Foxes in the Coop: Facing Greedflation Head On
Sometimes, you have to hand it to bankers. Establishment politicians must at least try to mask their various assortment of poison with hollow sound bites or empty promises. If those fail, then they’ll usually resort to lying.
But there’s a certain breed of banker, so detached and self-assured that they’re entirely unburdened by the complications of how other people might be affected, much less think. Their lives, one long procession through automatic doors, has bequeathed them a unique perspective on how the world works – and it’s not their problem if you don’t want to hear it.
One such banker was on BBC radio a few weeks ago. Discussing inflation, the widespread hardship across society washed off this JP Morgan executive’s back. Feathers unruffled by such insignificant things as mass immiseration, the public was instructed that inflation was out of control and what they needed was a recession.
Inflation is indeed a serious problem; prices are destructively high. But what a prospect: to stop spiralling prices we need spiralling job losses. However, the sole crime committed by this JP Morgan honcho, who also doubles as an adviser to the British Chancellor of the Exchequer, was to lay bare the official response to inflation.
Nowhere in their account is there any discussion about alternative ways to reduce inflation. We’re on a strict diet of interest rate rises. Don’t waste time pointing out the record corporate profits we’ve seen since the pandemic ended – a phenomenon known as greedflation – our banker would only tune out, eyes glazing over.
Our economic overlords use heavy and purposefully confusing jargon when discussing inflation, hoping that we’re the ones tuning out. This piece explains how higher interest rates can lead to recessions, how recessions can bring down inflation, and how so much of the inflation ‘debate’ is nonsense, banker’s bunk, designed to protect capital by ensuring workers get screwed.
Inflation is the rate at which prices rise across an economy. And since it began spiralling roughly 18 months ago, central banks across the world have stuck to one simple policy to tackle it: increasing interest rates.
The ECB, which controls interest rates for banks in the Republic, just announced another round of rate rises. Meanwhile, the Bank of England has pushed rates up to the highest level in decades to try and get the UK’s particularly irascible brand of inflation under control.
When economists talk of interest rates, they’re discussing a rate set by a central bank. It’s essentially a baseline charge for lending in the economy. If a central bank raises interest rates it begins to squeeze the economy.
How does it do this? Well, once rates are increased, banks charge more for loans. So businesses feel the pinch because their repayments are steeper, mortgage holders likewise. In fact, much of the prevailing inflation discussion has been about the impact on those with mortgages, as our housing crises have meant that many of these people have had to extend themselves in order to get a home and are now massively at risk.
But higher interest rates eventually have knock-on effects across society, with rising credit card payments, increased rents, and less disposable income in people’s pockets. Undoubtedly, this affects the have-nots much more than the haves.
So the short answer is: if you take a big hammer to an economy, yes inflation will likely come down.
The argument from mainstream economists is that tightening the economy through interest rate rises will eventually force businesses to lower their prices – and so reduce inflation – because high prices will no longer be affordable for people.
Yes, that’s right, their purported method for dealing with inflation is to make people poorer, to the point that companies must reduce what they charge. This isn’t an industry secret or anything, it’s openly admitted. Here’s a member of the Bank of England, Catherine Mann, explaining as much to MPs:
“[Inflation] becomes a reinforcing dynamic until consumers boycott and say, ‘I cannot’, because of the purchasing power or cost of living, or, ‘I will not pay that high price’.”
Even more striking is that however cruel this may sound, it is itself a kind of obfuscation.
Lowering prices is not the same thing as stopping them from rising. North of the border, food inflation is around 20%. In the south, the price of milk has increased by 24% in the last year. If food inflation decreases to ‘regular’ levels – say 2% – this doesn’t imply that the cost of food will have reversed to 2020 levels. It will simply mean that prices have stopped spiralling, but that the price rises we’ve seen in recent years have become ingrained. The journey will be over, we will have reached a new normal.
Raising interest rates is the establishment’s tactic of choice because this, supposedly, depresses the economy. The ultimate objective, as we’ll discuss, is not actually to reduce prices, but to stabilise the system in a very particular way. As ever, it comes down to a battle between capitalism and its workers, and who eventually pays for the inflationary crisis.
Leaving aside the moral aspects of this plan for a second – will it work? Does increasing interest rates actually ‘cool’ the economy?
The last such inflationary crisis on this scale happened in the 1970s. Inflation rumbled on for years, with raised interest rates failing to reign it in. Enter Paul Volcker, made chair of the US Federal Reserve in 1979. He took the gloves off and increased rates from 8% to 19% in 1981, successfully engineering a recession, and eventually, a reduction in inflation to a level that capitalism finds normal.
