Speaker 1: Okay, that was that was that was slightly longer of
Speaker 1: an a total shriek. Now was ex backing. Robert has
Speaker 1: been coming after me for not doing a total shrieks
Speaker 1: to start the podcast enough so that that's how we're
Speaker 1: starting this episode. It could happen here the podcast where
Speaker 1: we taken into Noverhre's victory Lap Because yeah, so, if
Speaker 1: you've been following the discourse about inflation over the past
Speaker 1: about two two and a half years, and especially in
Speaker 1: the last like maybe year or so, so very interesting
Speaker 1: stuff has been happening, and the stuff that we've talked
Speaker 1: about on this show, and then also stuff that's been
Speaker 1: sort of moving around in the sort of broader discourse
Speaker 1: and has now reached like the IMF. And the thing
Speaker 1: that's been happening is that the theory of inflation that
Speaker 1: I've we've been pushing on this show and that also
Speaker 1: very importantly that has been being developed by Strange Matters
Speaker 1: has been like incredibly vindicated to the point of everyone
Speaker 1: else adopting it and then claiming that they invented it.
Speaker 1: So yeah, we're this is this is this is the
Speaker 1: this is the Inflation Victory Lab episode. And to talk
Speaker 1: about the fact that these two people and their colleagues
Speaker 1: were right about inflation and a bunch of other stuff too.
Speaker 1: Is John Michael Kolan and Steve Mann, who are both
Speaker 1: co editors of the magazine Strange Matters, And yeah, both, Fiji,
Speaker 1: welcome to the show.
Speaker 2: Thanks so much for having us.
Speaker 1: Yeah, and I'm excited about this because I've been wanting
Speaker 1: to do this episode for like ever since. So the
Speaker 1: the IMF tweeted out a graph that was arguing that like,
Speaker 1: I think it's like fifty percent of inflation, and the
Speaker 1: EU was based on corporate profits, which was like them basically,
Speaker 1: and this is this is them, and like all the
Speaker 1: mainstream economists are finally like having to admit that we
Speaker 1: were fucking right about it inflation.
Speaker 2: Yeah.
Speaker 1: So I guess before we get into what we what
Speaker 1: you two were arguing and what you collegues are arguing,
Speaker 1: we should talk a bit about, like I guess who
Speaker 1: you two are, and also like talk about Strange Matters
Speaker 1: again because I think it's been a bit since y'all
Speaker 1: have been on.
Speaker 2: Yeah. Absolutely, So, Strange Matters is a this is our
Speaker 2: kind of boiler plate, a magazine of new and unconventional thinking.
Speaker 2: In economics, politics, and culture, and we have a political bent,
Speaker 2: so we are broadly speaking all some flavor of libertarian.
Speaker 2: Socialist is kind of the umbrella term that we've used
Speaker 2: for ourselves, but that varies depending on the individual kind
Speaker 2: of members of the team. So we've got people who
Speaker 2: are anarchists, We've got people who are inspired by like
Speaker 2: democratic and federalism. We've got like people who don't like
Speaker 2: a lot of those labels but are really into like
Speaker 2: direct democracy stuff. But like you know, the the four
Speaker 2: of us basically converge on the direct democracy, you know,
Speaker 2: socialism is putting people in charge of the decisions that
Speaker 2: affect them kind of school of things. So in terms
Speaker 2: of our economics pages, however, we've for the last couple
Speaker 2: of years been really dedicated to publishing heterodox economists, economists
Speaker 2: who don't correspond to the usually quite right wing mainstream
Speaker 2: of the economics discipline, but challenging in fundamental ways. And
Speaker 2: there's a bunch of different schools of heterodox economics, like
Speaker 2: you know, everyone knows about, like Marxists, but there's also
Speaker 2: post Kinesians and ecological economics and feminist economics and a
Speaker 2: whole bunch of different schools. We've been dedicated to publishing
Speaker 2: people from all those different schools and trying to kind
Speaker 2: of get them to write in a style that's more
Speaker 2: accessible for ordinary people, so that some of those ideas
Speaker 2: actually start not just reaching the public, but actually reaching
Speaker 2: each other because they don't really talk to each other
Speaker 2: very much.
Speaker 1: This is this is one This is one of the
Speaker 1: big problems is like I mean even just inside of Marxism,
Speaker 1: like if you if you get six Marxist in the
Speaker 1: same we all have nine different positions and they'll all
Speaker 1: be like ready to murder each other over it. And
Speaker 1: that's that's just the Marxists, and then you expand out
Speaker 1: to all the rest of the other Heterodoxicontaoist people, and
Speaker 1: there's a lot of weird and sort of pointless rivalries
Speaker 1: going on that prevents people from like fusing really useful
Speaker 1: theories together.
Speaker 2: Yeah. Absolutely, Yeah.
Speaker 3: We tried to be a platform for diverging opinions to
Speaker 3: actually be put into dialogue with each other, and we've
Speaker 3: definitely I don't think there's been a single piece that
Speaker 3: all of us have been in lockstep agreement on theoretically,
Speaker 3: and I think that's a real strength. Actually, Yeah, like
Speaker 3: there's there's quite a there's quite a few pieces that
Speaker 3: at least one of us is like, I still don't
Speaker 3: really know about this thesis, but I've been there have
Speaker 3: been times in which I've been down on a piece,
Speaker 3: but it does amazing, so let's go with it.
Speaker 2: And also, you know, part of the reasoning for that
Speaker 2: is not just to kind of like Lucy Goosey, let's
Speaker 2: all get along and and sing around a campfire, but
Speaker 2: it's actually a very principled thing because part of the
Speaker 2: story that we're telling with the magazine is how we
Speaker 2: have these enormous problems, you know, climate change, the whole
Speaker 2: crisis that the democracies have been going through since the
Speaker 2: two thousand and eight crisis, the whole and since like
Speaker 2: the rise of global fascism in the twenty tens, like
Speaker 2: the what are we going to do about like the
Speaker 2: Internet and its future? What are we going to do
Speaker 2: about these these horrible culture war type issues that like,
Speaker 2: you know, people talk about it as the culture of war,
Speaker 2: but actually it's these massive reconfigurations that we have to
Speaker 2: do of our consciousness in order to think about you know, gender,
Speaker 2: national identity, and ethnic identity and all these other things.
Speaker 2: In different in new ways that are actually like freeing
Speaker 2: and emancipating and stuff like, Like all of these problems
Speaker 2: are vast and nobody actually knows what the answer is,
Speaker 2: and that includes leftists. Like there's a lot of these
Speaker 2: problems that are either like too technical or to complex
Speaker 2: for any one person to have the solution. So there
Speaker 2: needs to be a space where we kind of come
Speaker 2: together people who are kind of like of good faith
Speaker 2: and who like are trying to kind of do the
Speaker 2: whole democracy and egalitarianism thing, and we actually butt our
Speaker 2: heads together across lines of difference and are like, Okay,
Speaker 2: what are we going to do about this? And what
Speaker 2: are our different perspectives and what's the what's the common ground,
Speaker 2: and what are some little bits and pieces of things
Speaker 2: that people have figured out that we can kind of
Speaker 2: stitch together into something that will let us not just
Speaker 2: get steamrolled by the fascists. And that that's the kind
Speaker 2: of space that we're trying to be, and that's why
Speaker 2: we try to accommodate these different perspectives, even though we
Speaker 2: ourselves tend to come from rather strong perspectives both individually
Speaker 2: and as a group.
Speaker 1: Yeah, well, and I think we can like this inflation
Speaker 1: sort of argument that's been playing over the past few years,
Speaker 1: I think is a really like it's a really good
Speaker 1: indication of how well this stuff can work. If it's
Speaker 1: if it's like you know, like the fact that y'all
Speaker 1: have basically had the inflation theory that like a bunch
Speaker 1: of mainstream economists were going to stumble over in the
Speaker 1: last like eight months, had effectively written we're discussing and
Speaker 1: we're writing it like two years ago. Is a is
Speaker 1: a sign that something is going right?
Speaker 2: Yeah, we feel really vindicated.
Speaker 1: Yeah, it's it's been very, very very funny to watch.
Speaker 1: So I guess we should move into a bit about
Speaker 1: what this theory actually is, and the very very short
Speaker 1: version of it is that it's a supply chain theory
Speaker 1: of inflation. It's a theory of inflation that tracks, you know,
Speaker 1: tracks price increases based on like like price movement based
Speaker 1: on stuff happening like backwards in the supply chain. And yeah,
Speaker 1: that turns out to have been a really useful both
Speaker 1: predictive thing and explanatory thing once the inflation actually started.
Speaker 2: Yeah, I just really wanted to highlight that it's Steve
Speaker 2: who wrote the initial essay where we first put those
Speaker 2: pieces together, it's it's it's Steve's supply chain theory of
Speaker 2: inflation were anybody else's, So I definitely I defer to
Speaker 2: you in terms of, you know, laying the groundwork for it.
Speaker 3: Well. I wrote a piece called Notes toward e Theory Inflation,
Speaker 3: and it was kind of born partly out of frustration
Speaker 3: over the fuzzy language in which economists will try to
Speaker 3: speak about inflation. And when I was a grad student,
Speaker 3: I would like encounter it not just from any particular school,
Speaker 3: but from broadly speaking, most of the schools of economics.
