By Greg Godels

March 28, 2024


Inflation is a scourge on those cursed with living under the capitalist order. It especially punishes those least able to weather the pain of constantly falling behind rising prices and expanding debt.

Inflation harms nearly all working people whose income growth trails the rise in prices, including those with union contracts that bridge periods of rapid price increases.

Small businesses suffer because of their inability to match supplier increases with price hikes of their own. Also, they are more likely to be locked into a cycle of incurring greater and greater debt and ever-higher interest rates.

The pain of inflation is intensified by the customary antidote prescribed by mainstream economists: interest-rate hikes designed to slow economic activity and force pricing restraint. While some decry the harshness of government anti-inflation policies, they can offer no other solution under capitalism. Erdoğan, President of Türkiye, recently experimented with defying anti-inflation orthodoxy with disastrous results.

Higher interest rates add higher interest charges that banks attach to already bloated prices through credit-card usage, mortgages, student debt, and other private borrowing.

In the post-war period, we have known one period of extended, intractable inflation, and that came after a long period of government military-related spending and an unanticipated economic shock– the oil crisis– in the 1970s. As I wrote in 2021:

The enormous costs of the US’s long, costly Asian war produced great debt and pressure on the gold-backed US dollar. The imperialist alliance with Israel brought a disruptive, unprecedented boycott on the part of the oil-producing nations resisting Israel’s occupation of Arab territories. Intense competition between the dominant US economy and the resurgent Euro-Asian economies was shrinking profit margins.

I thought there were common features with that earlier period and the emergence of high inflation in 2021:

The pandemic, like the oil crisis, has shocked the global economy. The US economy and subordinate economies have been running on the fumes of fiat money and central bank stimulation, exposing remedies that are losing their effectiveness. Despite the lack of even phantom existential threats, the US has conjured costly foreign adventures and an extraordinarily wasteful and large military budget and “security” spending, crowding out social spending and amplifying national indebtedness. Commodity scarcity generates rising prices. And both slow growth and inflation are now reappearing and promise to continue.

This was not a popular view in 2021.

And it is not popular today, though wars in Ukraine and Gaza are adding even more limitless demand for weapons and more inflationary pressure.

In 2021, economists, government officials, and pundits scoffed at inflation, assuring us that inflation would subside as soon as income support from the pandemic was exhausted and damaged and broken supply chains were repaired. In sharp contrast, I pointed out:

Despite the admonitions of the central bankers and financial gurus, inflation seldom self-corrects. It rarely runs its course. Instead, inflation tends to gather momentum because all the economic actors attempt to catch up and get ahead of it…  And it is important to recognize that this profit-taking has and will continue to fuel inflation. Once again, the commanding heights of the US economy– the monopoly corporations– are using the excuse of catching-up to profit-up.

With Wall Street and its minions still clinging to the illusion that inflation was going away and that there was no need for the braking effect of high interest rates, the January and February inflation reports came as a shock. The media likes to jump from one measure of inflation to another to promote the best perception of inflationary trends. Thus, from report to report, they may feature the CPI or the core CPI, or the PCE, computed on a month-to-month or annualized basis, depending on which shows the most optimistic results. But manipulation and wishful thinking cannot hide the bare facts: December to January month-to-month CPI rose .6% and January to February month-to-month CPI by .4%, alarmingly high increases after three straight months of month-to-month decline. Inflation is still with us.

Conformation for the relationship between higher prices and profit-taking comes from an unexpected source. Conservative economist Greg Ip writes of the Big Profits, High Prices: There Is a Link:

Since the end of 2019, prices are up 17%, outpacing both labor and non-labor costs. The result: Profits grew by 41%. If profits had grown at the same, slower rate as costs, that would have translated to a cumulative price increase of only 12.5%, and an average annual inflation rate roughly 1 percentage point lower.

So, the monopoly corporations effectively robbed the consumer and small businesses of 1% more of the price of goods and services in each of the last four years, on top of their usual rate of exploitation. During this period, profits reached a rate unseen in the twenty-first century.

In this election year, is anyone in either of the two major parties addressing the pain of inflation and its cause located in the insatiable thirst for profit on the part of monopoly capital? The monopoly corporations impose a unilateral 1% tariff on all goods and services for four years in a row with no outcry from the mainstream press? This is what the pundits mean by “our democracy”?

The Biden administration answers that, despite inflation, we are doing better. The economy is doing fine.

Consider the facts:

  • The New York Federal Reserve reports that “serious” credit-card delinquencies have risen from 4.01% to 6.36% in the year through the fourth quarter of 2023, an increase of more than 50% in one year and indicative of “increased financial stress.” For many workers, the credit card is the mechanism used to address income shortfalls, but with interest on credit debt rising from pre-pandemic 14.9% to 21.5%, the average of the last quarter of 2023, credit cards are exacting a harsh toll. Credit-card usage now constitutes a vicious trap and not an answer.
  • Mortgage and auto-loan delinquencies are also on the rise.
  • Fox News reports: ”A record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans in order to cover a financial hardship amid the ongoing inflation crisis, according to new data from Vanguard Group… Nearly 3.6% of workers participating in employer-sponsored 401(k) plans made a so-called “hardship” withdrawal in 2023, according to Vanguard, which tracks about 5 million accounts. That marks a major increase from the 2.8% rate recorded in 2022 and the pre-pandemic average of about 2%. It marks the highest level since Vanguard began tracking the data in 2004.”
  • The Wall Street Journal explains: “Inflation experienced by the poorest fifth of society was 1.6% higher than for the richest fifth from March 2020 to June 2023…”
  • Also: “Pandemic savings have run down. The Federal Reserve concluded at the end of last year that ‘excess’ savings accumulated during the pandemic have been run down, and depending on the method used have either run out altogether or are close to it. Low-income consumers spent their excess-cash cushion earlier, according to other studies, which helps explain why they are struggling more with debt.”
  • Consumers are pulling back on purchases. January’s revised 1.1% drop in retail sales has alarmed economists. While February’s numbers increased, they fell below consensus predictions.
  • Burger chain McDonald’s, a bellwether for middle- and lower-strata discretionary spending, reports more customers are turning to grocery purchases and dining at home to save money.
  • In a January, 2024 Pew poll, 31% of respondents say that US economic conditions are “poor” and 41% say that they are “only fair.”

These facts present a formidable case that inflation is continuing and doing great harm to US citizens, especially the working class. Sadly, there is no– and likely will be no– political answer to this scourge expressed in the forthcoming elections. To properly address inflation without advocating the painful remedies now in place would require a critical challenge to the economic system that frequently spawns inflation. That system is capitalism and neither mainstream political party will dare make that challenge.

The US working class needs organizations– unions, political parties– that will actually fight against inflation or risk another lost decade of economic stagnation and declining living standards.