Inflation and Labour Shortage

Inflation and Labour Shortage

Posted on 2021-07-20, Richard Wolff, Democracy at Work

This time of year, the July 4th holiday, is on people’s minds and I wanted to start with that because it allows us an insight into economic problems we’re facing now. Independence, back in the end of the 18th century, was on Americans minds. They were angry, frankly, about the reality of being governed by George III King of England they didn’t like, and they were very clear about that, he, the king had all kinds of power and authority over them, and they had none over him. In other words, they were angry that the king could do all kinds of things that were good for the king or maybe good for British Empire interests but were not particularly good for the colonists here in what came to be known as the United States. It got so difficult, it got so tense, that the Americans so-called decided to revolt to break away in a violent revolution against the established authority of King George III and, as you all know, we celebrate the war of Independence that made the United States free. Notice, we did not establish another king to replace George III, having become independent of him. We did something very different. No king. We didn’t want that anymore. We didn’t want anyone in political authority to have power over the rest of us without some reverse power. To kind of make it more, dare I say, democratic. Well, why am I talking about this? Because in our economic system we have situations quite like what we didn’t tolerate back in 1776 and I want to raise the question with all of you as to why exactly we tolerate it now. And so, I’m going to do that around two topics that are on people’s minds here in the United States today. One of them is inflation. The rising of prices generally across the board in the goods and services we all depend on. And the second one is what has been called a “labor shortage”. The problem of jobs and people looking for jobs and that’s what I’m going to talk about in the second half.

 

So, let’s turn to inflation and let’s start simply because this is one of those topics that people tend to shy away from, to be intimidated by a little bit, but there’s no need. It’s a very simple story. In capitalism we give to a certain group of people quite by the way a small minority the power to determine prices. The prices to be charged for a shirt, for a bag of potato chips, for a software program, for whatever, it is the price set by the owner or the board of directors, if it’s a corporation of capitalist enterprises. A free enterprise system means that the employer is free to set the prices that he or she wants. And what do they do with that freedom? Well, you know the answer even if you’ve never gone to business school. You know that the employer, the producer, the owner, the entrepreneur, the capitalist sets the price that will get for him or her the greatest profit. That’s what they’re in business to get and that’s how they decide what to do with prices. Of course, they have to be careful. They can’t just raise the price astronomically because, obviously, in our system, the higher the price, the fewer the people who can afford to buy it, and you’d be shooting yourself in the foot if you raised the price so far that there were only very few people left to pay and then you’d lose in foregone sales. What you had hoped to gain by raising the price so what every capitalist understands as you push that price as high as you can just to that point where pushing it any higher would be bad for profits because of the number of people who couldn’t buy it anymore. And that’s when you stop.

 

But notice! In my story, that the capitalist is setting the price based on one thing he or she is focused on: profits. It is not in our capitalist system the obligation or the responsibility of the employer to worry about the consequences of whatever prices he sets, or she sets. And that’s where they become like King George III, who set all kinds of prices. For example, the famous tax on tea that led those colonists in Boston to have that first Boston Tea Party throwing the tea into the harbor in protest because what the king was doing by taxing the tea was good for the king but was awful for the city of Boston’s merchants and the people dependent on them. Well, when capitalists raise their prices, they are not responsible any more than George III was. For what happened for the suffering that I’m going to show you for the social consequences I’m going to sketch for you. When prices go up here, when they go up, poor people, and that’s the way capitalism always works, hurt the most because the minute the price goes up they can’t pay for it. That’s what poor means. They can’t do it, so, their budgets are busted so, the families of poor people cannot afford whatever the price is that has just been raised by capitalists and when they all raise them a little or most of them do we have that word inflation and that’s what’s going on as I speak with you as it has so often in capitalism well let’s look at the consequences and they’re funny in some ways because they’re so complicated. Here’s another thing people will do if prices go up. It won’t just be that they don’t buy stuff anymore, which poor people will have to live with the suffering that goes with that, and remember they’re already poor but others amongst us will switch from the higher price to the lower price. Maybe sacrificing something in the quality, maybe settling for something which won’t last very long and thereby discovering as poor people do that if you pay less and you get lower quality in the long run it may very well cost you more. Here’s what happened in the United States with inflation over the last 20 or 30 years. Everybody who used to go to stores where the prices were raised, you know the Sears, Robux of America moved over to the Walmarts of America because everything was cheaper there. And you know what well. Walmart did got those cheap goods people went to buy because they couldn’t afford the rising prices of everything else. They went to a Walmart that brought in cheap Chinese goods. That’s right! The raising of prices by American producers to get more profits for themselves drove millions of Americans to buy Chinese goods that were cheaper. The growth of China, the power of China was in part supported by the reaction of Americans to the inflation built into our system because we let private enterprises raise profits by raising prices and not be responsible for what the social consequences were.