Speaker 3: And like it's been prior to this inflationary episode and history,
Speaker 3: it has been almost forty years since we've experienced anything
Speaker 3: like this. And you know, in the in the last
Speaker 3: period of like runaway inflation in the eighties, people were
Speaker 3: having a similar reckoning, although they didn't quite coalesce around
Speaker 3: supply chain and cost puss related theories of inflation like
Speaker 3: they are at this time. But like the theory like
Speaker 3: in a nutshell, the supply chain theory of inflation is
Speaker 3: essentially saying that along there there are groups of businesses
Speaker 3: called supply chains who buy inputs from each other in
Speaker 3: order to produce products and sell them to either the
Speaker 3: next person in the chain or to outside consumers that
Speaker 3: the end user and over time, given stressful enough biophysical
Speaker 3: conditions that they all find themselves in even if they
Speaker 3: don't want to raise prices. And broadly speaking, we know
Speaker 3: from empirical studies that most businesses most of the time
Speaker 3: are very biased towards not raising prices. If the situation
Speaker 3: gets dire enough and they've run they've exhausted all of
Speaker 3: their non price based mechanisms for dealing with bottlenecks what
Speaker 3: are called bottlenecks in the supply chain, Like they just
Speaker 3: don't have enough of the inputs that they need in
Speaker 3: or to sell enough stuff at assert at their normal
Speaker 3: price in order to make enough revenue to socially reproduce
Speaker 3: themselves and their supply chain. Of evidentially, they will exhaust
Speaker 3: all options and there will be one person who's kind
Speaker 3: of like the progenitor price increaser. And because like every
Speaker 3: single and like, what is inflation really, it's a general
Speaker 3: rise in prices. What are prices? Prices are things that
Speaker 3: people themselves inside of firms, it's their job to set
Speaker 3: and so any theory of inflation needs to start with
Speaker 3: a theory of price essentially, and like, so these managers
Speaker 3: whose job it is to set prices, when they change prices,
Speaker 3: why did they do it? Well, we have answers going
Speaker 3: back many decades, almost a century of the surveys of
Speaker 3: economists who have gone out and actually conducted surveys asking
Speaker 3: under what conditions would you raise prices? And at no
Speaker 3: time did anyone say, oh, I raise prices because I
Speaker 3: looked at monetary aggregates and I saw that there was
Speaker 3: too much money, so I raised prices that and so
Speaker 3: like that was kind of a starting point for me
Speaker 3: when I read those these surveys conducted by Gardner Means,
Speaker 3: who is an economists and doing this work in the
Speaker 3: twenties and thirties long. If I don't burrow, I got
Speaker 3: really excited because I'm like, oh, of course, well, of
Speaker 3: course it's if inflation. There's so much mysticism about like
Speaker 3: piles of money building up, and then it's like demand
Speaker 3: pull and cost push, and like what does this all mean? Right? Well,
Speaker 3: at the bottom of it, it's what are pricing managers
Speaker 3: doing when they make that fateful decision to be the
Speaker 3: first guy to raise prices? Because there is one. It
Speaker 3: has to start with someone, and it's usually, like I
Speaker 3: was saying, they've exhausted all of their other methods of
Speaker 3: dealing with this, such as rationing inputs or economizing like
Speaker 3: increasing their efficiency and their production, or diversifying their product
Speaker 3: lines and all this stuff in order to maintain customer
Speaker 3: goodwill throughout a period of of his coal stress to
Speaker 3: the supply chain, and they're just going to raise prices
Speaker 3: because they have to get a certain amount of revenue
Speaker 3: in order to make it as a business. So that's
Speaker 3: essentially what the supply chain theory is is that when
Speaker 3: that happens, it propagates along supply chains first and then
Speaker 3: because nowadays our economy is so extremely integrated, it's not
Speaker 3: just one supply line. It's an entire supply chain network nowadays,
Speaker 3: and it's global in scope, so even if it can't
Speaker 3: it's it's increasingly less constrained to just like one industry
Speaker 3: or even one country these days.
Speaker 2: That was a that was a beautiful explanation. That's that's
Speaker 2: probably the most concise that we've that we've accomplished yet
Speaker 2: at boiling it down. I'll just because this is the
Speaker 2: problem is that we could go on for like thirty
Speaker 2: minutes about this. Yeah, just this. I guess I have
Speaker 2: a couple of things to add that are just like
Speaker 2: digging out a couple of nuances that I think are
Speaker 2: important for listeners to stand. What Steve said about inflation
Speaker 2: being about a continuous general increase in prices is really
Speaker 2: really profound. I think the first person to articulate that
Speaker 2: I'm aware of was John K. Galbraith in an essay
Speaker 2: that he wrote about that, but in like the fifties.
Speaker 2: But like, that's honestly not the way that we usually
Speaker 2: think of it, right, Like, usually we think that inflation
Speaker 2: is when money, the value of money goes down value
Speaker 2: money buys you less than it usually does. And that
Speaker 2: is not just because that's how we experience it in
Speaker 2: our pocketbooks. Everything else is just scott more expensive. It
Speaker 2: also has to do with the kind of history of
Speaker 2: theories of inflation, because back in the day, the first
Speaker 2: and og theory of inflation, which people still some of
Speaker 2: them believe in, is the quantity theory of money, and
Speaker 2: it basically envisions like the entire economic universe as a
Speaker 2: bunch of like atomized individual agents. And by the way,
Speaker 2: there's no like distinction between companies and households or anything
Speaker 2: like that. Here, everyone's kind of like funny, everyone's an
Speaker 2: individual agent. And there's a bunch of stuff that already
Speaker 2: exists out there in the economy. How it was produced,
Speaker 2: I mean, you deal with that in a production function.
Speaker 2: Other than that, like you don't talk about it. So
Speaker 2: there's a bunch of existing stuff out there in the economy,
Speaker 2: and it's scarce, right, so like how is it going
Speaker 2: to be distributed? Well, we're trading the stuff that we
Speaker 2: have for the stuff that we need. And when things
Speaker 2: are more scarce, they're more valuable. When things are more abundant,
Speaker 2: they're less valuable. And when we want them more they're
Speaker 2: more valuable, we want them less, they're less valuable. So
Speaker 2: that's kind of like like the very basic universe that
Speaker 2: they're kind of like operating in. And money was just
Speaker 2: seen to be one one good being traded like any other.
Speaker 2: It just so happens to be the one that we
Speaker 2: trade in exchange for everything else. So rather than doing
Speaker 2: barter like like of every thing, you know, this many
Speaker 2: chickens for this amount of haircut, you know, like, instead
Speaker 2: it's like, you know, we choose one thing to be
Speaker 2: exchangeable for everything else, but it still has a value,
Speaker 2: which is basically determined, according to this theory, by how
Speaker 2: much of it there is. So if you increase the
Speaker 2: money supply, money gets less valuable, which is why you know,
Speaker 2: everything becomes more expensive, prices go up. Whereas if the
Speaker 2: money supply shrinks, you know, then the value of money
Speaker 2: is higher relative to the goods that it buys, so
Speaker 2: therefore prices will go down. This was the theory that
Speaker 2: was developed in like the sixteen and seventeen hundreds to
Speaker 2: try to explain a massive global inflation that happened then
Speaker 2: in the so called price revolution of the seventeenth century.
Speaker 2: And frankly everyone by the twentieth century knows that there's
Speaker 2: huge issues with this, so they start trying to evolve
Speaker 2: away from it, away from the quantity theory of money,
Speaker 2: because it has no real empirical basis. I mean, some
Speaker 2: people tried to kind of like you know, juke the
Speaker 2: stats to make it look like there was but like, really,
Speaker 2: our best estimates of the money supply have no real
Speaker 2: good correspondence to prices in the economy. It's not it
Speaker 2: doesn't really work that way.
Speaker 1: So yeah, this is this is the sort of modern
Speaker 1: version of this is called monetarism, which is like that's real. Yeah,
Speaker 1: And this is like, this is maybe the only thing
Speaker 1: I have ever seen, even like most neoclassical economists drop
Speaker 1: because it's empirically wrong, like it's stunning, Like you do
Speaker 1: you know how wrong something has to be for neo
Speaker 1: classical economists to go, wait, hold on, maybe this isn't right,
Speaker 1: like I it's it's incredible.
Speaker 2: But the problem is that they retreated into theories that
Speaker 2: are not necessarily right either. Yeah, perhaps perhaps groping their
Speaker 2: way clumsily towards the truth, but not really that right.
