Din-flation 🔕
We make a lot of noise about inflation, but don't have a great moral sense about it.
It’s election season in our tiny corner of the biospheric bubble, in our much (much!) tinier corner of our solar system. If there’s ever a time for nonsense opinion pieces from executives, academics, pundits, and lobbyists, it’s now.
I bring this up because I’ve been skim-reading a few of these page-wadding opinion pieces about our nation’s No.1 Election Issue—living costs—since writing an earlier piece about lazy subsidies on fuel and fruit.
And, because we live in 2023, there’s always “A Comments Section”.
Every comments section on these pieces is a veritable feast of brain-dead takes from people who are apparently just Angry About Everything™. From both sides. There’s all the standard stuff about whose at “fault”, “the cost to taxpayers”, or how we need to “ban all [insert service/commodity/class of person] to save humanity”.
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 “An EV is better for the environment, and you don’t have to worry about the cost of fuel!”
And, of course, the full weight of the idle-internet tumbles onto them, in a hogwash of “cobalt mines!”, “recycling!”, “ethical consumption doesn’t exist!”, “not enough electricity!”, and “battery fires!”. Fun.
One comment grabs my attention.
…And, if you’ve ever read my stuff before, you’ll be unsurprised to know it’s going to take us off in a direction that has really nothing to do with fuel or fruit subsidies!
I’m paraphrasing here—because otherwise, you’ll need to spend the same four minutes I did, parsing an unpunctuated or spell-checked 64-word sentence—but the comment broadly said:
“The Government keeps over-regulating business, and running taxpayer-funded market enquiries into profit taking. The result is higher costs! Fortunately, some smart people know what’s 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!”
Obviously, it’s a lot. It covers several key crazy-talking points—nicely detouring into the ‘wake-up sheeple’ 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 don’t need the market enquiries, the conspiracy, or blame, to know what’s going on: The numbers representing ‘prices’ on things are just bigger than they were. The problem is governments and media—and the reserve banks—worldwide, benefit from framing that as a ‘cost of living’ 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 you’re suffering from a high cost of living, all it means is it’s not you.
…But first, a wee explainer
In New Zealand, in 1989, the Reserve Bank Act was passed, handing off responsibility for interest rate setting to an ‘independent’ Reserve Bank. At the time it was pretty essential to do something—the 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 ‘controlled’ economies in the world, resulting in some good (at one stage just 28 people were considered ‘unemployed’ 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%).
…An 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 they’ll 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, I’ll do a whole series on debt and fill this out more. But, in the meantime, just a reminder that:
“A primary goal of a government…should be to maintain the value of money at a level that maximises its motion.”—you 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 it’s undeniable that many of the actions taken to reduce it—including squashing worker unions, and shifting economic power (in most developed-world economies) into the hands of private owners (‘capital’)—are 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, you’re 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 class—inspiring similar approaches in a bunch of other places, like the UK and Canada.
And, we all lived Happily Ever After!®
Well. Not exactly.
The Act was updated in 2021 to improve the transparency of the RB’s activities, and some other minor tweaks, but otherwise stuck largely to the intent of the original. And, don’t forget, the original was built when neo-liberal capitalists had captured the flag. So, the thinking behind it—to this day—remains pretty focused on the idea that ‘economic growth is the only kind of growth we need’; that is, private ownership and money should be the main turn-signals on our country’s road to success.
So, with all that in mind, it’s been child’s play for most pundits to link our current cost of living ‘crisis’ directly to inflation.
Let’s be clear, the thing that creates genuine uncontrolled inflation is a shock to supply which causes it to be outstripped by demand—a 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 couldn’t adapt to the pandemic, but let’s give globalisation the benefit of the doubt… for now… Regardless, the supply of most things should be back at ‘meeting demand’ now.
Except for one niggling little shit-of-a-thing: Labour (that is ‘workers’, 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 ‘summarise the salient point in 10-words or less’1, you’d get something like:
“Governments should just concentrate on punishing lazy bludgers”
The assumption that skulks behind this kind of thinking, labour supply is not meeting demand because ‘some people don’t want to work’.
Like most of the ningnong-narrative, there’s no real subtlety. Politicians say it; talkback radio callers (and hosts) say it; think-tank-funded opinion pieces say it. It doesn’t even cross their mind that anything other than “laziness” 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) ‘laziness’ with another NZ economic innovation—A. William Phillips’ “Curve” 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 can’t afford for everyone to have a job.
Because of their faith in the Phillips’ Curve, what they think “everyone having a job” does, is fuck up their carefully-managed inflation ‘targets’ 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 haven’t made a concerted effort to measure value using anything other than private property and money, “try harder” basically just amounts to “pay more”.
In a ‘There is No Alternative’ world, this all sounds fair and logical. Employers need some pool of reserve workers so the ‘Labour Market’ 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 “suffering”. 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 aren’t 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 doesn’t even need to stand up or open a safe. There’s a good chance she’d 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 ‘creation’ is the management of risk.
So where does ‘productivity’ fit in? You probably understand the literal definition of ‘productivity’ as something like value-added-per-hour. But there’s 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 ‘financialisation’, but essentially it is just the idea that money is far-outrunning its usefulness—in 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 “productive” in an economic sense.
I realise it’s 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
You’ll note there is no mention of ‘productivity’ 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 ‘hugs’ or ‘malaria nets’ or whatever.
The point is, if you focus on redefining or growing distributed productivity, rather than growing concentrated profits, you actually disconnect the ‘cost of living’ from ‘inflation’. And, in the process, you prevent suffering. How you actually boost or reframe productivity is up for debate of course, but it’s not a debate we even get to have in a world where the default fix for a rising ‘cost of living’ involves loud proclimations about punishing people until their optimism about the future fades and they stop spending!
Yes, I’ll 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 don’t 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 themselves—and if it’s not to manage genuinely limited or regulated supply, then it’s for greed, at the cost of growing productivity. That’s 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 ‘cost of living crisis’ because basics are never expensive relative to their wealth.
This is another of money’s 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 couldn’t possibly distribute the rewards of our productivity better than we are—we 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 “rationality”, 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 ‘money minus productivity’, to frame an alternative path out of this ‘crisis’: The rational understanding is always the financialised one, where ‘inflation’ and a high ‘cost-of-living’ are synonyms.
Here’s 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 “lazy bludgers” at political rallies, in opinion pieces, and in comments sections, rather than questioning what we’re doing wrong in a world containing both a cost-of-living crisis and a bunch of billionaires.
-T
To be clear, I didn’t use Chat-GPT for that. The writing is all-me baby! … Just to prove there’s 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.