It Could Happen Here - The IMF Admits We Were Right About Inflation

Episode Date: August 22, 2023

Mia talks with Steve Mann and John Michael Colón about their supply chain theory of inflation was vindicated by history and then adopted by economists.See omnystudio.com/listener for privacy information.

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So very interesting stuff has been happening and the stuff that we've talked about on this show, and then also stuff that's been sort of moving around in, in the sort of broader discourse and has now reached like the IMF. And the thing that's been happening is that, uh, the theory of inflation that I've, that we've been pushing on this show. And that also very importantly,

I, that has been being developed by strange matters has been like incredibly vindicated to the point of, of everyone else adopting it and then, uh, claiming that they invented it. So yeah, we're, this is,

this is, this is the, this is the inflation victory lab episode. And to talk about the fact that, that these two people and their colleagues were right about inflation and a bunch of other stuff too, is John Michael Colon and Steve Mann, who are both co-editors of the magazine strange matters. And yeah, both of you too. Welcome to the show. Thanks.

Thanks so much for having us. Yeah. And I'm excited about this because I i've been wanting to do this episode for like ever since so the the imf tweeted out a graph that was arguing that like i think it's like 50 of uh inflation in the eu was based on corporate profits which was like them basically this is this is them and like all the mainstream economists are finally like having to admit that we were fucking right about inflation yeah so i guess before we get into what we were what what you two were arguing and what your colleagues are arguing we should talk a bit about like i guess who you two are and also like

talk about strange matters again because i think it's been a bit since y'all have been on um yeah absolutely so strange matters is a this is our kind of boiler plate uh a magazine of new and unconventional thinking in economics politics and culture and we have a political bent so we are broadly speaking all some flavor of libertarian socialist is kind of the umbrella term that we've used for ourselves. But that varies depending on the individual kind of members of the team. So we've got people who are anarchists. We've got people who are inspired by like democratic confederalism. We've got like people who don't like a lot of those labels, but are really into like direct democracy stuff. labels, but are really into like direct democracy stuff. But like, you know, the four of us basically converge on the direct democracy, you know, socialism is putting people in charge of

the decisions that affect them kind of school of things. So in terms of our economics pages, however, we've for the last couple of years, been really dedicated to publishing heterodox economists, economists who don't correspond to the usually quite right-wing mainstream of the economics discipline, but challenge it in fundamental ways. And there's a bunch of different schools of heterodox economics, like, you know, everyone knows about like Marxist, but there's also post Keynesians and ecological economics and feminist economics and a whole bunch of different schools. We've been dedicated to publishing people from all those different schools and trying

to kind of get them to write in a style that's more accessible for ordinary people so that some of those ideas actually start not just reaching the public, but actually reaching each other because they don't really talk to each other very much. This is one of the big problems is like, I mean, even just inside of Marxism, like if you get six Marxists in the same room, you'll have nine different positions and they'll all be like ready to murder each other over it. And that's just the Marxists. And then you expand out to all the rest of the other heterodox, iconos people.

And there's a lot of weird and sort of pointless rivalries going on that prevents people from like fusing really useful theories together yeah absolutely yeah we tried to be a platform for diverging opinions to actually be put into dialogue with each other and we've definitely uh i don't think there's been a single piece that all of us have been in lockstep agreement on theoretically. And I think that's a real strength, actually. Yeah. And like, there's quite a few pieces that at least one of us is like, I still don't really know about this thesis. But I've been, there have been times in which I've been down on a piece, but it does amazing.

So let's go with it. I've been down on a piece, but it does amazing. So let's go with it. And also, you know, part of the reasoning for that is not just a kind of like loosey goosey, let's all get along and sing around a campfire. But it's actually a very principled thing, because part of the story that we're telling with the magazine is how we have these enormous problems. You know, climate change, the whole crisis that the democracies have been going through since the 2008 crisis, the whole – and since the rise of global fascism in the 2010s. that like you know people talk about it as the culture war but actually it's these massive reconfigurations that we have to do of our consciousness in order to think about you know gender and national identity and ethnic identity and all these other things in different in new ways that are actually like freeing and emancipating and stuff like like all of these problems are vast and nobody actually knows what the answer is. And that includes leftists. Like there's a lot of

these problems that are either like too technical or too complex for any one person to have the solution. So there needs to be a space where we kind of come together, uh, people who are kind of like of good faith and who like are trying to kind of do the whole democracy and egalitarianism thing. And we actually butt our heads together across lines of difference and they're like, okay, what are we going to do about this? And what are our different perspectives? And what's the common ground? And what are some little bits and pieces of things that people have figured out that we can kind of stitch together into something that will let us not just get steamrolled by the fascists? And that's the kind of space that

we're trying to be. And that's why we try to accommodate these different perspectives, even though we ourselves tend to come from rather strong perspectives, both individually and as a group. Yeah. Well, and I think we can like this inflation sort of argument that's in playing over the past few years, I think is a really like,

it's, it's a really good indication of how well this stuff can work. If it's, if it's like, you really good indication of how well this stuff can work if it's if it's like you know like the the the fact that y'all have basically had the inflation theory that like a bunch of mainstream economists were going to stumble over in the last like eight months i had effectively written we're discussing and we're writing it like two years ago is a is a sign that something is going right yeah we feel really

vindicated yeah it's it's been very very very funny to watch um so i guess we should move into a bit about what this theory actually is and the very very short version of it is that it's a supply chain uh theory of inflation it's a theory of inflation that tracks price increases based on price movement based on stuff happening backwards in the supply chain. And yeah, that turns out to have been a really useful, both predictive thing and explanatory thing once the inflation actually started. Yeah. I just really wanted to highlight that it's Steve who wrote the initial essay where we first put those pieces together. It's Steve's supply chain theory of inflation more than anybody else's. So I definitely defer fuzzy language in which economists will try to speak about inflation. And when I was a grad student, I would encounter it, not just from any particular school, but from, broadly speaking, most of the schools of economics. And prior to this inflationary episode in history, it's been almost 40 years since we've experienced anything like this.