Speaker 2: So this is this is where all that pull and
Speaker 2: push stuff comes in, and it's it's it's a little
Speaker 2: too technic to get into. Steve's essay has like the
Speaker 2: full version of it, but basically they started evolving away
Speaker 2: from a theory where the absolute amount of money in
Speaker 2: the economy is what matters most, and towards theories where,
Speaker 2: for example, it's the amount of money relative to the
Speaker 2: goods that can be bought by it. So if you
Speaker 2: have a bunch of people spending money to buy stuff,
Speaker 2: but there's not enough stuff to meet that demand. Then
Speaker 2: that will basically mean that there's like scarcity and shortages
Speaker 2: and things like that, and that will cost prices to
Speaker 2: go up. Although why they do, like the underlying microeconomics
Speaker 2: of why prices go up when they're shortages and stuff,
Speaker 2: this theory doesn't really address because it's a macro theory
Speaker 2: and it'll kind of like fall back on supply and
Speaker 2: demand stuff or various kind of weird hydraulic metaphors about
Speaker 2: like well god, yeah, yeah, yeah, you know, it's so
Speaker 2: it doesn't really like like you know, different people will
Speaker 2: have different versions of this that have totally differ and
Speaker 2: explanations of why it's happening, but they'll generally say, if
Speaker 2: you look at the economy as a whole, if the
Speaker 2: stuff that's being made is less than the orders being
Speaker 2: put in for it, then that causes inflation because you're
Speaker 2: just not producing enough stuff. And they call that demand
Speaker 2: pull because the poll of basically it's like demand pulling,
Speaker 2: you know, for stuff that isn't being produced, so it's
Speaker 2: like okay, well that that causes price rises. There was
Speaker 2: a parallel development where they're trying to get away from
Speaker 2: the QTM another way where some people were like well,
Speaker 2: what's the most important single cost for businesses across the
Speaker 2: economy And they say labor obviously, right, like everyone needs
Speaker 2: to pay somebody to do wages to keep the business going.
Speaker 2: So they just said, okay, well, if the cost of
Speaker 2: labor goes up across the economy, then that will cause
Speaker 2: prices to go up. So that's called cost push, which
Speaker 2: now theoretically this could be true of any cost. And
Speaker 2: this is kind of like where you know Steve's theory
Speaker 2: comes in is because it actually like starts talking realistically
Speaker 2: about what the cost of businesses are. But originally this
Speaker 2: was again a macro theory, so they picked the one
Speaker 2: cost that's common to all the things in the economy
Speaker 2: and they said that basically, inflation is the cost of
Speaker 2: workers agitating for higher wages, which leads wages to go up,
Speaker 2: which causes cost push inflation, the cost go up, so
Speaker 2: that pushes puts pressure down the supply chain because it's
Speaker 2: it's a cost for everybody downstream of it, so then
Speaker 2: it causes it to the prices to go up. Now,
Speaker 2: the problem with these theories is that like they're very
Speaker 2: like rigid. It's like it has one cause and it's
Speaker 2: also like, you know, and it's this one thing and
Speaker 2: it has to operate across the entire economy. Right, But
Speaker 2: that's not actually how our economy is put together. Because
Speaker 2: our economy is not this general equilibrium produced by the
Speaker 2: trading of individual agents who are buying cheap and selling
Speaker 2: deer to each other. That whole universe doesn't really exist.
Speaker 2: The universe that we actually live in is one where
Speaker 2: businesses are not isolated. They're interdependent. Right Like the the
Speaker 2: you know, the people who collect sands, you know, from
Speaker 2: the earth and other minerals, feed into the factories that
Speaker 2: turn it into glass, which feeds into the construction industry
Speaker 2: that puts those glass well actually, no, sorry I missed
Speaker 2: a step there. You know, it feeds into the factories
Speaker 2: that turn that glass into windows, which then feeds into
Speaker 2: the construction industry, which puts them into buildings that then
Speaker 2: feeds into like real estate conglomers that rent it, which
Speaker 2: then feeds into businesses and households that live there. Right Like,
Speaker 2: that's the entire supply chain, and all those businesses depend
Speaker 2: upon each other because they're each other's customers. So how
Speaker 2: much glass do they make in the in the glass factory?
Speaker 2: It depends on how much how many windows the window
Speaker 2: factories that are all their customers order. That's what determines
Speaker 2: how much they're gonna make. You know, this whole picture
Speaker 2: of the world as supply chains is common sense to
Speaker 2: anybody who actually like works a job, especially if they're
Speaker 2: like in a man position where they have to maybe
Speaker 2: be dealing with some of the supplier relations stuff or
Speaker 2: customer relations stuff. Economists just don't talk about it. It's
Speaker 2: not really in their models because their models are developed
Speaker 2: from the ground up from this kind of like everybody's
Speaker 2: just trading as individuals perspective. And that's a great deal
Speaker 2: of the reason why Steve's theory is so powerful. Now.
Speaker 2: A lot of this supply chain picture that I'm painting,
Speaker 2: besides coming from the real world, it also came from
Speaker 2: a particular heterodox economist that I wrote a very long
Speaker 2: profile of called Frederick S. Lee.
Speaker 1: Before we get into Lee, we unfortunately do need to
Speaker 1: take an ad break because capitalism. But do you know
Speaker 1: what Frederick Lee would have hated, and it's this ad break.
Speaker 1: We're about to do it, all right, and we're back
Speaker 1: to talk about Frederically, he was very cool and them
Speaker 1: very excited.
Speaker 2: Yeah, well, unfortunately started to the point. We're not gonna
Speaker 2: talk a ton about him. The only really important thing,
Speaker 2: so he was. He was a great guy. He was
Speaker 2: an anarcho syndicalist. He was a lifelong member of the
Speaker 2: i w W. He actually helped recover Joe Hill's ashes
Speaker 2: from the federal government and properly bury them. That's not
Speaker 2: in Part one of my profile, which is published. It's
Speaker 2: in part two, which is coming up. But in addition
Speaker 2: to that, he was also a great economic theorist, and
Speaker 2: part of what he did is that he put together
Speaker 2: the bits and pieces of this alternative picture of the economy, where,
Speaker 2: for example, prices are not this thing that allocates resources
Speaker 2: automatically through supply and demand and there and their price
Speaker 2: changes are telling us what to how much to produce
Speaker 2: and how much to consume, which is the kind of
Speaker 2: like mainstream neoclassical picture. But rather prices are a markup
Speaker 2: that businesses like set themselves. They're not receiving it from
Speaker 2: the market. They set a price markup over their total
Speaker 2: costs of production in order to get the money that
Speaker 2: they need to keep the lights on and stay in business.
Speaker 2: This all sounds very trivial, I know, but believe it
Speaker 2: or not, in economics, this is like a revolutionary idea.
Speaker 2: So then it's like, okay, well, if that's the way
Speaker 2: that an individual company is, how are the companies linked together?
Speaker 2: He basically comes to he doesn't call it this, but
Speaker 2: to a supply chain view of the economy, especially in
Speaker 2: his last textbook, which tries to create a model of
Speaker 2: the economy as a whole, and he says that the
Speaker 2: entire economy is basically just a circuit of supply chains.
Speaker 2: It's all the businesses sort of linked up together, forming
Speaker 2: a closed circuit that loops back on itself. And that
Speaker 2: is the economy that we use to produce the goods
Speaker 2: and services that just keep society going day to day,
Speaker 2: week to week, year to year. So he Lee basically
Speaker 2: had all of that and that was the main ingredient
Speaker 2: that we used. But it was Steve who then took
Speaker 2: that framework and used it to create a new theory
Speaker 2: of inflation. Because if you have a world of the
Speaker 2: supply chains, then it becomes very obvious that if prices
Speaker 2: are gonna rise all across the economy, it's gonna be
Speaker 2: because people's costs go up. So then the question becomes
Speaker 2: why do people's costs go up? And the answer is
Speaker 2: almost always what Steve called his progenitor price increase. This
Speaker 2: this first guy who chooses to raise his prices if
Speaker 2: and only if that person is even only if that
Speaker 2: person is in the uh you know, in a position
Speaker 2: in the supply chain where a bunch of people are
Speaker 2: downstream of them. And that tends to happen when, for example,
Speaker 2: an input that goes into the entire economy, like energy,
Speaker 2: suddenly goes up in the price or becomes scarce, or
Speaker 2: it happens when a natural disaster causes disruptions in a
Speaker 2: couple of businesses that everybody else depends upon, or when
Speaker 2: there's an adverse shift in the balance of payments, you know,
Speaker 2: the the Let's say that the peso you know starts
Speaker 2: becoming you know, versus the dollar. You know, the dollar
Speaker 2: becomes much more expensive, So imports become much more expensive.
Speaker 2: So any business that depends upon imports, you know, will
Speaker 2: suddenly will suddenly have their costs go up. These are
Speaker 2: the kinds of events that are like an external shock
Speaker 2: that leads to arise in prices and keynodes in the
Speaker 2: supply chain that because so many people are connected to
Speaker 2: them as customers, their costs become more expensive, and that's
Speaker 2: these costs increase travel across particular supply chains. So you
Speaker 2: have to actually know how all the businesses are linked
Speaker 2: together so that you can identify what the origin of
Speaker 2: the stress was and see which particular supply chains is
Speaker 2: traveling down. It's not this like this thing that has
Speaker 2: to do with a single factor across the whole economy
Speaker 2: or this or much less the amount of money that's
Speaker 2: being printed. The amount of money is almost like irrelevant
Speaker 2: in this situation basically. I mean, it maybe has relevance
Speaker 2: inasmuch as, like you know, if people have the amount
Speaker 2: of money in their pockets that they have, usually they
Speaker 2: might start purchasing more things than can be produced at
Speaker 2: this moment. But that's usually like like usually it balances
Speaker 2: out in normal situations. The only reason why that would
Speaker 2: be true is because there was some kind of disruption upstream,
Speaker 2: so that what's normally produced isn't being produced, And so
Speaker 2: you always have to look at the particular supply chains
Speaker 2: and the kinds of stress that they might have. Did
Speaker 2: I did I communicate that roughly? Right?
