The Real Drivers of Inflation

The quantity of nonsense being spewed about around the inflation that’s engulfing the American economy is truly impressive. Republicans are using it to make their usual remarks, democrats are doing the same defensively, which is their posture towards republicans anyway. These days all kinds of crazy arguments are made by people who clearly do not understand what inflation is where it comes from or if they do are busy making sure that the public they talk to is as befuddled and confused as possible. So, let me try, as I often do, and as Democracy at Work tries to do to make it clear.

Let’s begin with a simple economic fact: the vast majority of people are employees and a very small minority of us are employers who set prices. Not employees, it’s not part of the job description which all of you employees listening have probably noticed. But if you own a business, if you’re on the board of directors of a large corporation you do set prices. You have the power, legally, and by the tradition of capitalism to set the prices, raise them, lower them, leave them the same. That’s part of your job description and what is the goal you have in mind? Well, what you tell everybody is that you’re in business when you graduated from business school, you learned the basic story. Profit is what we’re after. Profit is our bottom line. Profit is why we’re in business, etc., etc., etc. All of that is quite true and it follows like the day the night that the reason and the goal and the purpose of raising or lowering prices are to make more profits.

Capitalists, employers, that tiny minority of us raise and lower prices if and when they can if it enhances their profits because that’s the whole point of what they’re doing in their business including setting the prices. Therefore, friends, inflation which is a general rise in prices happens if and when the minority we call employers see fit to raise prices and they do that in order to either protect the profits they have or more likely raise them which is their ever-present goal. So, the first level of answer to why do we have inflation, and the answer is because employers want. Now, they don’t want you to know that. They want you to be angry at somebody else. If you’re being forced to pay more and more for those bananas or that software program or that hamburger or whatever it is, they don’t want you to be angry at them. They don’t want you to think you’re shelling out more of the money you don’t have, so they can make even more profits.

And these days they’re particularly urgent in not wanting to blame because their profits have been going on up like gangbusters for the last 25 years. Wages haven’t, and therefore it looks really bad to be jacking up the prices to make even more profits now, which is exactly what they’re doing. That’s why they have to blame the pandemic the Chinese, the government, whatever scapegoat is convenient, just not them. Just not blaming them for what they are in fact doing. Let me close by showing you how this raising of the prices in order to make more profits. why it’s happening, and what are its consequences.

The first big reason it’s happening is that an awful lot of companies didn’t do well over the last two years we had a big crash of our economy we had a big failure to prepare for and cope with the viral pandemic. You all know that we’re all living through it and it hurt a lot of companies’ profits in 2020. And again, this year, and they want to make up for the lost profits because it doesn’t look good if they don’t and jacking up the prices is one quick easy way to do that, but, of course, it has consequences. If you jack up the prices, you make the people who buy what you’re selling hesitate. Other companies that buy what you make as an input to whatever they make, they’re going to not store upon them. They’re not going to build up their inventories. They’re going to hesitate. They’re going to postpone they’re not going to want to spend all that extra money, so, they’re going to be more careful. If they’re not sure they can make and sell stuff they’re not going to order the input, so you know what stuff doesn’t get made that used to. You know, we call that a supply chain disruption! It’s the result of inflation. Not the cause.

The second effect to think about prices over the last year has gone up according to the U.S. government six to seven percent average. Wages have gone up four to five percent. You understand the inflation is a way of moving wealth away from the working class, the mass of people, the employees, into the hands of the profiteers, because we can’t even keep up with the level of stuff to buy, because our wages aren’t going up as a whole as fast as prices, so we’ll have to be stuck with less, we can’t keep borrowing more we’re already up to here in debt because of this game over the last 30 years. So, we the working class are really screwed and upset which you can see every which way in this country as we literally fall apart. Make no mistake. The social tensions the deepening inequality, the craziness in our society has a core cause which we call profit. Making profit-driven capitalism and if you don’t hear that, it’s because of the terrible fear of the employer class that if you understand that, system change will become the solution which it has been all along.