And in the last period of runaway inflation in the 80s, people were having a similar reckoning, although they didn't quite coalesce around supply chain and cost-push-related theories of inflation like they are this time. supply chain and cost-push related theories of inflation like they are this time. But in a nutshell, the supply chain theory of inflation is essentially saying that there are groups of businesses called supply chains who buy inputs from each other in order to produce products and sell them to either the next person in the chain or to outside consumers like the end user. And over time, given stressful enough biophysical conditions that they all find themselves in, even if they don't want to raise prices, and broadly speaking, we know from empirical studies that most businesses most of the time are very biased

towards not raising prices. If the situation gets dire enough and they've exhausted all of their non-price-based mechanisms for dealing with bottlenecks, what are called bottlenecks in the supply chain, like they just don't have enough of the inputs that they need in order to sell enough stuff at their normal price in order to make enough revenue to socially reproduce themselves and their supply chain eventually they will exhaust all options and there will be one person who's kind of like the progenitor price increaser and because like every single and like what is inflation really it's a general rise in prices what What are prices? Prices are things that people themselves inside of firms, it's their job to set. And so any theory of inflation needs to

start with a theory of price essentially. And like, so these managers whose job it is to set prices, when they change prices, why did they do it? Well, we have answers going back many decades, almost a century of surveys of economists who have gone out and actually conducted surveys asking, under what conditions would you raise prices? And at no time did anyone say, oh, I raise prices because I looked at monetary aggregates and i saw that there was too much money so i raised prices because of that and so like that was kind of a starting point for me when i when i read those these surveys conducted by gardner means who was an economist and doing this work in the 20s and 30s along with adult burl um i got really excited because I'm like well of course it's inflation there's so much

mysticism about like piles of money building up and then it's like demand pull and cost push and like what does this all mean right well at the bottom of it it's what are pricing managers doing when they make that fateful decision to be the first guy

to raise prices. Because there is one. It has to start with someone. And it's usually, like I was saying, they've exhausted all of their other methods of dealing with this, such as rationing inputs or economizing, like increasing their efficiency in their production or diversifying their product lines and all this stuff in order to maintain customer goodwill throughout a period of biophysical stress to the supply chain. And they're just going to raise prices because they have to get a certain amount of revenue in order to make it as a business.

So that's essentially what the supply chain theory is. It's that when that happens, it propagates along supply chains first. And then because nowadays our economy is so extremely integrated, it's not just one supply line. It's an entire supply chain network nowadays, and it's global in scope. So even if it can, it's increasingly less constrained to just like one industry or even one country these days.

That was a, that was a beautiful explanation. That's, um, it's probably the most concise, uh, that we've, that we've accomplished yet at boiling it down. I'll just, cause this is the problem is that we could go on for like 30 minutes about this justice. Um, I guess I have a couple of things to add that are just like digging out a couple of nuances that I think are important for listeners to understand. What Steve said about inflation being about a continuous general increase in prices is really, really profound.

I think the first person to articulate that, that I'm aware of is John K. Galbraith in an essay that he wrote about that, but in like the fifties, but like, like that's honestly not the way that we usually think of it, right? Like usually we think that inflation is when money, the value of money goes down, value, money buys you less than it usually does. And that is not just because that's how we experience it in our pocketbooks. Everything else just got more expensive. It also has to do with the kind of history of theories of inflation, because back in the day, uh, there, the, the, the first OG theory of inflation, which people still, some of them believe in is the quantity theory of money. And it basically envisions like the, the entire economic universe as a bunch of like atomized individual agents.

And by the way, there's no like distinction between companies and households or anything like that here. Everyone's kind of like funny. Everyone's an individual agent. And there's a bunch of stuff that already exists out there in the economy. How it was produced. I mean, you deal with that in a production function. Other than that, like you don't talk about it. So there's a bunch of existing stuff out there in the economy, and it's scarce, right?

So, like, how is it going to be distributed? Well, we're trading the stuff that we have for the stuff that we need. And when things are more scarce, they're more valuable. When things are more abundant, they're less valuable. And when we want them more, they're more valuable. When we want them less, they're less valuable. So that's kind of like the very basic universe that they're kind of like operating in. And money was just seen to be one good being traded like any other.

It just so happens to be the one that we trade in exchange for everything else. So rather than doing barter, like, like of everything, you know, this many chickens for this amount of haircut, you know, like, like instead it's like, you know, we, we, we choose one thing to, to, to, to, to be exchangeable for everything else, but it still has a value, which is basically determined, according to this theory, by how much of it there is. So if you increase the money supply, money gets less valuable, which is why, you know, everything becomes more expensive. Prices go up. Whereas if the money supply shrinks, you know, then the value of money is higher

relative to the goods that it buys. So therefore, prices will go down. This was the theory that was developed in like the 16 and 1700s to try to explain a massive global inflation that happened then in the so-called price revolution of the 17th century. And frankly, everyone by the 20th century knows that there's huge issues with this. So they start trying to evolve away from it, away from the quantity theory of money because it has no real empirical basis. I mean some people tried to kind of like juke the stats to make it look like there was. But like really our best estimates of the money supply have no real good correspondence to prices in the economy. It's not – it doesn't really work that way. have no real good correspondence to prices in the economy it's not it doesn't really work that way so yeah this is like this is the the there's a sort of modern version of this is called monetarism which is like that's right yeah and this is like this is maybe the only thing i have

ever seen even like most neoclassical economists drop because it's empirically wrong like it's stunning like do you do you know how wrong something has to be for neoclassical economists to go wait hold on maybe this isn't right like it's incredible but the problem is that they retreated into theories that are not necessarily right either yeah perhaps perhaps groping their way clumsily towards the truth, but not really that right. So this is where all that pull and push stuff comes in. And it's a little too technical to get into. Steve's essay has like the full version of it.

