Upstream - Inflation with Richard Wolff & Dean Baker

Episode Date: December 7, 2021

In this episode, we’re talking inflation — a somewhat slippery topic that has been dominating headlines recently. It’s all caught up in the murky and often misleading narratives floating around on the pandemic economy, things we’ve discussed recently like the quote labor shortage, supply chains, spending bills in Washington. Anyways, the mainstream narratives get a lot wrong. Especially when they’re coming from the more right-wing elements — there’s just a lot of bad analysis and straight up mis- and even dis- information out there. So, we’re gonna take a shot at trying to actually unpack this idea of inflation: what is it? Why are we seeing inflation taking place? Why is the mainstream coverage of it often flawed? We’ve brought on two guests to unpack things for us. Dean Baker is an American macro-economist who co-founded the Center for Economic and Policy Research. Richard Wolff is an economist, Professor Emeritus of Economics at the University of Massachusetts Amherst, and currently a Visiting Professor in the Graduate Program in International Affairs of the New School in New York.  This episode of Upstream was made possible with support from listeners like you. Upstream is a labor of love — we couldn't keep this project going without the generosity of our listeners and fans. Please consider chipping in a one-time or recurring donation at www.upstreampodcast.org/support If your organization wants to sponsor one of our upcoming documentaries, we have a number of sponsorship packages available. Find out more at upstreampodcast.org/sponsorship For more from Upstream, visit www.upstreampodcast.org and follow us on Twitter, Instagram, Facebook, and Bluesky. You can also subscribe to us on Apple Podcasts, Spotify, or wherever you listen to your favorite podcasts.

Before we get started on this episode, please, if you can, go to Apple podcasts and rate, subscribe, and leave us a review there. It really helps us get in front of more eyes and into more ears. We don't have a marketing budget or anything like that for upstream, so we really do rely on listeners like you to help grow our audience and spread the word. And as always, please visit upstreampodcast.org forward slash support to support us with a reoccurring monthly or one-time donation. It helps keep this podcast free and sustainable, so please

if you can, go there to donate. Thank you. No, we don't have an inflation because there's more or less money in the economy. At best, that's a part of the story. But the crucial part, the one that's carefully avoided is the power we give to a tiny minority of people, employers, to determine what the prices are we pay. Let's be real clear. We're allowing a minority that lives off profits to decide what the prices are. Whereas we who don't live off profits, we live off wages. We are excluded from the prices, even though what the wages are for us depends on the prices we have to pay. A minority thereby shapes the economic reality of the majority, and that, folks, is not democratic. You are listening to Upstream. Upstream. Upstream.

A podcast of documentaries and conversations that invites you to unlearn everything you thought you knew about economics. I'm Dela Duncan. And I'm Robert Raymond. In this episode, we're talking inflation, a somewhat slippery topic that's been dominating news headlines recently. It's all cut up in the murky and often misleading narratives around the pandemic economy. Things we've discussed recently like the quote-unquote labor shortage, supply chains, and spending bills in Washington. The mainstream narratives get a lot of it wrong, especially when they're coming from a right wing or centrist perspective. There's just a lot of bad analysis out there and straight up misinformation. So we're going to take a shot at actually trying to

unpack this idea of inflation. What is it? Why is it so high right now? And why is the mainstream coverage of it so dangerously flawed? Well, we've brought on two guests to unpack this topic for us. Dean Baker is an American macroeconomist who co-founded the Center for Economic and Policy Research. We'll have him on for the first half of the show, followed by Richard Wolff, who you've

heard on this podcast many times. Richard is an economist, professor emeritus of economics at the University of Massachusetts Amherst, currently a visiting professor in the graduate program in international affairs at the New School of New York, the host of the Economic Update podcast, and the founder of Democracy at Work. But first, here's Robert in conversation with Dean Baker. Welcome to Upstream, Dean. It's great to have you on. Thanks for having me. Yeah, of course. And I'm wondering, okay, so to start, I want to just zoom out and let's just start with a really big picture. Say you're teaching an Econ 101 course. Can you just give us a really big picture. Say you're teaching an Econ 101 course.