So the short answer is: if you take a big hammer to an economy, yes inflation will likely come down.
The longer answer involves answering some deeper questions, about where inflation comes from and whether a recession is the only way to get a handle on it, not to mention whether it’s worth the economic misery recessions visit on ordinary people.
To simplify things, there are two mainstream schools of thought about what causes inflation.
Those who think capitalism works perfectly, like free-marketeers, believe inflation occurs when there’s too much money in the system. Since governments are responsible for the money supply, inflation is a result of ‘meddling Big Government’.
In the current moment, these mainstream economists are blaming inflation on the state spending we saw during the pandemic. You know, the spending that barely kept people from starving when they couldn’t leave their homes for months on end. It’s a convenient argument.
That he would go on TV and lie egregiously like that calls to mind the James Galbraith quip that there’s an “old instinct of the central bank to ensure that there is a long queue of people at the gate.”
Another camp are the Keynesians. They’re more willing to recognise that capitalism can generate significant ills in society. However, they all share a belief in the possibility of managing the system away from the pain it causes.
For Keynesians, inflation is tied to unemployment. Too little unemployment means workers have more bargaining power, which enables them to demand higher wages, which pushes up prices. This is another convenient argument (often referred to as a wage-price spiral).
Both these mainstream perspectives are based on dubious empirical evidence. Their proponents, especially the monetarists, rely heavily on a veil of challenging jargon to insulate them from criticism and to dress up economics as a natural science, like physics or mathematics.
And establishment commentators and politicians make use of both the arguments of the monetarists and the Keynesians interchangeably, as and when required. Recent weeks have seen a deluge of news coverage given to those saying that to control inflation we need to cut public spending or that we have to end the so-called ‘wage-price’ spiral.
To give a sense of just how propaganda-laden these arguments are, the head of the Bank of England was on TV not long ago saying that workers need to “temper” their demands for pay bumps – even though ordinary people are dealing with the largest fall in living standards since WWII. Pay rises are causing inflation, said he.
Yet, in the report that the Bank of England had released that same morning, the very reason for him being interviewed, the exact opposite is stated:
“The pick-up in annual pay growth since the time of the May Report had been concentrated in higher-paying sectors such as financial and business services. Pay growth in lower-paid sectors… had been broadly flat.”
In other words, bankers have been doing alright, and everyone else, not so much. That he would go on TV and lie egregiously like that calls to mind the James Galbraith quip that there’s an “old instinct of the central bank to ensure that there is a long queue of people at the gate.”
Ultimately, the perspectives and solutions proffered up by the mainstream are geared towards making working class and oppressed people bear the brunt of this inflation saga. When you strip back the gobbledegook, it really is that simple.
Barely mentioned in all the back-and-forth is capitalism’s great Omerta, profit. Hand-in-hand with rising prices have come, for a whole rake of corporations, bonanza returns. Mostly it has been those companies that sit atop the food chain, such as the oil supermajors who’s profits soared by staggering amounts in 2022.
That record profits were being made – ‘greedflation’ as it has since become known – was being reported on as far back as December 2021. In the North, prices have skyrocketed while our top 100 companies saw an average increase of profit of 46%. In the South of Ireland, a tax haven for multinationals, the CSO reports a 30% increase in corporate profits from 2021-22.
Indeed, if there were any lingering doubts, that font of left-wing propaganda, the IMF, was unambiguous in a recent paper: rising corporate profits were the largest contributor to Europe’s inflation over the past two years.
But has ‘greedflation’ influenced governments and decision-makers? Have they sought to get a handle on profiteering in order to protect ordinary people from out-of-control prices? Of course not. To acknowledge corporate profiteering would mean having to do something about it, which in turn would legitimise workers’ demands for a pay rise and the wider calls for price controls.
Inflation isn’t some metaphysical spirit, beyond our comprehension or control. Like the rest of the economy, despite what mainstream economists preach, it is the result of human activity. Inflation initially exploded because of the breakdown in supply during the pandemic and then subsequently, the Russian invasion of Ukraine.
Modern capitalism is built on long supply chains, organised around what’s called the ‘just-in-time’ principle. This means that when parts or materials are delivered from one place to another, they arrive ‘just in time’ to play their role in the production process, before being shipped on to the next stage.
