The Specter Of ‘the Specter Of Inflation’

A specter is haunting productive discussion of productive fiscal and monetary policy again – the specter of ‘the specter of inflation.’

Seems like every time public officials talk productive Hamiltonian public investment again, or speak in a balanced way of rebalancing productive relations long since gone way out of balance, some unbalanced people begin crying ‘inflation.’

We are used to this coming from self-styled ‘conservatives.’ But when putative center-left wonks do this even after, ironically, the ‘conservatives’ leave off, you have to wonder whether there’s some form of Stockholm Syndrome at work…

It is as if, absent flagellation from the right, we who are not on the right have to start flagellating ourselves.

   Now admittedly, coming from a Larry Summers, this sort of fare isn’t new or entirely surprising. It’s a great way of drawing attention back to yourself after having been nudged from the limelight by – gasp – first our first woman Fed Chair, and now our first woman Treasury Secretary.

Having edged Summers out from the job that he wanted – Fed Chair – Janet Yellen now holds the job he once had – Treasury Secretary. And by all reckoning thus far she is proving far better at the job – far more attentive to what worrisome facts on the ground warrant and even require – than Summers ever was.

   You can see what I mean by recalling Summers’ tenure at Treasury. That was during the late 1990s, when a credit-fueled bubble in securitized housing and financial markets was well underway.

Attentive fiscal and monetary policy then would have cracked down on credit conditions in those markets. And it would have aimed to redirect income flows to those under the top of the national income and wealth distributions – those who were now earning less and borrowing more, after decades of Main Street suppression and Wall Street coddling, to keep afloat, growing more vulnerable to debt-deflationary crisis in doing so.

Instead Summers cheered on and furthered Clintonian bond market bondage, financial deregulation, and curtailment of public provisioning, while mansplaining-away CFTC Chair Brooksley Born’s efforts to regulate the derivatives trade that accelerated our economy’s racing heart and then cardiac arrest seven years later.

Now look at what Yellen is already doing. Unlike Summers, she’s acting countercyclically, recognizing that deflation and underemployment are far more threatening now than is anything resembling the consumer price inflation we’ve not seen in near 40 years. She operated similarly as Fed Chair, commencing a tentative wind-down of post-crisis Fed asset holdings only as much as, but not more than, what by her time was fitting.

This is what fiscal and monetary ‘statesmanship,’ as distinguished from fad-following and attention-seeking, look like. But there is no need to linger for long upon contrasts like these. For as I said before, Summers’s cry for attention is hardly surprising.

What is more surprising is what we now hear from Martin Wolf and even Raghuram Rajan, who are smart enough and justice-oriented enough to know better. Saying what goes unsaid in their recent columns shows precisely why Building Back Better à la President Biden is apt to prove, not only non-inflationary, but actually counter-inflationary. That’s kind of important, now that our Second New Deal – our Green New Deal – is at last gathering political steam.

Let’s start with Martin. Wolf helpfully introduces his discussion by what he calls ‘journeying into history.’ He recaps the ‘stagflationary’ late 1960s and 1970s – the period that prompted the reaction whose devastating consequences are precisely what Building Back Better is all about reversing. And in so doing he notes that while oil price shocks and demographic change played some role in inducing stagflation, so did what he calls ‘domestic spending’ and ‘labour militancy.’ 

The terrible upshot was what Wolf calls ‘an era of terrible performance for asset prices.’ ‘Stocks,’ he continues, ‘did terribly too.’ ‘[T]he stock markets,’ it seemed, ‘were saying that capitalism was finished.’ And so what we had as ‘a financial disaster.’

This is quite telling, when you think about it, of what ‘capitalism’ was apparently considered to be in the era – and perhaps of what Wolfe, Summers and their peers think that capitalism is and must be today. Yet more telling is what Wolfe tells us austerity, labor suppression, and financial deregulation from the Thatcher and Reagan eras on down brought by way of welcome corrective – viz. ‘a prolonged and remarkable boom in asset prices.’

Now why is this interesting? Well, to begin with, because language.

The ‘boom’ to which Wolf here refers has another name: ‘ bubble.’ And a bubble in asset markets is nothing more than … wait for it … a hyperinflation in those markets.

Do you see what is happening here, then? What Wolf is telling us is that the inflation in consumer goods markets that characterized the 1970s was simply re-routed to financial markets in the 1980s, where it has remained ever since.

And this is hardly surprising in light of the mass transfer of purchasing power – from labor to capital – orchestrated by Thatcher, Reagan, Major, two Bushes. Blair, Clinton, Cameron, May, Johnson and Trump over this long 40 years. For wealthy rentiers typically max out on consumption long before they grow über-wealthy. There are few places left for their money to go, absent taxation, than the City of London and Wall Street betting markets.

Now look at what Raghu tells us. Unlike Wolf, he avoids celebrating asset price booms. He wrote importantly, after all, on the role played by inequality in generating the last great financial meltdown. His Fault Lines should still be required reading for all, as should be Martin’s own Fixing Global Finance.