But basically, they started evolving away from a theory where the absolute amount of money in the economy is what matters most. And towards theories where, for example, it's the amount of money relative to the goods that can be bought by it. So if you have a bunch of people spending money to buy stuff, but there's not enough stuff to meet that demand, then that'll basically mean that there's like scarcity and shortages and things like that. And that'll cause prices to go up. Uh, although why they do like the underlying microeconomics of why prices go up when there's shortages and stuff this theory doesn't really address because it's a macro theory and it'll kind of like fall back on supply and demand stuff

or various kind of weird hydraulic metaphors about like well god i yeah yeah hydraulic you know it's so it doesn't really like – you know, different people will have different versions of this that have totally different explanations of why it's happening. But they'll generally say if you look at the economy as a whole, if the stuff that's being made is less than the orders being put in for it, then that causes inflation because you're just not producing enough stuff. that causes inflation because you're just not producing enough stuff. And they call that demand pull because the pull of basically it's like demand pulling, you know, for, for stuff that isn't being produced. So it's like, okay, well that, that, that causes price rises. There was a parallel development where they're trying to get away from the QTM. Another way where some people were like, well, what's the most important single cost for businesses across the economy? And they say labor, obviously, right? Like everyone needs to pay somebody to do wages to keep the business

going. So they just said, okay, well, if the cost of labor goes up across the economy, then that'll cost prices to go up. So that's called cost push, which now theoretically, this could be true of any cost. And this is kind of like where Steve's theory comes in is because it actually starts talking realistically about what the cost of businesses are. But originally this was, again, a macro theory. So they picked the one cost that's common to all the things in the economy. And they said that basically inflation is the cost of workers agitating for higher wages, which leads wages to go up, which causes cost push inflation. The costs go up. So that pushes, puts pressure down the supply chain because it's a, it's a cost for everybody downstream of it. So then it causes it to, to the prices to go up.

Now, the problem with these theories is that like, they're very like rigid. It's like, it has one cause and it's also like, you know, and it's this one thing and it has to operate across the entire economy. Right. But that's not actually how our economy is put together because our economy is not this general equilibrium produced by the trading of individual agents who are buying cheap and selling deer to each other. That whole universe doesn't really exist. The universe that we actually live in is one where businesses are not isolated. They're interdependent, right? Like the, the, you know, the, the, the people who collect sands, you know, from the earth and other minerals feed into the factories that turn

it into glass, which feeds into the construction industry that puts those glass, uh, uh, well actually, or I know, sorry, I missed a step there that, you know, it feeds into the factories that turn that glass into windows, which then feeds into the construction industry, which puts them into buildings that then feeds into like real estate conglomerates that rent it, which then feeds into businesses and households that live there, right? Like that's the entire supply chain. And all those businesses depend upon each other because they're each other's customers. So how much glass do they make in the glass factory? It depends on how many windows the window factories that are all their customers order.

That's what determines how much they're going to make. This whole picture of the world as supply chains is common sense to anybody who actually like works a job, especially if they're like in a management position where they have to maybe be dealing with some of the supplier relations stuff or customer relations stuff. Economists just don't talk about it. It's not really in their models because their models are developed from the ground up from this kind of like everybody's just trading as individuals perspective. And that's a great deal of the reason why Steve's theory is so powerful. Now, a lot of the supply chain picture that I'm painting, besides coming from the real

world, it also came from a particular heterodox economist that I wrote a very long profile of called Frederick S. Lee. Before we get into Lee, we unfortunately do need to take an ad break because capitalism, but do you know what Frederick Lee would have hated? And it's this ad break that we're about to do right now. Welcome. I'm Danny Trejo. Won't you join me at the fire and dare enter? Nocturnum, Tales from the Shadows, presented by iHeart and Sonora.

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All right, and we're back to talk about Frederick Lee, who is very cool and I'm very excited about. Yeah, well, unfortunately, sorry to disappoint. We're not going to talk a ton about him. The only really important thing, so he was a great guy. He was an anarcho-syndicalist. He was a lifelong member of the IWW. He actually helped recover Joe Hill's ashes from the federal government and properly

bury them. That's not in part one of my profile, which is published. It's in part two, which is coming up. But in addition to that, he was also a great economic theorist. And part of what he did is that he put together the bits and pieces of this alternative picture of the economy, where, for example, prices are not this thing that allocates resources automatically through supply and demand and their, and, and, and their price changes are telling us what to, how much to produce and how much to consume,

which is the kind of like mainstream neoclassical picture. But rather prices are a markupup that businesses set themselves. They're not receiving it from the market. They set a price markup over their total cost of production in order to get the money that they need to keep the lights on and stay in business. This all sounds very trivial, I know, but believe it or not, in economics, this is a revolutionary idea. So then it's like, okay, well, if that's the way that an individual company is, how are the companies linked together? He basically comes to, he doesn't call it this, but to a supply chain view of the economy, especially in his last textbook, which tries

to create a model of the economy as a whole. And he says that the entire economy is basically just a circuit of supply chains. It's all the businesses sort of linked up together, forming a closed circuit that loops back on itself. And that is the economy that we use to produce the goods and services that just keep society going day to day, week to week, year to year. So he basically had all of that. And that was the main ingredient that we used. But it was Steve who then took that framework and used it to create a new theory of inflation. Because if you have a world of these supply chains, then it becomes very obvious that if prices are going to rise all across the economy,

it's going to be because people's costs go up. So then the question becomes, why do people's costs go up? And the answer is almost always what Steve called his progenitor price increase, this first guy who chooses to raise his prices. If and only if that person is in a position in the supply chain where a bunch of people are downstream of them. And that tends to happen when, for example, an input that goes into the entire economy, like energy, suddenly goes up in price or becomes scarce. Or it happens when a natural disaster causes disruptions in a couple of businesses that everybody else depends upon. Or when there's an adverse shift in the balance of payments, you know, the, the, let's say that the, the, the peso, you know, starts becoming, you know, versus the dollar, you know, the dollar becomes much more expensive. So imports

become much more expensive. So any business that depends upon imports, you know, will suddenly, will suddenly have their costs go up. These are the kinds of events that are like an external shock that leads to a rise in prices and key nodes in the supply chain that because so many people are connected to them as customers, their costs become more expensive. And these costs increase travel across particular supply chains. So you have to actually know how all the businesses are linked together so that you can identify what the origin of the stress was and see which

particular supply chains is traveling down. It's not this thing that has to do with a single factor across the whole economy or much less the amount of money that's being printed. The amount of money is almost irrelevant in this situation, basically. I mean, it maybe has relevance in as much as like, you know, if people have the amount of money in their pockets that they have, usually they might start purchasing more things that can be produced at this moment. But that's usually like, like usually it balances out in normal situations. The only reason why that would be true is because there was some kind of disruption upstream so that what's normally produced isn't being produced. And so you always have to look at the in in the in the sort of survey of existing theories of inflation that i did in the paper the jmc like very ably summaries for us um

like specifically for the cost push guys um they i think they have a tendency to focus on like macro dynamic forces at work in, in the lens of cost push, like partly because it is like, um, it really, um, it relies on high profile fights between labor unions and companies that, um,

the audience already kind of understands. And it makes a lot of sense that you would go to union fights in particular since they're like one of the big items that they typically fight over is cost of living adjustments built into their wage increases and so that's like an obvious like okay if there was ever a time in which macrodemic forces would convene in to specifically to raise inflation it would probably be fought over the COLA adjustments, cost-filling adjustments. And that leaves so much of the story untold.