 

You know, a rising price for the things you buy is just as devastating as getting less in wages. A cut in wages means you can’t afford stuff but rising prices means exactly the same thing. We have ways in our society to protest a wage cut but how do you protest a price increase employers have no responsibility for any of this. Indeed, these days as the Federal Reserve floods the economy with more and more money to try to give the economy a boost here’s what the Fed really hopes for that with all this extra money people will go and buy goods and services and the capitalists will produce more to sell more. Well, they might! But if they’re a free enterprise, here’s something capitalists can do. Looking at all the money being pumped into the economy by the Federal Reserve now, by the deficit spending of the government under Biden, as well they have an option. They have a freedom. They can choose not to produce more goods to sell to the people with more money, but they can instead raise the prices knowing that people with more money will be able to pay them and it’s easier and quicker to get more profits by raising your price than by going through all the labor of producing more goods. So, capitalists are raising prices and the reason is because they can. Because that’s what a free enterprise enables them to do without their having to worry about or take any responsibility for the social consequences of the prices they raise. They raise them for their private profit. We live with the consequences but have no power over those price setters should remind you of King George III. Capitalists however don’t want us to think about that. That’s why there’s always an excuse when capitalists raise prices. We’re not supposed to understand they’re doing that, as they were taught in business school, to protect or improve their profits. No, no, no! Here are the stories we hear: we’re raising prices because our workers have demanded higher wages or because the government is charging us higher taxes or because we have to pay more for our inputs. Notice. The capitalist who raises prices is never going to tell you: I’m doing that because I want and can get more profits that way. No, no, no, no! We’re always taught that the poor capitalist is only doing this unpleasant thing because he or she is forced to. Don’t be fooled! Well, what’s the alternative?

 

The alternative is that prices are not set by one part of the economy, a small minority, employers are a small minority of the people in our society, why should they be able to set the prices? Here’s a metaphor we have  traffic intersections in America don’t we? Where all of us who are going one place, or another have to cross the same intersection more or less at the same time. Do we allow everyone to go free? Do we have free traffic intersection maneuvers? No. We don’t. We have a light. A light that goes green or red and some of us have to go when it’s green and stop when it’s red and that’s because it’s better for all of us to limit the freedom of all of us because we all have to get to where we’re going. We all have to be alive when we get there, and it would be chaos and deeply unfair to let everybody go zooming through that intersection without rules. Limiting our freedom, well, you know something going to work is just like going to an intersection there has to be a shared power and responsibility not only over what the wages are but what the prices are. We all have to live with the consequences of price setting we shouldn’t have a minority free to do it in its own self-interest.

 

I want to look in this second half at a similar maneuver by employers, but not around prices, around the hiring of workers or what you might call the price of the labor, the labor power that they buy from the working class. So, let’s begin with a very clear understanding of where we are right as we’re speaking: employers across the United States, and indeed across the capitalist world, want understandably to recoup the losses that they suffered. The missed profits they never got during the last year and a half, the year of a global capitalist crash and the year of a global viral pandemic. Hard time was had by employers who could not, in many cases, and there are some important exceptions, keep their people working and get the profits out of their employees that they normally do. That’s a reality, and here’s what they have decided to try to do. They’re going to try to get workers to come back to resume production, to resume generating the profits with their working employees, but they’re doing something else as well as we saw in the first half. They’re raising their prices; they’re doing that because they can. It’s in their hands to determine what the price is of the goods and services they sell. They see the Federal Reserve and other central banks pumping more money into the economy, so people will have the money with which to pay more for the goods and services they buy. They see the federal government for example, under Mr. Biden, like Mr. Trump pumping more money in than they’re pulling out in taxes. That’s what deficits mean. Ehen the government spends more and that’s going to increase purchasing power in the population, so when capitalists see that kind of thing they have a choice to make. And please notice, it’s their choice. They can respond to the extra money in the economy, they can respond to the extra spending by the government by saying to themselves, wow, there’s more purchasing power that more people out there with more money in their pocket, let’s order more goods from the companies that supply us in the stores where we are and so forth, in the malls where we are, because we’ll be able to sell more and that’s of course what people at the Federal Reserve and the government want because of what the businesses decide is to sell more stuff to soak up the extra purchasing power that means more jobs for people producing that stuff. But I told you, capitalists have a choice. And here it is they can respond to the extra money in the economy whether it comes from the Federal Reserve or the U.S. Treasury, really doesn’t matter.