It’s all about keeping costs as low as possible; there’s no waiting around, there’s no build-up of stock, and the supply chains themselves are long and precarious. So when the system came to a halt during Covid, and when it suffered a double-whammy after the invasion, there were only very few spare inventories that could be put into motion.
Those companies that did have reserves were the exception, putting them in prime position to make massive profits. Meanwhile the general breakdown in supply pushed up prices across the board. Corporations with particular leverage because of their size or because of the commodities they deal in – what’s called having ‘market power’ – had more scope to raise prices, which they did.
A fox who stuffs his face upon being let loose in the coop isn’t greedy. It will always eat the hens, it is just a question of power and opportunity.
At work here is the ‘anarchy’ of capitalism. A system based on competition between individual economic units, operating in silos with no planning or oversight as to how best to allocate society’s resources, instead leaving this profound question to the whims of the profit-motive. As one French study of recent inflation has found, “firms engage in price hikes when they expect their competitors to do the same” (emphasis added). In other words, it is the competitive compulsion combined with the anarchical set-up which has driven the spiralling corporate price rises.
It’s worth understanding that corporate greed didn’t necessarily cause this recent bout of inflation.
Prices, much like capitalism’s overall rhythm – its booms and its busts – are not determined by individual capitalists and their individual decisions. Inflation can have one or more immediate causes, but it is always the outworking of capitalism’s inherent irrationality, brought about by the systemic drive for profit-maximisation which defines it.
‘Greedflation’ certainly poured fuel on the fire, it undoubtedly exemplified the callousness of capital, it most definitely made a lasting imprint on our current economic moment. But rather than the original root cause, it is instead a grotesque symptom which further adds to our suffering.
Why does this matter? Besides being factual, greedflation-as-cause presumes that there is another version of capitalism where corporations can be something other than greedy. It presents greedflation as an example of a capitalist excess, rather than just capitalism plain and simple.
Corporations would engage in greedflation every year of every decade if they could get away with it. It is the unique disruption of global supply which has enabled them in this instance.
A fox who stuffs his face upon being let loose in the coop isn’t greedy. It will always eat the hens, it is just a question of power and opportunity.
So corporations hiking prices has been the biggest contributor to inflation. But it is our anarchic system grounded in profit-maximisation which presented corporations with the opportunity to do so, and which ensured that they would grasp it willingly.
The stakes involved in how we conceptualise greedflation become clear when we look at why the financial elite are so gung-ho about a recession.
The IMF report noted above speaks about what will be necessary to reduce inflation:
“Illustrative simulations suggest that a compression in the profit share to the historic average will be necessary to achieve the disinflationary process under plausible wage growth assumptions.”
In other words, if we assume that workers will need a ‘plausible’ level of wage increase (i.e. enough to achieve the modest goal of being able to afford to live) then profits will have to be reduced. For the ‘captains of industry’ this last bit will not fly. It is not greed necessarily that drives the thirst for profit, but the systemic imperative to compete in order to survive on the capitalist market. And to compound matters, capitalism is in a bad way.
In short, from the capitalist’s point of view, there is no scope, no wiggle room, in the global economy for a ‘compression in the profit share’.
Don’t let profiteering by a select layer of firms deceive you. Under the surface, growth is weak, and has been for over a decade (if not much longer). The supply-side breakdowns which have given corporations the leverage to profiteer will at some point ebb, and indeed have already begun to ease.1
When they do, awaiting the profiteers is what is currently facing the many companies who haven’t been in a position to exploit this period: a stagnant economy; higher interest rates; massive levels of corporate indebtedness; and people with less money to spend.
In short, from the capitalist’s point of view, there is no scope, no wiggle room, in the global economy for a ‘compression in the profit share’. Indeed, corporate debt is at such a scale that the rising interest rates have already given the system a shake, with banks in the US and in Europe having gone under.
Ultimately, dealing with inflation creates “a distributional struggle, the outcome of which will be determined by political and economic power.” This pronouncement, from April this year, aren’t the words of a card-carrying Marxist, but of Martin Wolf, the chief economics commentator at the Financial Times.
And so capitalists and their lackeys are going to war. They are incessantly briefing that wages and government spending are causing inflation, and now they’re beating the recession drum.
But wouldn’t a recession also be bad for business – for the beloved ‘profit share’?
Inflationary spirals and recessions are both a type of capitalist crisis. Each is dangerous and disruptive to capitalists, but one often more so than the other.
When inflation is consistently rising, people are watching the price of everyday goods go through the roof. Food inflation is currently over 15% north and south. This dynamic generates two potent responses from working class people: a demand for significant wage increases and for price controls.