Focusing on COLA adjustments in these union fights leaves so much of the story untold because it's putting what's really this incredibly interdependent micro-based phenomenon onto the backs of one union against one company fighting over one contract. And the way they make it work in a lot of the modern interpretations of cost push in this macro dynamic sense, push in this macro dynamic sense the way they they square the way they square how it gets from that fight to become a generalized inflationary episode which is what people want to know about like like they don't want to know about one well they they want to know that politically about a union fight but in terms of the economics they want to know about the inflationary episode the way they square that is that there's typically like in what they call an information diffusional component to this to where and that's a fancy way of saying people learn about the outcome of the fight and then replicate it. Monkey see monkey do.

Yeah. So one union fight or one or one company backlash against a union fight word gets out it spreads, and it's all over the place. And that's really like when you look at the economic history of the data of inflationary episodes, although there are union fights going on, inflation is not springing up specifically from those fights in the way that they're describing. Yeah. And I mean, one of the things you can tell this is obviously wrong is that they're just they're like at no point in the u.s's history has there ever been enough percentage of the u.s population who are in unions for this to mix to this to actually work like at like at no point even even even if you

would be really generous to them and only look at union density and like steel production union density and stuff that are like it like an important part of the supply chain. It's just not enough people. It literally cannot be true that it is purely a union cost adjustment thing because there's just not enough people. Yeah. So in these models, one of the important tasks that they've given themselves is to estimate the coefficient of information diffusional content

from these union fights and like so they will try to estimate that coefficient and thereby out build a model that outputs what price increase we can expect from like labor militancy if you're on the right wing or company uh price gouging if you're on the left wing. Yeah, and this is really just like a perfect example. I think that Steve couldn't have possibly put it better of the way that certain things that sound super sophisticated and intelligent, because you can have rather pink economists using this framework, right? Like social democratic ones.

But the thing is that it sounds really fancy to be talking about like the district what was it the informational informational communication coefficient or whatever like that sounds that sounds incredibly sophisticated right but like actually what it is is that it's this kind of like nutso story about how the reason why price rises happen across the economy is because people are picking union fights when like empirically labor economists often do this like you know the ones who work for unions and stuff it's like it is almost always the case that wages lag uh cost of living you know like significantly so cost of living goes up and that's why people at some point, usually years later, will try to, if they're organized, agitate for higher wages to catch up with cost of living. So the causality of it, of cost push, probably is not labor action.

That's a sort of macro brain superstition. But funnily enough, this is kind of like the devil is in the details because cost push as a general framework ought to probably be the basis for any reasonable theory of inflation. Because the idea that it's costs going up, that then whatever prices are downstream of those costs also go up, that is probably true. It's just that you have to look at particular supply chains and their costs, and not just their labor costs, but all the costs that they have, and what cost in particular went up that affects those particular supply chains. But that's a different story, and it's a story that looks more like Steve's, and also a story that looks more like what's been going on in the world since 2020. Some of the critics, when my paper and subsequent papers that were on the same vein as this came out, is saying that, oh, we're just conflate, like, how are you guys really different than the cost push guys that you're critiquing for part of your

paper? And it's really comes down to this kind of macro brain, macro dynamic interpretation based on just wages or just like one union fight. And then some people see it and just copy it or something. And it's just, it leaves so much of the story untold. Yeah, I mean, I think this is the strength of looking at it through a supply chain. It's like you can have, it has the,

what for a normal person is a really simple idea, but for an economist is like unbelievably galaxy brain, absolutely impossible to comprehend idea that something can have multiple causes at the same time. And those multiple, like the, the, the,

the, the, you, you, you, you can't literally just reduce an entire like thing that's happening to exactly one driver which you know you would think would be a pretty like not that controversial thing but then economists can't tell the difference between a theory in which you can have multiple different

things that are working on a supply chain and a theory where you can have like a thing yeah yeah exactly yeah so like in in the covet inflation that was that transpired just after the first of these pieces of ours came out like it wasn't into full swing anyway in terms of in terms of of being a national phenomenon until just after. Yes, there's a beginning of a labor militancy upsurge, happily. But some people tried to line... The people who were predicting no inflation, but then we started to see a little bit of it, started to attribute it to this like macro dynamic cost push story eventually of like, well, either like, but you can,

you can tell that they are kind of hedging because there'll be, there's like a bifurcation of interpretations of it. Like one is the, like it's, it's really, it's just, you can tell it's not that strong of a theory because there are two diametrically opposed interpretations saying that, oh, here's this corporate price gouging or it's workers causing inflation themselves, which like James was saying, there's a lag typically associated that workers are just trying

to catch up with the prices that were being raised by firms in order to keep up with inflation they generate? Yeah. Actually, if we could talk more, I was hoping that I could actually get into the COVID inflation and its cost us a little bit, if that's okay with folks. Because not only because it's important in itself, but because I think this was actually one of our first successes as a magazine. So we launched as a magazine in, um, April, I think it was a 2022, but we've been working on the magazine from like 2020 on.

Um, so like it was March of 2022. The, the, that's right. But, um, but, um, we'd been working on the magazine all through like 2020 and 2021. Uh, and, uh, and 20 and, and the thing is that, uh, that Steve's piece, uh, was kind of like taking shape and, you know, we as editors, but then also as people who were like helping with the research and talking things out internally and talking with other people outside the collective, we're all kind of like sort of imbibing it and thinking about it when COVID hit. Right. And one of the things that was rather magical, and there is written evidence of this, funnily enough, not as an article because the magazine didn't exist yet, but as a Twitter thread that I made actually on March 3rd of 2021.

And the reason I'm being so specific about dates is because of what happened. Where we, and I was just summarizing basically conversations that we had been having inside the magazine internally. You know, that was when some of the news stories were starting to come out about shortages that were being caused by COVID. So most famously, the chips shortage, where semiconductors, which take like a year to make, like from the moment that the order is put in to the moment when the thing is actually shipped, it's like a year. And if that process is disrupted, you have to start from the beginning. So the shutdowns in China shut down semiconductor production.