Speaker 3: Yeah? Yeah, that was a fantastic summary. I have like
Speaker 3: a few small notes just to add to it in
Speaker 3: the sort of survey of existing theories of inflation that
Speaker 3: I did in the paper that JMEC like very ablely
Speaker 3: summaries for us, like specifically for the cost push guys,
Speaker 3: they I think they have a tendency to focus on
Speaker 3: like mecrodynamic forces at work in the lens of cost push,
Speaker 3: like partly because it is like it really it relies
Speaker 3: on high profile fights between labor unions and companies that
Speaker 3: the audience already kind of understands, and it makes a
Speaker 3: lot of sense that you would go to union fights
Speaker 3: in particular since they're like one of the big items
Speaker 3: that they typically fight over is cost of living adjustments
Speaker 3: built into their wage increases. And so that's like an
Speaker 3: obvious like, Okay, if there is ever a time in
Speaker 3: which academic forces would convene in to specifically to raise inflation,
Speaker 3: it would probably be fought over like the cola adjustments,
Speaker 3: cost living adjustments, and like the that leaves so much
Speaker 3: of the story untold. Focusing on cola adjustments in these
Speaker 3: union fights leaves so much of the story untold because
Speaker 3: it's it's putting like what's really this incredibly interdependent, micro
Speaker 3: based phenomenon onto the backs of like one union against
Speaker 3: one company fighting over one contract, and the way they
Speaker 3: make it work in like a lot a lot of
Speaker 3: the modern interpretations of cost push in this macrodynamic sense,
Speaker 3: the way they square, the way they square how it
Speaker 3: gets from that fight to become a generalized inflationary episode,
Speaker 3: which is what people want to know about, Like they
Speaker 3: don't want to know about one well, they want to
Speaker 3: know about politically about a union fight, but in terms
Speaker 3: of the economics, they want to know about the inflationary episode.
Speaker 3: The way they square that is that there's typically like
Speaker 3: in what they call an information diffusional component to this.
Speaker 3: It's where and that's a fancy way of saying people
Speaker 3: learn about the outcome of the fight and then replicate.
Speaker 2: It monkey see monkey doo.
Speaker 3: Yeah. So one union fight or one or one company
Speaker 3: backclash against a union fight, word gets out, it spreads,
Speaker 3: and it's all over the place. And that's really like
Speaker 3: when you look at the the economic history of the
Speaker 3: data of inflationary episodes, although there are union fights going on,
Speaker 3: inflation is not springing up specifically from those fights in
Speaker 3: the way that they're describing.
Speaker 1: Yeah, and I mean, one of the things you can
Speaker 1: tell this is obviously wrong is that they're just they're like,
Speaker 1: at no point in the US's history has there ever
Speaker 1: been enough percentage of the US population who are in
Speaker 1: unions for this to mix, this to actually work, Like,
Speaker 1: at no point even if you were to be really
Speaker 1: generous to them and only look at union density and
Speaker 1: like steel production, union density and stuff that are like
Speaker 1: an important part of the supply chain, Like, it's just
Speaker 1: not enough people, Like it can't it literally cannot be
Speaker 1: true that it is purely like a union cost a
Speaker 1: testment thing because they're just not enough people.
Speaker 3: Yeah. So in these models, one of the important tasks
Speaker 3: that they've given themselves is to estimate the coefficient of
Speaker 3: information diffusional content from these union fights and like, so
Speaker 3: they will try to estimate that coefficient and thereby out
Speaker 3: build a model that outputs what price increase we can
Speaker 3: expect from like labor militancy if you're on the right wing,
Speaker 3: or company price gauging if you're on the left wing.
Speaker 2: Yeah, and this is this is really just like a
Speaker 2: perfect example. I think the Steve couldn't have possibly put
Speaker 2: it better. Of the way that certain things that sound
Speaker 2: super sophisticated and intelligent, because you know, you can have like,
Speaker 2: you know, rather rather pink economists using this framework, right,
Speaker 2: like you know, social democratic ones, you know. But the
Speaker 2: thing is that, like it sounds really fancy to be
Speaker 2: talking about like the district what was it the informational
Speaker 2: informational communication coefficient or whatever like that sounds that sounds
Speaker 2: incredibly sophisticated, right, but like, actually what it is is
Speaker 2: that it's this kind of like Nutsoe story about how
Speaker 2: the reason why price rises happen across the economy is
Speaker 2: because people are picking union fights when like empirically, labor
Speaker 2: economists often do this, like you know, the ones who
Speaker 2: work for unions and stuff. It's like it is almost
Speaker 2: always the case that wages lag cost of living, you know,
Speaker 2: like significant, so cost of living goes up, and that's
Speaker 2: why people at some point, usually years later, will try to,
Speaker 2: if they're organized, agitate for for for higher wages to
Speaker 2: catch up with cost of living. So like the causality
Speaker 2: of it of cost push you know, probably is not
Speaker 2: labor action. Like that's that's a sort of macro brain superstition.
Speaker 2: But funnily enough, this is kind of like like the
Speaker 2: devil is in the details. Because cost push as a
Speaker 2: general framework ought to probably be the basis for any
Speaker 2: reasonable theory of inflation, because the idea that it's costs
Speaker 2: going up, that then whatever prices now stream of those
Speaker 2: costs also go up, that is probably true. It's just
Speaker 2: that you have to look at particular supply chains and
Speaker 2: their costs and not just like their labor costs, but
Speaker 2: all the costs that they have and what cost in
Speaker 2: particular went up that affects those particular supply chains. Like
Speaker 2: that's but that's a different story, and it's a story
Speaker 2: that looks more like sieves and also a story that
Speaker 2: looks more like what's been going on in the world
Speaker 2: since twenty twenty.
Speaker 3: Some of the critics when my paper and subsequent papers
Speaker 3: that we're we're on the same vein as this came out,
Speaker 3: is saying that we're just conflate, like how are you
Speaker 3: guys really different than the cost push guys that you're
Speaker 3: critiquing for part of your paper, And it's really comes
Speaker 3: down to this kind of macro brain mecrodynamic interpretation based
Speaker 3: on just wages or just like one union fight. And
Speaker 3: then some like people see it and just copy it
Speaker 3: or something, and it's just to least so much of
Speaker 3: a story, I'm told.
Speaker 1: Yeah, I mean, like I think, I think this is
Speaker 1: like the strength of looking at it through a supply chain.
Speaker 1: It's like you can have it, you know, it has
Speaker 1: the what like for what for a normal person is
Speaker 1: a really simple idea, but for an economist is like
Speaker 1: unbelievably galaxy brain, absolutely impossible to comprehend idea that something
Speaker 1: can have multiple causes at the same time, and those
Speaker 1: multiple like those you can't literally just reduce an entire
Speaker 1: like thing that's happening to exactly one driver, which you know,
Speaker 1: you would think would be a pretty like not that
Speaker 1: controversial thing. But then economists can't tell the difference between
Speaker 1: a theory in which you can have multiple different things
Speaker 1: that are working on a supply chain and a theory
Speaker 1: where you can have like a thing yeah.
Speaker 2: Yeah, exactly.
Speaker 3: Yeah. So like in the COVID inflation that was that
Speaker 3: transpired just after the first of these pieces of ours
Speaker 3: came out, like it wasn't into full swing anyway in
Speaker 3: terms of in terms of being like a national phenomenon
Speaker 3: until just after like there, yes, there there would be
Speaker 3: there's getting of the labor militancy upsurge happily, but does
Speaker 3: like some people tried to light like the people who
Speaker 3: were predicting no inflation, but then we started to see
Speaker 3: a little bit of it, started to attribute it to
Speaker 3: this like macrodynamic cost push story eventually of like well,
Speaker 3: either like but you can you can tell that they
Speaker 3: are kind of hedging because there will be there's like
Speaker 3: a bifurcation of interpretations of it, like one is the
Speaker 3: like it really is, just you can tell it's not
Speaker 3: that strong of a theory because there are two like
Speaker 3: diametrically opposed interpretations saying that like, oh, you'res this corporate
Speaker 3: price gouging or it's workers causing inflation themselves, which like
Speaker 3: if like James was saying, there's a lag typically associated
Speaker 3: that workers are just trying to catch up with the
Speaker 3: prices that were being raised by firms in order to
Speaker 3: keep up with inflation they generate.
Speaker 2: Yeah, if actually, if we could talk more, I was
Speaker 2: I was hoping that I could actually get into the
Speaker 2: COVID inflation and it's caused us a little bit. If
Speaker 2: that's okay with folks, because I not only because it's
Speaker 2: important in itself, but because I think this was actually
Speaker 2: one of our first successes as a magazine. So we
Speaker 2: launched as a magazine in April I think it was
Speaker 2: of twenty twenty two, but we've been working on the
Speaker 2: magazine from like twenty twenty on, so like those two.