But what Rajan once gave with the left hand he now takes back with the right. For while he does not protest, as Martin effectively does, on behalf of the rentiers as prospective payers in the event we must open more fiscal space, he does in effect ‘capitulate to capital’: he avers that ‘it will be hard to make the rich pay – they will oppose new taxes vigorously and avoid them if implemented.’ Riotously decrying ‘a riot of U.S. spending’ while posing as protector of … here we go again … ‘future generations,’ moreover, he sounds an awful lot like the rentiers’ favorite Republican avatars in past Congresses.   

This counsel of despair and preemptive surrender is, I have to confess, flabbergasting. For again, Rajan is both cleverer and more earnest than this. Did Piketty and ‘Occupy’ simply not happen? Did Bernie and AOC not happen? Did Trump’s popular ersatz populism not happen? Did George Floyd’s murder, Black Lives Matter, and Joe Biden’s Damascene conversion not happen? Heck, did Broadway’s Hamilton not happen?

The same rising tide of political energy that has at long last returned us to our anti-austerian, egalitarian, pro-planetarian, Hamiltonian state-capitalist roots is still rising, inexorably. This is no time to surrender, preemptively à la Obama, to either austerians or rentier tax-cut enthusiasts. We’re past that now.  

The despair and dark pessimism, not to mention the presumably unintentional rentier apologetic, writ into Rajan’s take is both democratically enervating and out of step with the times, which are more reminiscent of those of the New Deal and Great Society than we have seen since… well, the New Deal and the Great Society. And this time no war or cold war need derail us. For unlike his predecessors over the past 40 years, President Biden ‘gets’ that such global competition as there is is itself economic and state-capitalist.     

So what does this tell us about now – and about the coming rebalancing that Rajan, Wolfe, Summers, and very few others read not as rebalance but as ‘riotous spending’ and ‘the specter of inflation’?

Intriguingly, Wolf in effect unknowingly drops a hint in his aforementioned recounting of the 1960s and 1970s: One country that didn’t experience stagflation in this period, and accordingly didn’t ‘rebalance’ by moving to financial hyperinflation instead, was Germany. What did and what does Germany do that we didn’t and don’t? Might we find there how to Build Back Better sustainably here?

The answer is yes, and the Biden Administration, unlike Summers and others, thankfully seems to have ‘got the memo.’ What Germany did and still does is never to stop producing, never to stop productive investment, and thus never to need countenancing the unjust suppression of labor or unwise financialization of its economy.

It also has long understood – since List and Bismarck at latest – that even public expenditure that Reaganauts and latterday Clintonites seem to think –  trafficking in the most pseudo of pseudo-distinctions – ‘more social than infrastructural,’ is infrastructural and efficiency-growing precisely by being social and justice-spreading. For it promotes labor mobility and thereby good factor-flow just as all good infrastructures do.    

That is still capitalism. But it’s a capitalism that works through and in reasonable part for labor, not against labor – in effect, a fusion of laborism and capitalism. Only this form of capitalism – labor capitalism – is non-self-destructive.

In effect, this is what Building Back Better at this point is looking like. The plan is very much aimed both at massively jumpstarting green infrastructure and industry on the one hand, and at massively boosting and spreading productive opportunity to incipient producers – that is, to all of us – on the other hand.

Each boost, meanwhile, operates both generally, economy-wide, on the one hand, and in particularly concentrated form among long-neglected sectors of our economy and long-neglected regions and populations of our country, on the other hand. (This is why Biden speaks so often of rural America and non-white-male America along with the rest of America.) The tax offsets to limit deficit-growth, meanwhile, target outsourcing and offshoring firms owned by rentiers – those whose fortunes Summers, Wolfe, and Rajan seem by implication either to favor or to be willing to surrender preemptively to – not working Americans.

It would be hard to overstate the significance of this shift. It represents a return to the Hamiltonian growth model that served us so well for 150 years and serves Germany, Japan, South Korea, and now China well to this day. (The prophet of Germany’s strategy was Friedrich List, who cheerfully acknowledged Hamilton’s influence, as did the architects of Asia’s ‘tiger economies.’)

This is a model that looks not to financial indices as measures of our economy’s success, but to production indices, infrastructure ‘report cards,’ and indicators of human well-being like job quality and quantity, educational attainment, health and longevity, and the like.

It might be difficult, after 40 years of incessant financializtion in the Anglo-American world, to persuade people like Summers and Wolfe to stop fixating on asset price indices and associated rentier wealth metrics as measures of national success. But that doesn’t mean we need follow them. Instead we should translate, expose, and replace them as ‘thought leaders.’

When we hear talk of ‘inflation’ and ‘asset price booms’ going forward, then, let us remember that these are the same thing, differing only in respect of cui bono – who benefits. And when we hear talk of ‘labor demands’ on the one hand and ‘bond market balking’ on the other hand, let us remember that these are the same too, differing only in respect of who is demanding what.

Given how workers and financiers have fared over the past 40 years, I don’t think I’m being eccentric in saying that Main Streeters are due more, and Wall Streeters due less, if in fact we must choose. As it happens, however, we needn’t yet choose. And President Biden appears now to see that.

If he can see it, so can we.

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