And actually, I say China, but it was really China and Taiwan, because both of those places have major chips companies. And that basically screwed up chips production for like as long as the shutdown happened. And then after that, at a lag of like a year at least. And then that in turn caused a bunch of other shortages. agriculture itself and in food processing factories, you know, where, where the raw products that we take out of the earth are turned into the packaged, uh, you know, bits and bobs that, you know, go to restaurants or to, or to, you know, food product factories and things like that. Like you couldn't get people to work there or if they did, you know, and you tried to like pay the measure or whatever, they would get sick. So they would stop production. So there was a labor shortage in agriculture as well. Then there was a container shortage, right? In, in, in, in shipping where we weren't producing enough containers to actually ship stuff around the

world. And if you can't do that, well, everything is made. Everything that somebody needs to make something is often now made in another country or at least another part of a country, you know, that's connected by trucks. So if there's no containers, how do you get stuff from one place to the other? And the answer is that you don't. So they were just piling up like mountains in the, um, in, in the docks of various countries, uh, including here on the West coast and the East coast. So all of these shortages caused by the pandemic, basically we're hitting key sectors of, of, of the economy, right? That everybody depends upon. So transportation, everybody needs it. Semiconductors, a whole bunch of

manufacturing needs it. So that's why cars suddenly got super expensive is because the chips in the machines that make the cars got more expensive and not just expensive, but scarce. Like you just couldn't get them. And then food, everybody depends on. Everybody buys groceries. Restaurants need it. So restaurant prices went up. So you can see how specific sectors having these problems traveled down specific supply chains to produce the cost increases that we all started seeing. But here's the thing. All that stuff was happening from 2020 on. I did this thread on March 3rd of 2021. But the thing is that at that point, there was not yet inflation. We predicted that there was going to be inflation. And there was a lot of people, like including left wingers, including heterodox economists, who got really angry about this because for them, inflation, fear-mongering – this was in the context of the government printing out all the stimmy checks, right?

So inflation, fear-mongering for them is kind of like something that a right-winger would do by saying the government is printing too much money, so there's going to be inflation. Quantity theory of money stuff, Milton Friedman stuff, the stuff that they had experienced in the turn to neoliberalism from the seventies to the eighties. Right. I understand that fear, but the thing is this wasn't fear mongering. These shortages for very clear reasons that were clear. If you had the supply chain theory of inflation framework, which unfortunately only we did because we hadn't published it yet. Like, you know, it was very clear that these shortages were going to cause cost increases in very well linked together, you know, nodes within supply chains that were going to travel down those supply chains and basically be economy wide.

So I said so because I had a hunch that it was going to be true and that it would be a big deal if it was true for, you know for validating these discussions that we were having internally. So I said some predictions. One, there's going to be inflation in the next year or two, potentially lots. Two, it will be caused by cost increases due to the chip shortage and COVID-induced bottlenecks in agriculture and manufacturing. Three, they'll try to blame the stimmy checks and attempt to implement austerity. Now, at the time of that first tweet, inflation was at 2.6%, which is like within normal bounds, although slightly higher than it had been before. By the end of that year,

even actually, I think just a few months later, it was at 4.7%. And in 2022, it would peak at 8.73%, which was like the most inflation that we've seen since the crisis of the seventies, 50 years ago. Like, so the, we, I, you know, I, I, I, the first success that we had as the magazine before we even came out as a magazine is that we successfully predicted the biggest inflationary crisis since the crisis of the 70s. And not only predicted it, but predicted its specific causes. Because as the thread kind of was continually updated over the course of that next year, like, you know, people started digging in and actually like a lot of journalism was uncovering that precisely those bottlenecks were leading to cost increases. And there were other ones that were kind of added to it. So when the Ukraine

war started in 2022, that increased global inflation because Ukraine is the world's single biggest and by a lot supplier of wheat, which is a key staple in diets across the planet. So the shortages that were created by the Ukraine war, by Russia's blockades, and also just by bombing and the war disrupting the labor market over there and all these other kinds of things, that meant that there was less wheat being exported, which created bottlenecks in those supply chains, which led to the global increase in the price of wheat, which led to the global increase in anything that uses wheat bread, um, you know, and, uh, other food products. Um, so, um, beer actually, um, well, this I'm, I'm not wrong about that,

right? Beer uses wheat. I should actually know that. But anyway, yeah, I think, I think so. I had to do a double take there. So anyway, the point is that this was like a really big deal because like there were a lot of people, including like in the Biden administration, who were denying that inflation was happening even as it was happening. And eventually they kind of shifted to a story where it was like, well, it'll be transitional because only demand pull inflation is real, right? This is clearly a cost push thing created by these shortages. But like demand pull is the real form of inflation is when there's like too much money in people's pockets. And that's not what's happening clearly. So we'll be fine. We just have to wait, right? Which is not actually the attitude that you have to take.

Inflation is inflation. And like, you know, the the if the causes of these disruptions in supply chains, you actually I mean, this is like the really edgy take. It's far from inflation being a product of there being too much money in the economy. You might actually need to do government spending to, for example, hire people and take extra steps for to create a new industry to like, you know, to, to, to replace something like containers that, uh, that, that you would normally import, you know, or something like that. So like, like these are, these are the kinds of actions that, uh, a more muscular approach to the inflation, um, would have, would have been, but instead they basically just waited for the supply chains to fix themselves. Even when multinational corporations and their boards of directors were begging the government to actually intervene more, which is insane with economic planning. You would never expect to hear something like that.

But it was in things like the pages of the Financial Times. Speaking of the Financial Times, we do need to take another ad break, unfortunately. Yeah, do you know what the Financial Times will not be doing? It's buying ads on this show. Hasn't happened yet. Could happen. Would be very funny. But has not happened yet.

Welcome. I'm Danny Thrill. Won't you join me at the fire and dare enter? Nocturnum, Tales from the Shadows, presented by iHeart and Sonora. An anthology of modern day horror stories inspired by the legends of Latin America. legends of Latin America. From ghastly encounters with shapeshifters to bone-chilling brushes with supernatural creatures. I know you.

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Apple Podcasts, or wherever else you get your podcasts. Check out betteroffline.com. I found out I was related to the guy that I was dating. I don't feel emotions correctly. I am talking to a felon right now and I cannot decide if I like him or not. Those were some callers from my call-in podcast, Therapy Gecko.