 

They can respond not by ordering more goods and selling more, but, instead, doing nothing of the sort. Simply raising the price of what they already have to sell and you know that’s a lot easier. There’s more profit in it, because the cost of doing that are virtually zero. You just raised the price. It cost forty dollars before, now it costs fifty It cost ten cents before, now it costs fifteen and so on. And so that’s what they’re doing. They’re raising the prices we talked about that in the first half. I want to look at now a second question. Some extra hiring is going to be done in this recovery no question. These companies that I talked about, who raised prices know that part of what they’re going to be doing is selling more goods and services, so they will have to hire more people as restaurants open, they’ll need more people, as health centers expand and resume functioning they’ll have to hire more people and so on. So, now the question for them becomes what do we have to pay the people we’re bringing back to work and here comes the problem. It turns out that it wasn’t just employers who suffered during the last 15 or months or so of economic downturn and Covid, so did the mass of workers and they are much, much larger in number. Here’s a statistic. Just to give you an idea. 82 million Americans at some point or other in the last year and a half filed for unemployment insurance. Some were only unemployed a few weeks, some were unemployed the entire 15, 16, 17 months. 82 million that’s an awful lot of people and you know when you’re unemployed, short or long, you use up any savings you had. You maybe need to lean on your relatives, your family, your friends, your community. It’s rough. The working class has its problems coping with and coming back from and recovering. They need secure jobs, they need a higher income every bit as much, and with just the same justification, as the employer who wants to recoup some of his losses from the pandemic and the crash.

 

The employers don’t want to pay higher wages that’s how they’re going to get the extra profit. That will help them recoup from the 16 months or 17 months of grief we’ve just gone through, so they want to be able to raise prices you bet you. But they don’t want to raise wages you betcha and for the exact same reasons. The bigger the profit for them the more they can raise prices on the one hand and not raise wages on the other, so now you will understand why suddenly you hear all this talk about quote unquote, get ready, labor shortage. What an interesting idea and what total nonsense what the employers are saying is gee, there’s not enough workers. Let me translate that into economics. There are not enough workers for you to hire at the wage you’re offering. You’re offering as much or less than you used to pay because you want to make profits, which is what you’re in business to get, but you’re not the only one who has to recoup the losses of the last 16 18 months. Your workers are in just the same predicament, but you don’t want to pay them a higher wage even as you raise your prices. You don’t want to, but you don’t say that, because that would be honest and admitting how this system works. Which is dangerous, so you come up with bs: labor shortage.

 

Listen Jack, you raise the wages, the shortage will vanish, the people will come knocking at your door, but you don’t want that. And so what is the point of this labor shortage noise? Here we go. Four states in the United States have already acted on pressure from businesses talking about labor shortage and you know what they’ve done? Exactly what those businessmen want. They have withdrawn their states from the federal program of giving an extra 300 a week to people on unemployment. Oh, now we get it! You’re going to force people to go back to work at low wages by taking away a portion of the unemployment that they were entitled to to help them through the crisis. The employers got billions of dollars to help them through, remember, the Payroll Protection Plan, all the extras that were given to businesses. They wanted them, they got them. And they took them. But they’re in the same process now taking those away from the workers. The businesses got millions, the workers got a few hundred dollars extra a week for a limited number of weeks, but who cares. In the capitalist system the employer is taking away the extra for unemployed workers making them so desperate with those 300 gone, in the four states that have already done it, and other states typically run by republicans moving in that direction. You are forcing workers to accept much lower wages than they need to cope with the suffering they just went through. What kind of a society gets through a cataclysmic crisis with somewhere

between half and one million dead fellow citizens responds by squeezing the mass of the working class to force them back to work?

 

And by the way, you’re going to see more of this. It isn’t just taking away the 300 of extra for the unemployed, you’re going to see restrictions on who’s qualified for any unemployment. You’re going to see problems with little self-employed businesses to force those people to give up their little business and go back to work at the low wages you’re worsening the inequality. You’re going to see a reopening to immigrants in the hope that they will come in and work gratefully at the lower wages, which will force the general level of wages down. I mean we will see every effort made to coerce this system to maximize the profits of the minority of our people who live off profit at the expense of the majority of the people who work for a living producing the profits for the minority. And all of this happens below the surface. All the noise on Tv on the social media about this program that the Biden administration is going to start. And I don’t want to take away given what the Trump administration did. Biden’s way better, no question, for the mass of people, but he’s dabbling around the edges the hard reality of everybody’s job situation is better captured by the sad story I had to tell you today, but that’s why capitalism as a system is the problem, because right below the surface of the rhetoric there’s this relentless reality in which a tiny group of people have the power. That’s how our system works to set the prices to use the profits they gather in their hands to how shall I say, “persuade” the politicians so that they can force the workers to come back to work without the wage increases. That what we just went through should have entitled them to. I’m a critic of capitalism. You know that. But I’m not a critic out of some abstract ideological commitment. I’m a critic because I can see every day the regular routine realities of this system grinding the mass of people for the benefit of the few and I actually take seriously that part of the motivation for what this country did when it was born as an independent country to break away from another system in which a tiny group of people, King George III and the court of the king of England were telling all of us in this country what to do and how to do it. And when to do it and squeezing us as they did with that tea tax that our fellow citizens in Boston opposed. And we broke away from them. We had a revolution to get free not just of King George III, but of the whole king monarch system, which is why we didn’t reproduce it here. Our independence was one from a system, a feudal system with a king on top, that we didn’t want to live under. There’s a lot of message there and it applies to our situation in capitalism, in the United States right now.