In contrast to inflationary crises, unemployment is often higher during a recession. Across society, the demand for wages to rise appears more justified when prices are soaring compared to when the economy is in recession. In a recession, because unemployment and precarity increases, the competition for jobs is higher, which means it’s easier for capitalism to hold down wages.
Sir Alan Budd was an economic adviser to the Tories under Thatcher. His recollection of how his advice on inflation was interpreted explains the situation as well as anything:
“They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes — if you like, that what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make high profits ever since.”
As Kieran Allen has noted, inflationary crises have sparked off some of the most revolutionary moments in capitalist history and those in power are “terrified that inflation will set off a new era of social unrest if it is not tamed.”
The call for a recession is capitalism responding to the current situation by saying: ‘let’s make sure the crisis is one where the balance of power is more clearly in the favour of capital than it is workers.’
What would a left response look like?
Some have pushed back on the recession-via-interest-rate-hikes agenda, decrying the complete absence of debate.
Adam Tooze has argued that the widespread fixation on 2% inflation, shared by the US, the European Central Bank, the Bank of England and more, is arbitrary and borne out of stubbornness: why not at least consider 3-4%, which would require less of a squeeze.some inflation? Ultimately, prices are broken into two components, profit and wages. When prices rise, then that rise will go somewhere. As discussed above, with high inflation, the demand from labour for wage increases can become strong. With low level inflation, the price rises can be channelled more easily toward profit. 2% inflation is a way to shift wealth away from labour toward capital with a reduced risk of blowback.">2
Others, such as in this piece by Cormac Hollingsworth, argue that if the goal is to tighten the economy, then why not increase taxes? At least this would bring some benefit by providing for more much-needed spending on public services.
Both those commentators, neither of whom would describe themselves as socialists, are primarily discussing the UK, where inflation has been particularly bad. The reasons for zero debate aren’t hard to find, Tory backs against the wall as they are.
The Irish Government, and Europe more generally, share in the rigid perspective found at the Bank of England that ordinary people will have to pay, again leading to an absence of discussion.
But it is also the case that, on paper, eurozone countries have even less autonomy to deal with rising prices, given the strict fiscal rules of the European Union, and the distance from any kind of democratic oversight of the European Central Bank.
Against this anti-democratic blackout, one of the key demands that socialists everywhere have to raise is that price controls are an absolute must. We need caps on food prices, on energy, on rents. The necessities of life have to be made affordable.
Foodbank usage, petty theft, addiction levels, homelessness; all these markers of deprivation and more are skyrocketing. Our public services are crumbling, unable to cope. The far right are making gains out of intensifying despair. People need to be shielded from our marketised hellscape, and urgently. To repeat, price controls are a must.
Inflation isn’t some metaphysical spirit, beyond our comprehension or control. Like the rest of the economy, despite what mainstream economists preach, it is the result of human activity.
One country that has tried them, in limited form, is Spain. Tellingly, they’ve also bucked the inflation trend, announcing a rate of 1.6% for June, becoming the first eurozone nation to get it under 2%.
From 2021, Spain introduced modest rent controls, support for the lowest paid, and energy price caps. This is likely why, despite what should be headline-grabbing inflation news, they’ve received barely any coverage in the financial press. Capital can hardly win the ‘distributional struggle’ by telling the truth.
The most significant measure the Spanish government took was a cap of sorts on electricity prices – a policy named the Iberian Exception. Spain decoupled the price of electricity paid by consumers from the wholesale price of gas on the international markets which is used for generation. This meant that the cost for people was capped, regardless of the cost to import the gas.3
So ordinary people had slightly more affordable bills (though inflation and the cost of living has still been very challenging in Spain) and inflation is now lower than in other European countries.
The Spanish government’s model is far from perfect. They were curtailed both by the EU’s neoliberal directives, and their own hesitancy to really take on the power of capital means that they are barely holding off a fierce challenge from the Right. That said, it does show how entrenched the neoliberal paradigm is across the West that they can’t try limited policies like those found in Spain, even though they’ve had some effect in humbling the inflation demon that terrifies capitalism’s propagandists.
Who absorbed the cost of the Iberian Exception? The gas on the international markets was more expensive than what was eventually being passed through on the cost of consumer electricity – the difference had to go somewhere.
The Spanish government – that is, the public purse – covered the costs to the domestic electricity suppliers. Increased taxes on sections of Spain’s domestic renewables sector, who had made massive profits, as well as future windfall taxes, are hoped to recoup this subsidisation, at least in part.