It's a show where I take real phone calls from anonymous strangers all over the world as a fake gecko therapist and try to dig into their brains and learn a little bit about their lives. I know that's a weird concept, but I promise it's pretty interesting if you give it a shot. Matter of fact, here's a few more examples of the kinds of calls we get on this show. I live with my boyfriend and I found his piss jar in our apartment.

I collect my roommate's toenails and fingernails. I have very overbearing parents. Even at the age of 29, they won't let to get out of your own head and see what's going on in someone else's head, search for Therapy Gecko on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. It's the one with the green guy on it. All right, we are now back for the ads uh yeah i endeavored to have better ad pivots but you know you get what you get speaking of like what they could have done differently like they there's a whole world war ii playbook, that they just didn't chose, or they're ignorant of, or chose to ignore, of a system of price controls, rationing, and rapid redeployment of resources

to unstuck the bottlenecks along and across supply chains on the domestic side to support the war front. There's no war going on for us directly right now but it could it could have easily been replicated yeah and that's something i think is really interesting because eventually like as the inflationary crisis sort of went on like you did see a little bit of people trying stuff like this like you saw germany i if i'm remembering right germany did these price controls on uh uh on like natural gas prices and stuff but that that that gets into another interesting thing is which is that so yeah i think we should get into a bit of the sort of like

the i don't know how you describe it the the the the mainstream adoption of like a version of y'all's theory that eventually started happening that eventually started to push like some of this stuff which yeah i guess we should introduce another person who i don't know the relationship between exactly what of your stuff she read is sort of unclear but one of the things that happens in this sort of period is this, this German economist named Isabella Weber, who wrote a like fine,

like, like mostly reasonable book about I like the, the economist behind the, like the reform period in the 80s in China. Like started pushing. Well, actually, this is the thing where I'm sort of unclear the timeline. I started pushing the greedflation thing, although she had a different name for it. Yeah, I was going to talk about that sort of whole thing, because that was a really interesting sort of turn in the whole inflationary discourse.

Inflation discourse? in 2021, before there was any inflation, there was a group of left-wing, like a fairly large swath of like left-wing academics, progressives and liberals, and also Biden, the Biden administration itself saying that inflation would be transitory and that we should, it will, if anything, it would be moderate, but would come right back down because like supply chains are so much more nimble now than than they were in like the 70s and 80s and like liquidity sources are so much more plentiful that they have so many more like i'm probably giving them too much credit actually i think they literally just were like yeah there was no because that i remember like that would be because actually i'm filling the in the blanks for them as I go, I think.

They were just saying it's going to be transitory because it hasn't happened. Yeah. And like when it obviously in late 2022 to through the middle of 2023, when there was obvious evidence that that wasn't the case, then they like really did like they went went hard to starboard and said, okay, the inflation that we see, it's because of corporate greed. And it just reduces to that now. Yeah.

And so it's like a purely opportunistic thing between the largest corporations. And then maybe later people saw that and did monkey see, monkey do. But it's because of them and and to be fair like the the tricky thing here is that like so so i'll preface this by saying that like you know and i think this is true steve too like i really respect isabella weber's work um when it's good you know and which is often you know like i think that that she's a very solid heterodox um economist who has some really important refutations of mainstream ideas. And as an example of the good stuff, for example, she actually – one of the underrated aspects of a paper that kind of pushes what is popularly known as the greedflation thing, the better part of that paper is that it actually creates a map of the

current, today's supply chains in the U S like, you know, and, and identifies the key nodes, you know, and she uses this method called input output, input output tables,

which Steve and I have written about, and we're going to write about it more on the magazine. This is like the main tool that you can use to do real economic planning. JMCU has been sending me input output tables for like seven years now. Yeah, I just scream about it. Yeah, I should make it clear. It's like the IO table stuff is amazing. And I think people just latched on to kind of really not like hardly

the most important part of her piece. Yeah. And that, that by the way, I mean, I don't know if she read Steve's piece or not, but it is a huge vindication of Steve's piece, which came out like a year and a half before,

you know, because, because it's basically mapping the supply chains that Steve talks about using IO tables and saying, okay, these are the nodes. If prices go up here, everything downstream of them will go up. And that basically hits most sectors of the economy. And knowing what those nodes are is super important because then

you can figure out how to protect them. That's, like that's, that's actually like one of the key things that, you know, one wishes that, uh, that, that, that governments were doing would be one of the few useful things that they could do, uh, in a situation like this. Right. Um, but, um, unfortunately there's another aspect of her work, which is more, um, and this also comes from heterodox theory, but it's just not good theory in my opinion. And it's this whole deal with like, okay, inflation is prices going up. So why are the prices going up? Well, a lot of them are going up because corporate management sees that everybody's talking about inflation. Now, maybe their costs, they're not in one of these sectors where upstream their suppliers are raising prices. They're actually getting the same prices for their ingredients as always.

But because everybody's talking about inflation, they're expecting prices to go up, right? So why not just raise prices? And so that basically ended up being a theory of like, well, a lot of the price rises that are going up is because of corporate greed. And corporations are always greedy. But a situation where people are talking about inflation means that they can basically do a price – get away with a price rise that they wouldn't be able to get away with normally. Now, there might be situations like this. I'm not even denying that that's the case. There are clearly, based on a couple of journalistic exposés,

some companies whose costs have not really gone up, but they're raising the prices opportunistically so that they can do higher payoffs for the shareholders and upper management. However, as a primary explanation for why the inflation happened, as an argument for the main cause of the inflation, and therefore for what the main solution should be, which is slapping on price controls and saying, no, you can't do this, I don't think that that's tenable because there are clearly biophysical stressors in at least the places that are experiencing them that are traveling down supply chains, where if you slap price controls down, that's not going to get you more chips that at least not by itself and in itself, price control should be part of the picture, but that's not especially in situations where

there is corporate greed sort of driven price rises. But that's just not an explanation for everything. And some of Weber's followers, not necessarily her, but some of the people who are promoting this perspective are doing so, again, partly in order to avoid conversation, in my opinion, about these kinds of biophysical bottlenecks and how they might be undone. And it's a huge issue. One thing to kind of conclude is that this whole thing that we've been saying about the supply chain as disruptions to the supply chain as the cause of a progenitor price increase by people in the affected sectors, which in turn, through their connections to a bunch of customers, leads to price rises across at least sectors of the economy. That whole story allowed us to kind of see all this, a lot of the inflation that's happened in the world since 2020.

