High prices, low pay: a Marxist analysis of inflation

Mass protests fueled by inflation swept Haiti in late August. A month earlier, a Forbes headline asked: ‘Inflation protests span Sri Lanka, Albania, Argentina, Panama, Kenya, Ghana how long before they hit the United States?’

Based on remarks at the Socialist Unity Party national plenum on Aug. 13.

The global working class is being hit hard by inflation. But what is inflation, and how can we understand both its causes and effects through a revolutionary Marxist lens?

According to Investopedia, “inflation is a rise in prices, which can be translated as the decline of purchasing power over time. [Emphasis added.] The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time.”

This basket of goods is another name for the Consumer Price Index (CPI). There are different ways of calculating this kind of measure, and the U.S. Federal Reserve — perhaps for obvious reasons — prefers a different measure that gives a lower figure.

At any rate, the rise in prices is clear enough for anybody who has bought anything since last year. In June, the U.S. CPI hit 9.1%, the highest level since 1981. This seems significant for assessing the overall health of capitalism.

There may be some slight dip in the inflationary pressures, with CPI for July being at 8.5%. This may be largely attributable to a drop in fuel prices.

Nevertheless, the problem doesn’t seem to be going anywhere any time soon. Workers are still experiencing a cut in real wages. For July, a monthly wage increase of only 0.5% was reported. Even with this tiny bump — with the inflation — wages are down 3% from last year.

Wages are down even as the median monthly asking rent for the U.S. as a whole exceeded $2,000 in May. In Los Angeles, it’s $3,400. Formerly considered a haven for relatively affordable housing, Nashville rents rose 32% from last year to $2,140. The soaring cost of housing is driven by a takeover of the market by giant financial entities.

During an Aug. 10 White House press briefing, President Biden asserted that inflation in July was at 0%. This is a distortion. Overall, there was a 0% increase in inflation, meaning prices held steady at an already high level. Fuel costs went down a bit, while others went up, e.g., food rose by 1.3%.

Biden’s triumphant messaging stands in stark contrast to the situation for working-class people. Household debt is up at a record $16.15 trillion. Evictions are back to pre-pandemic levels. Homelessness is up.

Inflation in U.S. and China

It’s not only the U.S. that’s being affected by inflation. Astonishingly, Argentina’s inflation has exceeded 70%. There were large protests in the capital, Buenos Aires.

Pew Research found that inflation rates have doubled in 37 of 44 “advanced economies” over two years, as of the first quarter of 2022. The same report found that Turkey had a 54.8% inflation rate.

For China, CPI had only risen to 2.7% in July, thought to be driven in part by a 20.2% rise in the price of a food staple, pork. The small size of this increase is notable, especially considering that the International Monetary Fund still expects the Chinese economy to grow by 3.3% this year. 

That’s with major supply-chain and other economic disruptions that result from the Chinese government’s continued commitment to a Zero-COVID policy; surely, the disruptions of Shanghai’s two-month shutdown are not ideal from an economic perspective, but China is still able to keep economic development going and inflation under control. As of June, only 5,226 had died from COVID-19 in China.

Meanwhile, in the U.S. — where over a million people have died from the disease and the federal government seems to have given up any pretense of trying to stop the spread – we are still looking at a U.S. GDP contraction of 2.5% so far this year. 

What GDP actually measures can be debated, especially from the standpoint of the working class. However, there is a clear difference between the two countries, even using bourgeois metrics.  

It is probably useful to look at China’s performance here and compare it to how economic planning enabled them to bounce back from the 2007-2008 financial crisis that affected the capitalist world economy as a whole, and moreover, how much of the growth and development since then has been driven by China. 

Our party maintains that despite China’s capitalist reforms that have threatened the gains of the Chinese Revolution, the economy remains fundamentally socialist. This is why the Chinese state, led by the Communist Party of China, has been able to respond to various global crises with effective social and economic planning.

What causes inflation?

So, here we have a broad sketch of the current situation. But what is the cause of the inflation?

Economist Richard Wolff put out a video on June 17 arguing strongly against the assertion that “supply chain disruptions” are the cause of the current massive inflation. He says that instead, it’s a case of companies across the board jacking up prices to recoup profits lost during the pandemic, which was also an economic disaster for the world economy. 

And he says that the capitalists are raising prices in the context of system failure, of a general breakdown of capitalism—especially in the U.S.—characterized by an overwhelming degree of dysfunction throughout, and which can’t be fixed by attacking or regulating individual aspects of the system.

This diagnosis seems mostly accurate. On the other hand, the fact of supply chain disruptions could be more significant, indicating the deeper structural dysfunction and systemic decline alluded to by Wolff.

In October 2021, Labor Notes co-founder Kim Moody argued against “just-in-time” supply chains, which are the norm today. This could be called the logistics equivalent of the Taylor-Ford revolution in manufacturing and was the brainchild of Toyota engineer Taiichi Ohno in the 1950s. 

The idea is that corporations can increase profits by delivering things in smaller quantities—just what is needed—and the corporate recipients could also cut costs by not having to maintain large inventories, meanwhile reducing the number of workers. 