Speaker 2: It was March of twenty twenty two, the that's right,
Speaker 2: but but we'd been working on the magazine all through
Speaker 2: like twenty twenty and twenty twenty one and twenty And
Speaker 2: the thing is that Steve's Peace was kind of like
Speaker 2: taking shape, and you know, we as editors, but then
Speaker 2: also as people who were like helping with the research
Speaker 2: and talking things out internally and talking with other people
Speaker 2: outside the collective, we're all kind of like sort of
Speaker 2: imbibing it and thinking about it. When COVID hit right
Speaker 2: and one of the things that was rather magical, And
Speaker 2: there is written evidence of this, funnily enough, not as
Speaker 2: an article because the magazine didn't exist yet, but as
Speaker 2: a Twitter thread that I made actually on March third
Speaker 2: of twenty twenty one. And the reason I'm being so
Speaker 2: specific about dates is because of what happened where we
Speaker 2: and I was just summarizing basically conversations that we had
Speaker 2: been having inside the magazine internally. You know, that was
Speaker 2: when some of the news stories were starting to come
Speaker 2: out about shortages that were being caused by COVID. So
Speaker 2: most famously the chips shortage were semiconductors, which take like
Speaker 2: a year to make, like from the moment that the
Speaker 2: order is put in to the moment when the thing
Speaker 2: is actually shipped, it's like a year. And if that
Speaker 2: process is disrupted, you have to start from the beginning.
Speaker 2: So the shutdowns in China shut down semiconductor production, and
Speaker 2: actually I say China, but it was really China and Taiwan,
Speaker 2: like because because the both of those places have major
Speaker 2: chips companies, and the that basically screwed up chips production
Speaker 2: for like as long as the shutdown happened, and then
Speaker 2: after that at a lag of like a year at least,
Speaker 2: and then that in turn caused a bunch of other shortages.
Speaker 2: The fact that we were all inside meant that like
Speaker 2: there was a huge problem in food, both in agriculture
Speaker 2: itself and in food processing factories, you know, where the
Speaker 2: raw products that we take out of the earth are
Speaker 2: turned into the packaged you know, bits and bobs that
Speaker 2: you know, go to restaurants or to you know, food
Speaker 2: product factories and things like that, Like you couldn't get
Speaker 2: people to work there, or if they did, you know,
Speaker 2: and you tried to like pay them a sure or whatever,
Speaker 2: they would get sick so they would stop production. So
Speaker 2: there was a labor shortage in agriculture as well. Then
Speaker 2: there was a container shortage right in in shipping, where
Speaker 2: we weren't producing enough containers to actually ship stuff around
Speaker 2: the world. And if you can't do that, well, everything
Speaker 2: is made. Everything that somebody needs to make something is
Speaker 2: often now made in another country or at least another
Speaker 2: part of a country, you know, that's connected by trucks.
Speaker 2: So if there's no containers, how do you get stuff
Speaker 2: from one place to the other? And the answers that
Speaker 2: you don't So they were just piling up like mountains
Speaker 2: in the in the docks of various countries, including here
Speaker 2: on the West Coast and the East coast. So all
Speaker 2: of these shortages caused by the pandemic. Basically we're hitting
Speaker 2: key sectors of the economy, right that everybody depends upon.
Speaker 2: So transportation, everybody needs it, you know, semiconductors, a whole
Speaker 2: bunch of manufacturing needs it. So that's why cars suddenly
Speaker 2: got super expensive, is because the chips in the machines
Speaker 2: that make the cars got more expensive and scary, and
Speaker 2: not just expensive, it's scarce, like you just couldn't get them.
Speaker 2: And then food everybody depends on, and you know, like
Speaker 2: everybody buys groceries, restaurants needed, so restaurant prices went up.
Speaker 2: So you can see how specific sectors having these problems
Speaker 2: traveled down specific supply chains to produce the cost increases
Speaker 2: that we all started seeing. But here's the thing. All
Speaker 2: that stuff was happening from twenty twenty on. I did
Speaker 2: this thread on March third of twenty twenty one. But
Speaker 2: the thing is that at that point there was not
Speaker 2: yet inflation. We predicted that there was going to be inflation,
Speaker 2: and there was a lot of people, like including left wingers,
Speaker 2: including heterodox economists, who got really angry about this because
Speaker 2: for them, inflation fear mongering. You know, this was in
Speaker 2: the context of the government printing out all the stimmy checks, right,
Speaker 2: so inflation fear mongering for them is kind of like
Speaker 2: something that a right winger would do, you know, by
Speaker 2: saying the government's printing too much money, So there's going
Speaker 2: to be inflation, you know, quantity theory of money stuff,
Speaker 2: Milton Friedman stuff, the stuff that they had experienced in
Speaker 2: the turn to neoliberalism from the seventies to the eighties. Right,
Speaker 2: I understand, and that fear. But the thing is this
Speaker 2: wasn't fear mongering. These shortages for very clear reasons that
Speaker 2: were clear if you had the supply chain theory of
Speaker 2: inflation framework, which unfortunately only we did because we hadn't
Speaker 2: published it yet. Like you know, it was very clear
Speaker 2: that these shortages were going to cause cost increases in
Speaker 2: very well linked together, you know, nodes within supply chains
Speaker 2: that we're going to travel down those supply chains and
Speaker 2: basically be economy wide. So I said so because I
Speaker 2: had a hunch that it was going to be true,
Speaker 2: and that it would be a big deal if it
Speaker 2: was true, for you know, validating these discussions that we
Speaker 2: were having internally. So I said, some predictions. One, there's
Speaker 2: going to be inflation in the next year or two,
Speaker 2: potentially lots. Two it will be caused by cost increases
Speaker 2: due to the chips shortage and COVID induced bottlenecks, and
Speaker 2: agriculture and manufacturing three, they'll try to blame the stimmy
Speaker 2: checks and attempt to implement austerity. Now, at the time
Speaker 2: of that first tweet, inflation was at two point six percent,
Speaker 2: which is like within normal bounds, although slightly higher than
Speaker 2: have been before. By the end of that year, even actually,
Speaker 2: I think just a few months later, it was at
Speaker 2: four point seven percent, and in twenty twenty two it
Speaker 2: would peak at eight point seven three percent, which was
Speaker 2: like the most inflation that we've seen since the Crisis
Speaker 2: of the seventies fifty years ago. Like, so we you know,
Speaker 2: the first success that we had as the magazine, before
Speaker 2: we even came out as a magazine, is that we
Speaker 2: successfully predicted the biggest inflationary crisis since the Crisis of
Speaker 2: the seventies, and not only predicted it, but predicted its
Speaker 2: specific causes. Because as the thread kind of was continually
Speaker 2: updated over the course of that next year, like you know,
Speaker 2: people started looking digging in and actually, like a lot
Speaker 2: of journalism was uncovering that precisely those bottlenecks were leading
Speaker 2: to cost increases, you know, the and there were other
Speaker 2: ones that were kind of added to it. So when
Speaker 2: the Ukraine War started in twenty twenty two that increased
Speaker 2: global inflation because Ukraine is the world's single biggest and
Speaker 2: by a lot, supplier of wheat, which is a key
Speaker 2: staple in diets across the planet. So the shortages that
Speaker 2: were created by the Ukraine War, by Russia's blockades, and
Speaker 2: also just by bombing and you know, the war disrupting
Speaker 2: the labor market over there and all these other kinds
Speaker 2: of things that meant that there was less wheat being exported,
Speaker 2: which created bottlenecks in those supply chains, which led to
Speaker 2: the global increase in the price of wheat, which led
Speaker 2: to the global increase anything that uses wheat, bread, you know,
Speaker 2: and other food products. So beer, actually, well I'm not
Speaker 2: wrong about that, right, Beer uses wheat. I should actually
Speaker 2: know that from any way. Bread, yeah, I think I
Speaker 2: think so I had to do a double take there.
Speaker 2: So anyway, the point is that this was like a
Speaker 2: really big deal because like there were a lot of people,
Speaker 2: including like in the Biden administration, who were denying that
Speaker 2: inflation was happening even as it was happening, And eventually
Speaker 2: they kind of shifted to a story where it was like, well,
Speaker 2: it'll be transitional, because only demand pull inflation is real, right,
Speaker 2: this is clearly a cost push thing created by these shortages.
Speaker 2: But like demand pull is the real form of inflation
Speaker 2: is when there's like too much money in people's pockets.
Speaker 2: And that's not what's happening clearly, So we'll be fine.
Speaker 2: You just have to wait, right, which is not Actually
Speaker 2: the attitude that you have to take. Inflation is inflation
Speaker 2: and like you know, the the if the causes or
Speaker 2: these disruptions and supply chains, you actually, I mean, this
Speaker 2: is like the really edgy take. You actually have to
Speaker 2: spend more money in order to unplug these bottlenecks. You know,
Speaker 2: It's far from inflation being a product of there being
Speaker 2: too much money in the economy. You might actually need
Speaker 2: to do government spending to for example, hire people, you
Speaker 2: know and take extra steps for precaution for their safety
Speaker 2: to unplug bottlenecks created by labor shortages. Or you might
Speaker 2: have to like you know, rapidly invest you know, on
Speaker 2: a large scale, almost as if you're in a war,
Speaker 2: in order to create a new industry to like, you know,
Speaker 2: to to replace something like containers that that that you
Speaker 2: would normally import, you know, or something like that. So
Speaker 2: like like these are these are the kinds of actions
Speaker 2: that a more muscular approach to the inflation would have
Speaker 2: would have been. But instead they basically just waited for
Speaker 2: the supply chains to fix themselves, even when multinational corporations
Speaker 2: and their boards of directors were begging the government to
Speaker 2: actually intervene more, which is insane with economic planning, you know,
Speaker 2: you would never expect to hear something like that, but
Speaker 2: it was in the things like the pages of the
Speaker 2: Financial Times.