We saw it coming and we saw specific causes coming. that's happened in the world since 2020, we saw it coming and we saw specific causes coming. And now, no less a capitalist institution than the IMF, right, has kind of been forced, reluctantly, I would say, in some ways, to admit that, as Christine Lagarde said recently, you know, energy played a significant role. Then food kicked in and energy is now fading. You know, the now they still want to make it about wages, right? I mean, that's the that's the thing that ends up happening in a crisis like this is that they they do want to blame wage increases. But it is quite clear that even the authorities have needed to kind of admit that these specific measurable biophysical crises have been the source, the main source of the inflation.

And then a great deal of the battle has been over who's going to kind of like who's going to have to narrow their ambitions for their goals as a result of it? Capital or labor? And this is where I think Weber is on firmer ground, not as an explanation for the inflation, but afterwards. After inflation is already kicked in, who ends up having to, quote unquote, foot the bill, right? Is there's now like less money coming in in these companies. So do you give it to workers so that they can, you know, since their money buys them less, you know, compared to rising costs of living, you give them a little bit more so that they can like kind of like balance it out? Or do you give it to management? it to management. Now, obviously, if it's management making the decision about what to do with the company surplus, because we live in a capitalist economy, that's a dictatorship of the big owners, guess what they're going to say? And now you have, therefore, a class struggle,

the distributional conflict that some of the kind of traditional cost push theorists always talk about between capital and labor over what to do with these rising markups in firms. Now, they would say that's why the inflation happened. I think I would say, and I think Steve would be in agreement with this, that it's what happens after inflation. An inflationary crisis kicks in, and then there's a battle between capital and labor over who gets screwed as a result.

I think that that's kind of the way that we should think about a lot of the labor struggles that have taken place since COVID. Yeah. I also like to add that there's kind of like a distinction that needs to be drawn between companies, typically small and medium-sized ones, who exist within larger supply chains, ones who exist within larger supply chains who are sort of like doing what they must versus large corporations, often multinational, who there's documented evidence that, yes, there's some opportunistic price increases that they're administering at the same time. So there's a mixture, I would say, bias towards the former group, those who have to do what they have to do in order to socially provision themselves.

But there's a mixture of them. And so you have to look at who are the price leaders, and are they opportunistically raising prices, and are people copying that? Yes, sometimes. they opportunistically raising prices and are people copying that yes sometimes but as far as like the progenitor price increase that we keep talking about you know in our pieces like that very often like and this is borne out in the surveys like when they were asked like for their reasoning as to why they raise prices, it was typically like for the, for reasons like that are quote unquote,

socially acceptable at least to say, and for the most part, they were just defending their margins. Like they, they were at risk of going under. Right. Yeah. And so you have to,

you have to weigh, there's a dynamic, there's interplay between those, that group and then the opportunistic group. And so it really doesn't reduce neatly into the greedflation sort of bastardization of Weber's otherwise really excellent piece that goes through some interesting input-output analysis. analysis. Yeah. And I think that like, this is a really important thing for listeners, because I think a lot of left wing listeners, they if they ask what's inflation and a left wing economist tells them because of corporate greed, they'll be like, yeah, but and they might listen to us and be like, well, it looks like you're it sounds like you're defending corporations. well, it sounds like you're defending corporations. And I would argue, no, we're not.

We're trying to understand the actual causes for things. And we think that this can actually help you. Because, for example, if a company, let's say that you're in a company that is part of this wave of unionizations where, you know, let's say you're a Starbucks worker and people want to start up a Starbucks union. Maybe one of the ways that management is trying to kind of like screw over your union is to tell people who are on the fence, well, like the reason why there's so much inflation is because of these unions. Like we, we have to all stick together and, you know, the company's got your best interests at heart.

So you like, don't join this union that's going to be pushing for wages that are ultimately just going to get eaten up by inflation. Let management figure out what's best because otherwise you'll just end up screwing up the whole economy, which is not unheard of. It might be something they'll fall back on in negotiations or in their anti-union propaganda. If you know that the actual cause of the inflation has to do with disrupted supply chains, and that really the question is who's going to be screwed over and who's not within the company, you can go back and say, hey, wages are always chasing cost of living increases. The cost of living increases happened before the big unionization wave kicked off. And we can tell that it's specific causes in logistics and it's specific causes in chips and specific causes in agriculture that are causing the price of this,

that, and the other thing. You can even map out your company's supply chain and maybe point out certain cost increases that caused it. And you can say, okay, so we're going to have to raise our prices, but where's that money going to go? Not all of it should go to management. Some of it should go to us. So this is what a materialist understanding of how the actual causes of the thing worked out can help you in organizing your workplace and in pushing back against the kinds of things that your boss might try to tell you. So that's what I would say to somebody who's like, well, you're just defending corporations. No, I'm absolutely not. But I don't think that we can actually have power. We can actually kind of like take direct actions

that really matter because they're actually going to make life better for us and our friends and our loved ones. Like, I don't think that we can actually do that unless we understand how the world works. And sometimes the world works in a way that doesn't necessarily look like we would most expect it to or most wish

it to but nevertheless you have to kind of see how it works so that you can then figure out what's the best intervention that i can make into it given where i'm at the institutions that i work through the the the coalitions that i can put together and that kind of thing yeah and i think this is this is a kind of like left field like take on this too, but like there are lots of sort of – if with like basically these i mean for them it was less supply chain bottle like supply chain breakdowns it's like you know they'd get these supply chain bottlenecks they just like didn't have a way through them and like people fucking that up like there was a like there was a decent argument that like that's part of what caused the great leap forward was people not fucking understanding that like not quite understanding how to like deal with their

supply chain stuff and seeing this kind of like inflation like issue kicking in and being like fuck it we're to do something that's completely nuts and you know that went like about as badly as like any attempt anyone has ever tried to do like to fix any problem has ever gone and the larger the number of people who actually understand how this stuff works even in sort of like you know even even on a kind of like not enormously granular level the more likely you are to have someone who's in an internet has the ability to make a decision where this stuff matters and you know it and like yeah you could be like oh well like the odds that we're ever going to be in a place where this matters is like directly you're going to be the one making decisions pretty low but like you

know it's not zero it's happened to people before and them not knowing about it was like a really apocryphal disaster and we can you know avoid doing stuff like that by having a better understanding of like how our supply chains function and what effect that has on sort of economic distribution and stuff like that and so yeah that's that's one of my two pitches and my other pitch on this is i i i don't know how it's hard to actually gauge the influence of discourse on policymakers, especially when they're as opaque as the chairman of the Federal Reserve. But it is worth noting that we didn't get a Volcker-style 15% interest rate increase. style 15% like interest rate increase. And I,