In the West, this started in the automobile industry and spread out. It mirrors the general process of the tech revolution in the 1980s and 1990s, which saw dramatically more automation in manufacturing and so on, pushing down wages and undermining the existing union organizations. Sam Marcy detailed this process as it was happening in the articles that make up the book “High Tech, Low Pay.” 

All of this was contemporaneous with what has been called “neoliberalism,” which we can define from a revolutionary perspective as the great offensive of the capitalist class in the period of global revolutionary retreat (involving Western imperialist-backed counterrevolution in the USSR and more).

Moody points out that aside from being a driver of the shift to low-wage work, this logistics model involves vulnerabilities. It works really well for the capitalists when things are running relatively smoothly, but if there’s a logistics bottleneck — as when a ship blocked the Suez Canal last year or with the effects of the pandemic — the result can be catastrophic. 

This has also been the case with the global distribution of wheat as the U.S.-NATO proxy war in Ukraine drags on. Or we could point to climate-change disruptions in the form of fires, droughts, floods, hurricanes, etc. With worsening climate change, we should expect increasing supply-chain disruptions.

Current phase of global capitalism

This brings me to the main question that I would like to pose. It seems to me that a major task for revolutionaries now is to figure out how to characterize the current period, or even phase, of global capitalism. We likely all agree that Lenin’s analysis in “Imperialism, the Highest Stage of Capitalism” holds true, although the trends he outlined then were embryonic compared to the highly developed, even rotten, situation now.

Likewise, Sam Marcy’s analysis showing the effects of the growth of high tech at the end of the 20th century and the proliferation of low-wage jobs, with the disappearance of much of the manufacturing in the U.S. and other imperialist countries, has continued. 

In the past roughly 20 years, technological developments have enabled a radical transformation of logistics, characterized by Amazon, and spawning economies of micro-transactions, and so on. The pandemic has perhaps accelerated these trends.

These trends have continued through the cyclical or episodic ups and downs. Each time there is one of these crises, there is a recovery for profits and the stock market, but most of the population is still worse off than before. Workers are consumers, after all—capitalism is based on production of commodities. So the basis of the capitalist system, I would argue, becomes more brittle after each shock. The decent-paying jobs have never come back.

Nothing that the capitalist state does fixes the underlying problems. None of it really works.

The corporate giveaways (which are really a wholesale looting of workers’ wealth) give a little boost, but more is required each time.

I haven’t touched on military spending, another inflation source. More and more resources are thrown at the war machine, taking away from the civilian economy and overall social development. Value is destroyed on a massive scale. A missile that costs millions to produce disappears in an instant, and people die. The capitalists may have gotten some traction out of such spending in the past, but it doesn’t seem to be working now.

The sanctions regimes aren’t working, either. Washington is not effectively controlling the countries of Asia, Africa and Latin America anymore. In fact, sanctions seem to be backfiring. In a recent speech, Nicaraguan President Daniel Ortega said that the Washington imperialists had decided to destroy Western Europe to carry out their proxy war on Russia and China.

The worst is yet to come, as winter fuel shortages could be devastating for the working class. Perhaps we are seeing the end of the relative coincidence of interests among the imperialist countries that followed World War II, with Washington and Wall Street at the apex; it is difficult to imagine how German and other European leaders will be able to look their people in the face and tell them that it is in their interests to accept U.S. dominance.

In short, all the usual medicines seem to be accelerating the advance of the disease.

A turning point 

The final defeat in Afghanistan may have been a turning point. The value of the dollar and euro has declined, and more trade is happening in the yuan and ruble. Dollar dominance may be going out, and with it, the imperialists’ ability to push off their problems onto weaker countries.

If the capitalist-imperialist system is in decline, it can’t be the case that mere policy shifts or, say, adopting different models (i.e., away from “just-in-time” shipping) could easily be implemented, as all of these things developed out of the fundamental logic of the system, of the need to extract surplus value in the period of monopoly.

There’s no obvious path for bringing manufacturing back to the U.S. Rust Belt. Trump’s trade wars didn’t work. Brexit isn’t working, either; Britain hasn’t been able to form a coherent government since the Brexit vote. The political divisions are so deep, and there is extreme disunity in the ruling class. They can’t implement any programmatic change of direction.

Even commentators on NPR have been frank that the Inflation Reduction Act that just passed Congress is a massively scaled-back version of Biden’s Build Back Better plan and the Green New Deal. The vote happened on completely partisan lines, showing how brittle the ruling “coalition” is and how susceptible any policy change is to being overturned in future political chaos, e.g., by another Trump presidency. And presuming that this bill will curb inflation at all, the NPR commentators noted that there’s not likely to be much change either in 2022 or 2023.

Meanwhile, there’s no talk about emergency measures to help working-class people. In 1970, Nixon implemented a 90-day price freeze. There doesn’t seem to be political willingness to do anything like this now.

So, looking at all these trends, my assumption is that even if there is some recovery or inflation diminishes, the deeper problems will not decrease and should rather increase. All of the problems will certainly increase if there is another imperialist war. Washington’s threats against China are not encouraging.

So that is, overall, the question I leave: How to characterize the period and its dynamics? The counterpart to that is, how can the left form a fightback under current conditions, simultaneously to meet pressing needs and to advance toward a higher level of struggle?

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