Inflation demystified: winners and losers

SOURCE: officialdata.org
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Working and poor people know all about inflation. They work harder every day, but their wages don’t go as far. But the price shocks of 2021 have jumped in dramatic jolts instead of the steady upward creep people are used to. The U.S. had 7% inflation from December 2020 to December 2021, the highest rate in 40 years.

Is this a “new normal” or, as most establishment economists argue, just a temporary “blip”? What is behind the surge in prices, and what are solutions for ordinary people?

What is inflation? Inflation measures the rise in the prices of goods and services over a given time. This really means that the value of money, purchasing power, has fallen.

Before considering the special causes of inflation during the pandemic, people should know about the long-term drivers of inflation. Ever since global currencies stopped being pegged to the commodity gold, they have been free floating and constantly devaluing. The connection of the U.S. dollar, the dominant world currency, to gold was finally ended in 1971. It reverted to its real value over the course of the 1970s, when inflation was 10% or more annually. But where does this inflation come from?

It happens whenever money is created without an equivalent value in goods and services. Under capitalism that happens continually, through all kinds of speculation from stock market trading to the myriad forms of banking and financial services. Marx appropriately called this kind of money fictitious capital. Regular speculative crashes demonstrate how apt the name is.

The 2008 financial collapse witnessed some of the most egregious examples of fictitious capital creation and loss through “sub-prime” mortgage lending and “credit default swaps.” These were just manipulation and trading of debt, but nevertheless dispossessed many working people of their homes.

Another way fictitious capital is created is through military spending, whether during “hot” wars (WW II, Korea, Vietnam, the Gulf Wars, Afghanistan) or “cold” ones (the rest of the time). Military goods are made by workers but do not create useful commodities for consumers. They are used not only to kill people and harm the environment but to destroy physical capital (manufacturing plants and other places where actual goods or services are produced and sold). Alternatively, military hardware becomes obsolete and is replaced without being used.

Beyond this usual inflation, last year there were special factors driving prices up.

Pandemic-caused price hikes. The spikes we experienced last year have additional causes. But they still show that capitalists are after profits instead of meeting the needs of humans or the planet.

A big part of the picture is the very real supply chain crisis. At the beginning of the pandemic, demand plummeted for many commodities. Between Covid lockdowns and business shutdowns, companies that make and distribute goods shuttered or drastically curtailed operations. Because there were far less products to move, transportation systems also scaled way back.

In a people-based system, workers would have been retained and been able to meet their survival needs and be ready to get production and distribution back to normal much faster. Instead, hundreds of millions of workers were laid off worldwide.

Now in wealthier (vaccinated) countries, economies are reopening but the global supply system is too disrupted to respond quickly.

That is where we stand today, with extensive backlogs for many goods that can’t be produced because of worker or material shortages, or are stuck on ships sitting in ports, or that don’t have trucks to move them to distribution centers, which can’t operate at full capacity because workers are sick with Covid-19. It is a global mess, and it has driven prices up and is keeping them there.

But when there is blood in the water, capitalist sharks will find it. The other cause of today’s inflation is more financial speculation and predatory practices to deliberately withhold supply. Throughout the pandemic, corporate profits have skyrocketed.

To name just a couple of examples, the companies that operate container vessels are keeping some out of commission to extort higher prices. Other companies have purchased large blocks of older housing to renovate and “flip” for higher prices. The shortage of housing has a knock-on effect of increasing the cost of rental housing. One of the major drivers of the high rate of inflation in the U.S. is the increase in rents.

This is class war. The tone in corporate media about inflation borders on hysteria. There is a growing drumbeat that increased wages are driving price rises. Where does this come from?

It’s class war plain and simple, with the ruling class seeking to strengthen its dominion. These price shocks are caused ultimately by modern capitalism. They are made worse by relatively temporary supply disruptions — depending on the length of the pandemic — compounded by big biz predators in the system.

Wages increased only 4.7% over the last year (discounting inflation), in some jobs only temporarily. Part of the rise is due to the current wave of strikes, and rightly so. This is after five decades of income stagnation for working people. Other salaries are already starting to come down as more of the low-wage service industry reopens and government relief programs are terminated.

Part of the story is that inflation reduces the value of debt, which is great for those who have a lot of it, as a substantial portion of working people do (credit card debt, car loans, student loans, mortgages). And provided that people have the means to pay. But the creditors, the purveyors of fictitious capital, are incensed because it reduces their profits — by several hundred billion dollars. It is in their interest to stoke workers’ fears of inflation.

This devaluation of money is baked into capitalism, but workers, the elderly and poor don’t have to accept bearing the brunt of it. Since more than half the working age population doesn’t make a living wage (see “How unemployment numbers lie” at socialism.com), the first priority is to replace the disgracefully low federal minimum wage with a national living wage based on the actual cost of living. Then all wages need to be pegged automatically to the rate of inflation. And calculation of that rate has to be changed to include all the commodities working people need to buy.

Likewise, Social Security, Medicare and Medicaid benefits should be increased to match real prices, then its meager cost of living adjustments, which are based on a narrow range of commodities, increased to match reality.

So let’s recognize this is class war and keep fighting to make the capitalists pay for the inflation they cause!

Send feedback to the author: FSnews@socialism.com.


Food prices +6.3%
Average wages* –2.4%
December 2020 to December 2021.
Source: U.S. Bureau of Labor Statistics

*After inflation.

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