Speaker 1: Speaking of the Financial Times, we do we do need
Speaker 1: to take another ad break. Unfortunately. Yeah, do you know
Speaker 1: what the Financial Times will not be doing. It's buying
Speaker 1: ads on this show. Hasn't happened yet. Could happen, would
Speaker 1: be very funny, but it has not happened yet. All right,
Speaker 1: we're we're now back for ads. But yeah, I endeavored
Speaker 1: to have better ad pivots. But you know, you get
Speaker 1: what you get.
Speaker 3: Speaking of like what they could have done differently, like
Speaker 3: they there's a whole World War two playbook essentially that
Speaker 3: they just didn't chose, they're ignorant of, or chose to
Speaker 3: ignore of, like a system of price controls, rationing, and
Speaker 3: rapid redeployment of resources to to unstuck the bottlenecks along
Speaker 3: and across supply chains on the domestic side to support
Speaker 3: the warfront. There's no war going on for us directly
Speaker 3: right now, but it could it could have easily been replicated.
Speaker 1: Yeah, and that's something I think is really interesting because eventually, actually,
Speaker 1: like as the inflationary crisis sort of went on, like
Speaker 1: you did see a little bit of people trying stuff
Speaker 1: like this, like you saw Germany, if I remembering right,
Speaker 1: Germany did these price controls on on, like natural gas
Speaker 1: prices and stuff. But that gets into another interesting thing,
Speaker 1: is which is that So Yeah, I think we should
Speaker 1: get into a bit of this sort of like the
Speaker 1: I don't know how you describe it, the mainstream adoption
Speaker 1: of like a version of y'all's theory that eventually started happening,
Speaker 1: that eventually started to push like some of this stuff, which, yeah,
Speaker 1: I guess we should introduce another person who I don't
Speaker 1: know the relationship between exactly what of your stuff she
Speaker 1: read is sort of unclear. But one of the things
Speaker 1: that happens in this sort of period is this German
Speaker 1: economist name Isabella Weber, who wrote a like fine like
Speaker 1: the mostly Reasonable book about I like try the economists
Speaker 1: behind the like the reform period in the eighties and
Speaker 1: China like started pushing well, actually, this is some thing
Speaker 1: where I'm sort of unclear at the timeline. I started
Speaker 1: pushing the greedflation thing, although she had a different name
Speaker 1: for it. Yeah, I was wanting were talking about that
Speaker 1: sort of whole thing because that was really interesting, sort
Speaker 1: of like turn in the whole inflationary discourse inflation.
Speaker 3: Yeah, I think the prior so like prior to Waber's
Speaker 3: piece coming out in the earliest phases of COVID in
Speaker 3: twenty twenty and twenty twenty one, before there was any inflation,
Speaker 3: there was a group of left wing like a fairly
Speaker 3: large swath of like left wing academics, aggressives and liberals,
Speaker 3: and also Biden, the Biden administration itself, saying that inflation
Speaker 3: would be transitory and that we should it will if anything,
Speaker 3: it would be moderate, but would come right back down
Speaker 3: because like, supply chings are so much more nimble now
Speaker 3: than they were in like the seventies and eighties, and
Speaker 3: like liquidy sources are so much more plentiful that they
Speaker 3: have so many Like I'm probably giving them too much credit. Actually,
Speaker 3: I think they literally just were like, yeah.
Speaker 2: There was no because that I remember, like that would.
Speaker 3: Be basically have it because actually I'm filling the in
Speaker 3: the blanks for them as I go. I think they
Speaker 3: were just saying it's going to be transitory because it
Speaker 3: hasn't happened. Yeah, and like when it obviously in late
Speaker 3: twenty twenty two to through the middle of twenty twenty three,
Speaker 3: when there was obvious evidence that that wasn't the case,
Speaker 3: then they like really didn't, like they went like hard
Speaker 3: to starboard and said, like, Okay, the inflation that we see,
Speaker 3: it's because of corporate greed and it just reduces to
Speaker 3: that now. Yeah, and so it's like a purely opportunistic
Speaker 3: thing between of like the largest corporations. And then you know,
Speaker 3: maybe later people saw that and did monkey see monkey do,
Speaker 3: but it's it's because of them.
Speaker 2: And to be fair, like the tricky thing here is that, like,
Speaker 2: so I'll preface this by saying that, like, you know,
Speaker 2: and I think this is true Steve too, Like I
Speaker 2: really respect us of Bella Vapor's work when it's good,
Speaker 2: you know, and which is often you know, Like I
Speaker 2: think that that she's a very solid heterodox economist who
Speaker 2: has some really important refutations of mainstream ideas, and as
Speaker 2: an example of the good stuff. For example, she actually
Speaker 2: uh one of her one of the underrated aspects of
Speaker 2: a paper that kind of pushes what is popularly known
Speaker 2: as the greed inflation thing. The better part of that
Speaker 2: paper is that it actually creates a map of the
Speaker 2: current to today's supply chains in the US, like you know,
Speaker 2: and and identifies the keynodes you know. And she's a
Speaker 2: method called input output input output tables, which Steve and
Speaker 2: I have written about and we're gonna write about it
Speaker 2: more on the magazine. This is like the main tool
Speaker 2: that you can use to do real economic planning.
Speaker 1: JMC has been sending me input output tables for like
Speaker 1: seven years now.
Speaker 2: Yeah, I just scream about it.
Speaker 3: Yeah, I should make it clear. It's like the iotable
Speaker 3: stuff is amazing, and I think I think people just
Speaker 3: latched on to kind of really not like hardly the
Speaker 3: most important part of your piece.
Speaker 2: Yeah, and that, by the way, I mean, I don't
Speaker 2: know if she read Steve's piece or not, but it
Speaker 2: is a huge vindication of Steve's piece, which came out
Speaker 2: like a year and a half before, you know, because
Speaker 2: because it's basically mapping the supply chains that Steve talks
Speaker 2: about using io tables and saying, Okay, these are the nodes.
Speaker 2: If prices go up here, everything downstream of them will
Speaker 2: go up, and those the and and that basically hits
Speaker 2: most sectors of the economy, like and knowing what those
Speaker 2: nodes are is like super important because then you can
Speaker 2: figure out how to protect them, you know, like that's
Speaker 2: that's actually like one of the key things that you know,
Speaker 2: one wishes that that that that governments were doing, it
Speaker 2: would be one of the few useful things that they
Speaker 2: could do in a situation like this, right, But unfortunately
Speaker 2: there's another aspect of her work which is more and
Speaker 2: this also comes from heterodox theory, but it's just not
Speaker 2: good theory in my opinion. And it's this whole deal
Speaker 2: with like, okay, inflation, with prices going up. So why
Speaker 2: are the prices going up? Well, a lot of them
Speaker 2: are going up because corporate management sees that everybody's talking
Speaker 2: about inflation. Now, maybe their costs. They're not in one
Speaker 2: of these sectors where upstream their suppliers are raising prices.
Speaker 2: They're actually getting the same prices for their ingredients as always.
Speaker 2: But because everybody's talking about inflation, they're expecting prices to
Speaker 2: go up, right, so why not just raise prices, you know,
Speaker 2: like like the and and so like. That basically ended
Speaker 2: up that that that basically ended up being a theory
Speaker 2: of like, well, a lot of the price rises that
Speaker 2: are going up is because of corporate greed, and corporations
Speaker 2: are always greedy. But a situation where people are talking
Speaker 2: about inflation means that they can that they can basically
Speaker 2: uh uh do a price get away with a price
Speaker 2: rise that they wouldn't be able to get away with normally. Now,
Speaker 2: there might be situations like this. I'm not even denying
Speaker 2: that that's the case. Like there are clearly, you know,
Speaker 2: based on a couple of journalistic exposes, some companies whose
Speaker 2: costs have not really gone up, but they're raising the
Speaker 2: prices opportunistically so that they can do higher payoffs for
Speaker 2: the shareholders and upper management. However, as a primary ex
Speaker 2: explanation for why the inflation happened, as an argument for
Speaker 2: the main cause of the inflation, and therefore for what
Speaker 2: the main solution should be, just slapping on price controls
Speaker 2: and saying no, you can't do this. I don't think
Speaker 2: that that's tenable, because there are clearly biophysical stressors in
Speaker 2: at least the places that are experiencing them, that are
Speaker 2: traveling down supplytions where if you slap price controls down,
Speaker 2: that's not going to get you more chips that at
Speaker 2: least not by itself, and in itself, price control should
Speaker 2: be part of the picture, but that's not, especially in
Speaker 2: situations where there is corporate greed sort of driven price rises.
Speaker 2: But that's just not an explanation for everything. And some
Speaker 2: of Weber's followers, not necessarily her, but some of the
Speaker 2: people who are like promoting this perspective are doing so
Speaker 2: again partly in order to avoid conversation, in my opinion,
Speaker 2: about these kinds of biophysical bottlenecks and how they might
Speaker 2: be they might be undone, and it's a huge issue.
