistic bluster of the Din-flation Discourse.
I should also point out, if you happen to be wealthy and own stuff, the combo of reducing inflation and increasing high interest rates is the Jackpot: Your other assets might not increase in value so quickly, but the cut that inflation takes out of their future value is also reduced. And, meantime, safe investments and savings accounts are earning you good interest rates.
Unaddressed inflation can be bad. I donât want to pay more than I can afford for peanut butter!
But we need to stop thinking of inflation as being exclusively defined by the value of colourful pieces of paper. Inflation is Money minus Productivity. Price inflation is very simply some people taking more for themselvesâand if itâs not to manage genuinely limited or regulated supply, then itâs for greed, at the cost of growing productivity. Thatâs how real worker wages have hardly moved since I was born, yet the amount of money in the economy is exponentially greater.
A cost of living crisis is not when the basics are expensive, but when they are expensive relative to what you have. I know several families entirely unfazed by our âcost of living crisisâ because basics are never expensive relative to their wealth.
This is another of moneyâs magic tricks (which I talked about at length in my series on wealth); hoodwinking us into the belief that it is high employment that causes inflation, so we couldnât possibly distribute the rewards of our productivity better than we areâwe operate in a sealed jar!
Economics can be a marvellously contradictory discipline. It will happily abbreviate all the complexity of human interaction down to a sort of collected ârationalityâ, then write 60,000 words to describe how that conclusion was reached.
As such, no serious economist or pundit would risk describing inflation in quite such sparse terms as âmoney minus productivityâ, to frame an alternative path out of this âcrisisâ: The rational understanding is always the financialised one, where âinflationâ and a high âcost-of-livingâ are synonyms.
Hereâs the crux of it. Inflation and an unsustainable cost of living are not the same thing. Modern inflation is a problem viewed through a financialised lens, which is why the solutions proposed are not full employment and substantial investment (expensive), but rather the strangulation of demand via poor and middle-class people suffering (profitable).
In a twist of irony, that makes the most lazy option the one where you rail about âlazy bludgersâ at political rallies, in opinion pieces, and in comments sections, rather than questioning what weâre doing wrong in a world containing both a cost-of-living crisis and a bunch of billionaires.
-T
To be clear, I didnât use Chat-GPT for that. The writing is all-me baby! ⌠Just to prove thereâs still some moderately useful life left in human creation.
There is room for a government job guarantee scheme - definitely productive in the wider sense that you use.