The year 2022 will be remembered as a year of inflation shock.
Energy (oil, gas, electricity) prices are up a painful 17.6%.
Food-at-home prices have increased by 10.9%. Eggs are now 25.6% more expensive than they were in 2021. Milk prices are up 15.1%. Meat is up 8.9%.
Transportation services are up 15.2%.
The price of shelter (rent, mortgages) is up 6.9%, with rent increases more than doubling.
Saying that it is fighting inflation, the U.S. Federal Reserve has been raising interest rates. On Dec. 14, CNBC reported that the benchmark interest rate has been raised to its highest level in 15 years. “During a news conference, Chairman Jerome Powell said it was important to keep up the fight against inflation.”
But this hasn’t been done to reverse inflation; it will not bring down prices. Instead, the Federal Reserve’s tight money policy (raising interest rates) stops businesses from expanding so that production is cut and workers are laid off.
The current inflation isn’t just in prices. It’s inflation of production — overproduction. And the Fed’s tight money is in response to a capitalist crisis of overproduction.
Today’s overproduction boom is not an ordinary cyclical capitalist boom but results from the shortages of commodities caused by the COVID shutdowns.
Responding to the COVID pandemic, the government ordered the shutdown of much of the economy in March 2020. Production stopped, and business inventories shrank drastically.
Business inventories are unsold commodities, which means there’s no profit until they are sold.
During the COVID shutdown, the government borrowed and spent a vast amount of money to support spending to the extent possible under lockdown conditions. At the same time, the Federal Reserve greatly expanded the quantity of U.S. dollars to prevent a collapse of the credit system because of the business shutdowns.
The combination of a shrinking supply of commodities and an explosion in the quantity of central bank-created money is inflationary, explains Marxist economist Sam Williams. The inflation takes effect as the economy reopens and capitalist industry and retail merchants rebuild their inventories.
Whenever many capitalists simultaneously build up inventories, an accelerator of increased business investment is triggered. As the accelerator takes effect, what was an inventory shortage becomes overproduction.
The only capitalist solution to overproduction is to cut back production to allow glutted markets to clear. Underproduction primarily means cutting jobs. Unemployment is what the Fed’s tight money policy will create.
Since March, most real job growth has been stagnant. Full-time jobs are disappearing while part-time jobs are surging; the number of workers with multiple jobs has soared.
Put simply, the number of workers employed remained the same in 2022, but workers are losing their full-time jobs and switching to much lower-paying, benefits-free part-time jobs, forcing many to take on more than one job.
While the Federal Reserve has the capitalist solution, it’s not the workers’ solution.
As long as there is capitalism, the answer to inflation and job cuts is to fight for union jobs and liveable wages.
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