Speaker 2: One thing to kind of like conclude is that, like,
Speaker 2: you know, this, this whole thing that we've been saying
Speaker 2: about the supply chain as disruptions to the supply chain
Speaker 2: as the cause of a progenitor and price increased by
Speaker 2: people in the affected sectors, which in turn, through their
Speaker 2: connections to a bunch of customers, leads to price rises
Speaker 2: across at least sectors of the economy. That whole story
Speaker 2: allowed us to kind of see all this. A lot
Speaker 2: of the inflation that's happened in the world since twenty twenty,
Speaker 2: we saw it coming, and we saw specific causes coming.
Speaker 2: And now no less a capitalist institution than the imf
Speaker 2: right has kind of been forced reluctantly, I would say,
Speaker 2: in some ways to admit that, as Christine Legard said recently,
Speaker 2: you know, energy played a significant role, then food kicked in,
Speaker 2: and energy is now fading, you know. The now they
Speaker 2: still make it about wages, right, I mean, that's that's
Speaker 2: the thing that ends up happening in a crisis like this,
Speaker 2: is that they do want to blame wage increases. But
Speaker 2: it is quite clear that even the authorities have needed
Speaker 2: to kind of admit that these specific, measurable biophysical crises
Speaker 2: have been the source, the main source of the inflation.
Speaker 2: And then a great deal of the of the battle
Speaker 2: has been over who's going to kind of like who
Speaker 2: who's going to have to narrow their ambitions for their
Speaker 2: goals as a result of it, capital or labor. And
Speaker 2: this is where I think VAPOR is on firmer ground,
Speaker 2: not as an explanation for the inflation. But afterwards, the
Speaker 2: after inflation is already kicked in, who ends up having
Speaker 2: to quote unquote foot the bill, right is there's now
Speaker 2: like less money coming in in these companies. So do
Speaker 2: you give it to workers so that they can, you know,
Speaker 2: since their money buys them less, you know, compared to
Speaker 2: rising costs of living, you give them a little bit
Speaker 2: more so that they can like kind of like balance
Speaker 2: it out. Or do you give it to management? You know. Now,
Speaker 2: obviously if it's management making the decision about what to
Speaker 2: do with the company surplus, because we live in a
Speaker 2: capitalist economy, that's a dictatorship with the big owners, guess
Speaker 2: what they're gonna say, you know, And now you have
Speaker 2: a therefore a class struggle, the distributional conflict that some
Speaker 2: of the kind of traditional cost push theorists always talk
Speaker 2: about between capital and labor over what to do with
Speaker 2: these rising markups in firms. Now they would say that's
Speaker 2: why the inflation happened. I think I would say, and
Speaker 2: I think Steve would be in agreement with this, that
Speaker 2: it's what happens after inflation, an inflationary crisis kicks in,
Speaker 2: and then there's a battle between capital and labor over
Speaker 2: who gets screwed as a result. I think that that's
Speaker 2: kind of the way that we should think about a
Speaker 2: lot of the labor struggles that have taken place since.
Speaker 3: Yeah. I also like to add that there's kind of
Speaker 3: like a distinction that needs to be drawn between like companies,
Speaker 3: typically small and medium sized ones within who exist within
Speaker 3: larger supply chains, who are sort of like doing what
Speaker 3: they must, versus large corporations, often multinational who there's documented
Speaker 3: evidence that yes, there's some opportunistic price price increases that
Speaker 3: they are administering at the same time. So there's a mixture,
Speaker 3: i would say bias towards the former group, those who
Speaker 3: have to do what they have to do in order
Speaker 3: to socially provision themselves. But there's a mixture of them,
Speaker 3: and so you have to look at like that, who
Speaker 3: are the price leaders and are they opportunistically raising prices
Speaker 3: and are people copying that? Yes? Sometimes, But as far
Speaker 3: as like the progenitor price increase that we keep talking
Speaker 3: about it, you know, in our pieces like that very
Speaker 3: often like and this is born out in the surveys,
Speaker 3: like when they were asked like for their reasoning as
Speaker 3: to why they raise prices. It was typically like for
Speaker 3: the for reasons like that are quote unquote socially acceptable
Speaker 3: at least to say, And for the most part, they
Speaker 3: were just defending their margins, like they they were at
Speaker 3: risk of going under, right, Yeah, and so you have
Speaker 3: to you have to weigh there's a dynamic, there's an
Speaker 3: interplay between those that group and then the opportunistic group.
Speaker 3: And so it really doesn't like reduce neatly into the
Speaker 3: greedflation sort of like bestardization of vapors. Otherwise, really excellent
Speaker 3: piece that goes through some like interesting ended output analysis.
Speaker 2: Yeah, and I think that like this is a really
Speaker 2: important thing for listeners because I think a lot of
Speaker 2: left wing listeners they if they ask what's inflation and
Speaker 2: a left wing economist tells them because of corporate greed,
Speaker 2: they'll be like yeah, but and and they might listen
Speaker 2: to us and be like, well, it looks like you're
Speaker 2: it sounds like you're defending corporations, And I would argue, no,
Speaker 2: we're not. We're trying to understand the actual causes for things,
Speaker 2: and we think that can actually help you because, for example,
Speaker 2: if a company, let's say that you're in a company
Speaker 2: that is part of this wave of unionizations where you know,
Speaker 2: let's say you're a Starbucks worker and people want to
Speaker 2: start up a Starbucks union. Maybe one of the ways
Speaker 2: that management is trying to kind of like screw over
Speaker 2: your union is to tell people who are on the fence, well, like,
Speaker 2: the reason why there's so much inflation is because of
Speaker 2: these unions, like we have to all stick together, and
Speaker 2: you know, the company's got your best interests at heart,
Speaker 2: so you like, don't join this union that's going to
Speaker 2: be pushing for for wages that are ultimately just going
Speaker 2: to get not by inflation. Like, let let management figure
Speaker 2: out what'll what's best, because otherwise you'll just end up
Speaker 2: screwing up the whole economy. And which is not unheard of.
Speaker 2: You know, it might be something that they'll fall back
Speaker 2: on in negotiations and their anti union propaganda. If you
Speaker 2: know that the actual cause of the inflation has to
Speaker 2: do with disrupted supply chains and that really the question
Speaker 2: is who's going to be screwed over and who's not
Speaker 2: Within the company, you can go back and say, hey,
Speaker 2: wages are always chasing. Cost of living increases. The cost
Speaker 2: of living increases happened before the big unionization wave kicked off,
Speaker 2: and we can tell that it's specific causes in logistics,
Speaker 2: and its specific causes in chips, and specific causes in
Speaker 2: agriculture that are causing the price of this, that and
Speaker 2: the other thing. You can even map out your company's
Speaker 2: supply chain and maybe point out certain cost increases that
Speaker 2: caused it, and you can say, okay, so we're going
Speaker 2: to have to raise our prices. But where's that money
Speaker 2: going to go. Not all of us should go to management,
Speaker 2: Some of us should go to us. So this is
Speaker 2: what a materialist understanding of how the actual causes of
Speaker 2: the thing worked out can help you in organizing your
Speaker 2: workplace and in pushing back against the kinds of things
Speaker 2: that your boss might try to tell you. So that's
Speaker 2: that's what I would say to somebody who's like, well, well,
Speaker 2: you're just defending corporations. No, I'm absolutely not. But I
Speaker 2: don't think that we can actually have power, we can
Speaker 2: actually kind of like take direct actions that really matter
Speaker 2: because they're actually going to make life better for us
Speaker 2: and our friends and our loved ones. Like, I don't
Speaker 2: think that we can actually do that unless we understand
Speaker 2: how the world works and sometimes the world works in
Speaker 2: a way that doesn't necessarily look like we would most
Speaker 2: expect it to or most wish it to. But nevertheless,
Speaker 2: you have to kind of see how it works so
Speaker 2: that you can then figure out what's the best intervention
Speaker 2: that I can make into it, given where I'm at,
Speaker 2: the institutions that I work through, the coalitions that I
Speaker 2: can put together, and that kind of thing.
Speaker 1: Yeah, and I think this is a kind of like
Speaker 1: left field, like take on this too, but like there
Speaker 1: are lots of sort of you know, if you go
Speaker 1: through through like an economic price history or like an
Speaker 1: economic history of like the socialist period in China, right,
Speaker 1: like you will find them having to deal with like
Speaker 1: basically exactly the same shit where they have these like
Speaker 1: massive inflationary spikes that have to do with like basically
Speaker 1: these I mean for them, it was less supply chain
Speaker 1: bottle like supply chain breakdowns is like you know, they'd
Speaker 1: get the supply chain bottle next. They just didn't have
Speaker 1: way through them. And like people fucking that up, Like
Speaker 1: there was a like there was a decent argument that
Speaker 1: like that's part of what caused the Great Leap forward
Speaker 1: was people not fucking understanding that like not quite understanding
Speaker 1: how to like deal with their supply chain stuff and
Speaker 1: seeing this kind of like inflation like issue kicking in
Speaker 1: and being like fuck it were to do something that's
Speaker 1: completely nuts, and you know, that went like about as
Speaker 1: badly as like any attempt anyone has ever tried to do,
Speaker 1: like to fix any problem has ever gone. And the
Speaker 1: larger the number of people who actually understand how this
Speaker 1: stuff works, even in sort of like you know, even
Speaker 1: even on a kind of like not enormously grandeur level,
Speaker 1: the more likely you are to have someone who's in
Speaker 1: and it has the ability to make a decision where
Speaker 1: this stuff matters and you know it and like yeah,
Speaker 1: you could be like, oh, well, like the odds that
Speaker 1: we'rever gonna be in a place where this matters is
Speaker 1: like directly you're gonna be the one making decisions pretty low.