Alongside price controls, then, our domestic energy system should be publicly owned and democratically run on a mandate of public need.
This is an important point, because there is a fundamental challenge with price controls, especially on energy, in a capitalist system. Energy is an international beast. Few states have enough domestic capacity at present to be self-sufficient, and importation will be required.
Ultimately, especially in the short term, to ensure a cap on what people pay for energy will mean a difference between the figures on a consumer’s bill and what a country’s energy importers and suppliers will pay on the international markets.4
If the Government doesn’t bear this cost – this difference – the domestic importers and suppliers will. Some such companies made record profits in recent years and could possibly stomach this, but not forever. And others have not generated those kinds of profits, and have been raising prices simply to respond to the skyrocketing figures they’re paying to import. In an era of laggard capitalism, price controls without other intervention will cause crises somewhere in the pipeline.
But if a state is going to regulate prices for its population, and to do this it has to subsidise private energy suppliers, then the case is obvious to cut out the middleman. Alongside price controls, then, our domestic energy system should be publicly owned and democratically run on a mandate of public need.
On top of the immediate savings for ordinary people would be the savings made from ending shareholder dividends and from eliminating the energy capitalism expends on utterly wasteful things (how much electricity is used by data centres in Ireland on computation for US Defence, for example?)5 And while international energy markets would still be a headache, governments do have more bargaining power than they let on.
The focus on energy above is a result of the outsized weight of energy dynamics in national economies in general, and our current inflationary conundrum in particular. But with food inflation running as high as it is, and other sectors of the economy similarly being fundamental to human wellbeing and playing a role in wider economic trends, generalised price controls paired with not-for-profit public ownership is the only real response to inflation which doesn’t depend on crushing working class people.
This doesn’t preclude supporting one without the other: getting a grip on prices is an absolute necessity and despite the contradictions for the system price controls may generate, fighting for them only when combined with nationalisation would be a huge error.
We live in a world where the ordering of production of material goods is built on long supply chains, with maximising profit, not durability, as their animating force. A system where ‘anarchy’ generated by competition leaves societies paralysed in the face of multiplying crises. These are the sources of today’s inflation, and they’re nothing if not manifestations of something deeper. The paramount point is that while each capitalist crisis has this or that immediate cause, all ultimately arise out of the contradictory and self-immolating movement of the system itself.
…it’s precisely because inflation is as capitalist a crisis as they come that its resolution has to be similarly systemic.
It would be foolish to expect any sort of Damascene conversion from the establishment. Price controls, and especially public ownership run on a mandate of human need, are anathema to capitalism, even in our fledgling era of geopolitical competition masquerading as renewed industrial policy. Their widespread introduction wouldn’t alone herald the end of capitalism, but they do pose it a fundamental threat.
One of the most pernicious consequences of 50-odd years of neoliberalism is that many of the contemporary and historical examples of public ownership have been expunged from our collective memory. But the NHS was built in the ashes of World War II, until a decade ago the Irish electricity grid was owned and run on a public mandate, France currently has substantial control of its energy sector.6, etc. In short, it has been one of neoliberalism’s defining features, how it has overseen an historic shift into corporate control of what were once cornerstone public resources.
As a result, price caps and public control can seem overly ambitious to some. But half a century of neoliberalism has also birthed a legitimacy crisis of generational proportions. We have heard our bankers’ truths, loud and clear. Whatever hesitancy exists about what is ‘realistic’, very few actively believe in the system as it currently is. And in fact, opinion polls since the pandemic – in Ireland (north and south), in Britain, Europe and the US – consistently show majority support for both price controls and public ownership.
Since the 2008-9 crash, the record of privatisation has been significantly exposed in the public mind. The next step, then, is to reclaim and interrogate the various forms of public ownership working people have managed to extract from capitalism’s grasp. We have an historic opportunity to make a straightforward case: it’s precisely because inflation is as capitalist a crisis as they come that its resolution has to be similarly systemic.
As unification is back on the menu in Ireland, a liveable island and an equitable society must be our motivation. Much focus rightly goes on health systems and the desire for a properly resourced all-Ireland NHS. But what fate for a united Ireland without an all-Ireland energy company, democratically run on the basis of people and planet?
Now is the time to put public ownership of the economy forward as a central demand of a united Ireland. If not for any other reason than, from inflation to greedflation to recession to climate catastrophe, capitalism simply will not leave us alone if we don’t.
Further Reading: The Politics of Inflation – Kieran Allen
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