I think there's a, there's a non-zero argument at the fact that there were other alternative explanations to inflation like around, and then enough people were pushing them. Like is a reason why we didn't get one of these, like a Volcker style thing, which would have pushed employment to like unemployment to like 25% destroy the entire global economy. And that,

you know, like we can count that as a fucking w because as as as bad as things are right now like the world the world where jerome powell pulls the trigger and hits the like hey i i'm now a monetarist like i'm gonna i'm gonna decrease the money supply button and jacks the industry up to like 50 like that world is so much worse than this one it is it is difficult to imagine yeah i think we dodged a bullet of like the 12 federal funds rate this time yeah we've surpassed monetarism to to an extent anyway they're they're still doing some quantitative tightening yeah they but uh uh i don't know at least as like a mortgage industry

professional i'm kind of hoping he keeps it under six for the federal funds right yeah i mean we'll see what happens there but it hasn't been we haven't gotten the apocalyptic reaction that like we very very easily could have like to the extent that like i i i'm i'm pretty sure if this had if this had happened under obama we'd be in like a recession that would have made 2008 look like a joke right now so yeah okay i i think that there's a lot more to discuss about it because and and it seems like we're gonna probably have a part two to this at some point so we we can probably get into it there uh because we have actually an essay that we published about interest rates which had an even bigger influence than this yeah than than these early essays that we're talking about but um but you know like at the end of the day i think

that what's important what's most important about what we've discussed is this for me, like having this model, which we developed, you know, obviously like Steve, uh, developed it out of, uh, as an expansion of the logic of Fred Lee's work. And Fred Lee was not actually, uh, particularly original. He just synthesized a whole bunch of stuff that existed previously, like these pricing studies by Gardner Means in the 30s and pricing studies over the next hundred years from all sorts of different people into his post-Keynesian price theory and stuff like that, the cost plus markup stuff. But like, like having a theory that's developed by looking at the world and building your abstractions up out of things that you can see, particularly in a field like economics, that's so complex that you have to kind of start with like observable relations between actual institutions that exist in the world that empowered us, you know, that allowed us who really were just like four weirdos started a magazine, right? Like four anarchist-ish weirdos. But that allowed us to see earlier than like most people, including a lot of like credentialed professionals, what was going to happen in the future, at least the near future. Like, you know, the next like two to five years from that vantage point, which was like 2021. That is really incredible. And I'm not saying that to brag, like, although it is certainly something that I, that I take a sick pleasure in, it's also

informative because think about all the things about which we don't have that concrete material picture. The question of how we're going to get fossil fuels out of agricultural production without causing famines, right? The question of what do you do now that we have the internet? Like, how do you govern that? Because it's clearly not working under these giant vertically integrated media oligopolies with the platforms, but it's also not going to work if we put it under the government. So what the hell do we do about it? You know, it's like, like there's all these key questions that we just don't have even like working models of like, of like what the world is even like right now, much less like, you know, what could plausibly be done with it, right. To make it a better place. And obviously like, you know,

some of this sounds like stuff that the government should do, but a lot of this is actually stuff that social movements need. If you think the rent is too damn high in your city and you organize a tenants union that has real political muscle and you actually like have the ability to do stoppages or other actions that can really like bully the local city government. Okay, but what do you ask for? What do you demand? Or what do you try to put into place yourself using your own money? Like, what do you do? If the rent is too damn high, how do you get it lower?

And it's like, oh, well, there shouldn't be rent. We should abolish it. Okay, how do you do that? You know, you need models of the world. And that's what we've been trying to kind of build in the magazine more than anything else, especially in our econ coverage. So there's a lot more that happened after this. We'll probably have a part two, but I just to wrap up the story up to then. So we did launch the magazine.

We did put out Steve's essay. But then a really remarkable thing happened, which is that we started getting, like all magazines do, people who came in in the slush pile who were inspired by Steve's work and were like, this makes the most sense of anything that I've heard, and I want to build on it too. So we started publishing other essays that were kind of building on the research program that Steve kind of got us started on. And although our sort of influence was difficult to calculate in terms of like, you know, how much we influence the discussion, you know, in these early stages before the magazine was even up and running, afterwards, after we kind of publish the people that I'm talking about, some of those pieces have actually definitely influenced the conversation in really exciting ways. And I think that we can talk about some of that next time. Yeah, so that will be at some point in the future.

I don't know. I'm not going to put down a definitive date when it happens because, I don't know, the world is chaos and this, yeah. But however, comma, this story will continue in part two, dot, dot, dot, dot, dot. Yeah, so Steve, JMc yeah thank you both so much for joining me and yeah do you have uh where can people go to find the magazine and youtube if they want to find you oh you can go to strange matters dot coop that's our main website um if you want to subscribe uh we have digital subscriptions starting at $5

and print monthly is $7.99. There are also annual subscriptions too. Yeah, and please do consider subscribing or donating. You can actually donate any amount of money to us. We're not a nonprofit, so it's not tax deductible, but it would be a really helpful donation because any dollar that we get that doesn't go to our capitalist overlords for the services that we have to use to keep the magazine going, all of that goes right now to our writers.

And we try to pay our writers above market rate for magazines of our size. And to do that is very difficult. We need to – so if you want to support a worker controlled media production, that's financially independent, we don't have any big foundations, uh, you know, like telling us what to write or, or, or things like that. It's all like basically small donations and subscriptions. Like, you know, if you want to keep that kind of media alive and keep this kind of economic analysis alive, along with cultural, philosophical, historical, anthropological, literary stuff,

then please consider it because we could really use the support. Go do that. Go read some of the work that you all have done on inflation because it's really good. This has been

Ikinapid here. You can find us in the usual places. And yes, go into the world and cause mischief. It Could Happen Here is a production of Cool Zone Media. For more podcasts from Cool Zone Media, visit our website, coolzonemedia.com or check us out on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts. You can find sources for It Could Happen Here updated monthly at coolzonemedia.com slash sources. Thanks for listening.

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