Speaker 3: But like, you know, it's not zero.
Speaker 1: It's happened to people before, and them not knowing about
Speaker 1: it was like a really apocable disaster, and we can
Speaker 1: you know, avoid doing stuff like that by having a
Speaker 1: better understanding of like how our supply chains function and
Speaker 1: what effect that has on sort of economic distribution and
Speaker 1: stuff like that. So Yeah, that's that's one of my
Speaker 1: two pitches. And my other pitch on this is, I
Speaker 1: I don't know how. It's hard to actually gauge the
Speaker 1: influence of discourse on policy makers, especially when they're as
Speaker 1: opaque as like the chairman of the Federal Reserve, but
Speaker 1: it is worth noting that we didn't get a like
Speaker 1: Vulcar style fifteen percent like interest rate increase, And I
Speaker 1: think there's a there's a non zero argument the fact
Speaker 1: that there were other alternative explanations to inflation like around
Speaker 1: and that enough people were pushing them, like is a
Speaker 1: reason why we didn't get one of these, like a
Speaker 1: Vulcar style thing, which would have pushed employment to like
Speaker 1: unemployment to like twenty five percent, destroy the entire global economy.
Speaker 1: And that, you know, like we could count that as
Speaker 1: a fucking w because as as bad as things are
Speaker 1: right now, like the world, the world where Jerome Powell
Speaker 1: pulls the trigger and hits the like hey, I'm now
Speaker 1: a monitorist, like I'm gonna I'm gonna decrease the money
Speaker 1: supply button and Jack's the interest wrapped like fifty percent,
Speaker 1: Like that world is so much worse than this one.
Speaker 1: It is it is difficult to imagine.
Speaker 3: Yeah, I think we dodged a bullet of like the
Speaker 3: twelve percent federal funds rate this time. Yeah, we've surpassed
Speaker 3: Monturism to an extent. Anyway, they're still doing some quantitative tightening. Yeah,
Speaker 3: but I don't know, at least as like a mortgage
Speaker 3: industry professional, I'm kind of hoping he keeps it under
Speaker 3: six for the federal funds, right.
Speaker 1: Yeah, I mean, we'll see what happens there. But it
Speaker 1: hasn't been we haven't gotten the apocalyptic reaction that like
Speaker 1: we very very easily could have, like to the extent that, like,
Speaker 1: I'm pretty sure if this, if this had happened under Obama,
Speaker 1: we'd be in like a recession that would have made
Speaker 1: two thousand and eight look like a joke right now.
Speaker 1: So yeah, Okay, I.
Speaker 2: Think that there's a lot more to discuss about it
Speaker 2: because and it seems like we're gonna probably have a
Speaker 2: part two to this at some point. Yeah, So we
Speaker 2: can probably get into it there because we have actually,
Speaker 2: when I say, the public about interest rates, which hadn't
Speaker 2: even bigger influence than this, Yeah, than these early essays
Speaker 2: that we're talking about. But but you know, like, at
Speaker 2: the end of the day, I think that what's important,
Speaker 2: what's most important about what we've discussed is this for me,
Speaker 2: like having this model which we developed, you know obviously
Speaker 2: like steve've developed it out of as an expansion of
Speaker 2: the logic of Fred Lee's work. And fred Lee was
Speaker 2: not actually particularly original. He just synthesized a whole bunch
Speaker 2: of stuff that existed previously, like these pricing studies by
Speaker 2: Gardner Means in the thirties and pricing studies over the
Speaker 2: next hundred years from all sorts of different people, you know,
Speaker 2: into his post Kanteene price theory and stuff like that,
Speaker 2: the cost plus markup stuff. But like like having a
Speaker 2: theory that's developed by looking at the world and building
Speaker 2: your abstractions up out of things that you can see,
Speaker 2: particularly in a field like economics that's so complex that
Speaker 2: you have to kind of start with like observable relations
Speaker 2: between actual institutions that exist in the world that empowered us,
Speaker 2: you know, that allowed us who really were just like
Speaker 2: four weirdos started a magazine right like for anarchistish weirdos,
Speaker 2: But that allowed us to see earlier than like most people,
Speaker 2: including a lot of like credential professionals, what was going
Speaker 2: to happen in the future, at least the near future,
Speaker 2: like you know, the next like like like two to
Speaker 2: five years from that vantage point, which was like twenty
Speaker 2: twenty one. That is really incredible, And I'm not saying
Speaker 2: that to brag, like, although it is certainly something that
Speaker 2: I that I take a sick pleasure in. It's also
Speaker 2: informative because think about all the things about which we
Speaker 2: don't have that concrete material picture. The question of how
Speaker 2: we're going to get fossil fuels out of agricultural production
Speaker 2: without causing famines, right, the question of what do you
Speaker 2: do now that we have the Internet, Like how do
Speaker 2: you govern that? Because it's clearly not working under these
Speaker 2: giant vertically integrated media oligopolis with the platforms, But it's
Speaker 2: also not going to work if we put it under
Speaker 2: the government, So what the hell do we do about it?
Speaker 2: You know? It's it's like like there's all these key
Speaker 2: questions that we just don't have even like working models
Speaker 2: of like of like what the world is even like
Speaker 2: right now much less like you know, what could plausibly
Speaker 2: be done with it right to make it a better
Speaker 2: place And obviously, Like, you know, some of this sounds
Speaker 2: like stuff that the government should do, but a lot
Speaker 2: of this is actually stuff that social movements need. If
Speaker 2: you think the rent is too dam high in your city,
Speaker 2: and you organize a tenancy union that has real political
Speaker 2: muscle and you actually like have the ability to do
Speaker 2: stoppages or other actions that can really like bully the
Speaker 2: local city government. Okay, but what do you ask for?
Speaker 2: What do you demand or what do you try to
Speaker 2: put into place yourself using your own money? Like, what
Speaker 2: do you do if the rent is too damn high?
Speaker 2: How do you get it lower? And it's like, oh, well,
Speaker 2: there shouldn't be rent, we should have abolished it. Okay,
Speaker 2: how do you do that? You know, you need models
Speaker 2: of the world, and that's what we've been trying to
Speaker 2: kind of build in the magazine more than anything else,
Speaker 2: especially in our ECON coverage. So there's a lot more
Speaker 2: that happened after this. We'll probably have a part two,
Speaker 2: but I just to wrap up the story up to then.
Speaker 2: So we did launch the magazine, we did put out
Speaker 2: Steve's essay, but then a really remarkable thing happened, which
Speaker 2: is that we started getting like all magazines do people
Speaker 2: who came in into the slush pile who were inspired
Speaker 2: by Steve's work, and we're like, this makes the most
Speaker 2: sense of anything that I've heard, and I want to
Speaker 2: build on it too. So we started publishing other essays
Speaker 2: that we're kind of building on the research program that
Speaker 2: Steve kind of got us started on. And although our
Speaker 2: sort of influence was difficult to calculate in terms of, like,
Speaker 2: you know, how much we influence the discussion, you know,
Speaker 2: in these early stages before the magazine was even up
Speaker 2: and running. Afterwards, after we kind of publish the people
Speaker 2: that I'm talking about, some of those pieces have actually
Speaker 2: definitely influenced the conversation in really exciting ways, and I
Speaker 2: think that we can talk about some of that next time.
Speaker 1: Yeah, so that will be at some point in the future.
Speaker 1: I don't know, I'll lock up put down a definitive
Speaker 1: date when it happens, because I don't know. The world
Speaker 1: is chaos and this. Yeah, but however, Comma, this story
Speaker 1: will continue in part two dot dot dot dot dot Yeah,
Speaker 1: So Steve Jamc thank you both so much for joining me.
Speaker 1: And yeah, do you have where where where can people
Speaker 1: go to find the magazine? And you two if they
Speaker 1: want to find.
Speaker 3: You, Oh, you can go to strangemags dot coop. That's
Speaker 3: our main website. If you want to subscribe, we have
Speaker 3: digital subscriptions starting at five dollars and Prince monthly is
Speaker 3: seven ninety nine. They're also annual subscripts too.
Speaker 2: Yeah, and please do consider subscribing or donating. You can
Speaker 2: actually donate any amount of money to us. We're not
Speaker 2: a nonprofit, so it's not tax deductible, but it would
Speaker 2: be a really helpful donation because any dollar that we
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Speaker 2: for for the services that we have to use to
Speaker 2: keep the magazine going, all of that goes right now
Speaker 2: to our writers. And we try to pay our writers
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Speaker 2: or things like that. It's all like basically small donations
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Speaker 2: economic analysis alive along with our cultural philosophy, philosophical, historical, anthropological,
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Speaker 1: Yeah, so go do that. Yeah, and go read some
Speaker 1: of the some of the work that you all have
Speaker 1: done on inflation because it's really good. And yeah, this
Speaker 1: is prediculate. Appened here. You can find us in the
Speaker 1: usual places. And yes, go go, go into the world
Speaker 1: and cause mischief.
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