Can you just give us a basic introduction to what inflation is? Well, the basic story is you get inflation when demand exceeds supply. And that's sort of a simple thing to say, but what those look like is often very complex. So in the current case, we're seeing high levels of demand because people got in pain creases,

they got money from the pandemic checks, people are unemployed, we're getting $300 a week supplements, so people are money in their pocket. And supply, we're recovering from a shutdown economy, we're comics largely reopened. But what's happened is that not just in the U.S., but around the world, we're all trying to reopen at the same time, and that's putting a lot of stress on supply chains. People I'm sure have heard that terms, so this is getting things to be both domestically or internationally, that we're trying to pull a lot of goods into the US, get them to stores, to internet sellers, wherever

it might be, and that's limited supply. So we have a lot of demand, limited supply, that puts upward pressure on prices. So that's the sort of short story of the inflation we're seeing. Okay, so maybe getting into a little bit more detail and sort of in the last year, two years kind of crazy to think it's been so long, but sketch us a picture. It's March 2020.

COVID has just hit the US and the country goes on lockdown. What events and processes began to take shape which led to where we are now regarding inflation? Well, what happened is that people could not do a lot of things they would ordinarily do. They couldn't buy a lot of things, they were only buying some people, weren't going to restaurants, they weren't going to gyms, they weren't going to see concerts.

So there were a lot of services that people would ordinarily spend a lot of money on that they suddenly either stopped altogether or hugely cut back. Maybe they were still picking up food at restaurants. But in any case, they're doing that less and paying much less than would or nearly be the case. Instead, what they're doing is buying things, buying goods. So we saw big upticks and car sales and television sales. All sorts of goods items that people still could buy because for the most part, factories were operating. So they could buy these goods. So we saw a big uptick in demand for goods at the same time that demand for services was really falling sharply. So that begins in march with shutdowns, and again,

it's not just in the United States. It's a story all around the world. So obviously, almost affected by the issues in the U.S., but the U.S. since we're in a world economy, we're affected by what goes on in Europe and Japan, China, elsewhere in the world. So is inflation inherently bad? Like, why do we seem to care so much about inflation? Right now, it just seems like the media is obsessed with this idea. What's going on? Is it inherently bad? Well, there's two things here. One, you can tell a story where inflation accelerates. So we had high inflation over the last year, 6.2%.

That was extraordinary. I and most people, including like at the Federal Reserve Board, so it's not a nice, related view. They expect inflation of false sharp playing the next few months. But if you just take from October to 2020 to October 2021, that was 6.2%. That's definitely high inflation. But the really scary story is if we're to accelerate.

So if we're to see inflation go to 7%, 8%, 9%, and you need to double digits, maybe even higher, then you get a really disruptive story with difficult for businesses and individuals too, but particularly businesses to plan. And it's not like we have to feel sorry for the businesses. They're trying to invest. They're trying to make the right investment choices and deflation as double digits and they don't really know they're looking to design software. They're going to invest big and solar panels, whatever it might be. They can't make the right decisions if they don't know what those prices will be.

So that's kind of a scary story. And I think almost any economists would agree. That would be a bad picture if you're continually rising inflation. Now most economists, I would say, don't think that's a likely scenario. So if we say, okay, what about the inflation we have today? Well, there the issue is people's purchasing power. So prices are up 6.2%. This year relative to last year.

Have wages kept pace. Do people have the money in the pocket to pay higher prices for things like gasoline and food and all the other things that have gone up in price. And the answer for that is so far pretty much yes. Now there's a little bit of people play games here. The inflation was actually very low in 2020 because that macro you have the unemployment rate up to almost 20% that meant very low inflation. So if you just do this comparison, in fact, the one I just gave you 6.2% from 220 to 221, it's a little bit deceptive. So if you take from 219 to 220, the average inflation rate over that period would be about 3.5%.

So considerably lower. So if you say, have wages kept pace over the last two years with the rise in prices and the answer is yes, they've done quite well, particularly for workers at the bottom. So we care hugely about whether people's purchasing power is keeping up with prices. And contrary to what the media has been saying, in most cases they have. So we've seen this great effort to say, oh, people can't afford to put gas in their car.

They can't afford to buy milk. Obviously, there's always people in tough circumstances. But the fact is, if we just take that two-year comparison, I was just saying, what's happened to wages over the last two years versus what's happened to the price of milk and gas and all these other things. Most people have come out ahead in that story and in many cases quite a bit ahead. Well, I'm glad you brought up the media and their coverage on inflation because that's something that I did want to ask you about. It often seems like larger traditional corporate media tends to frame the inflation discussion in a highly politicized way,

or at least a biased way. There's rarely ever discussion about, say, bloated CEO bonuses or lavish military spending bills, raising alarms about inflation. But when you start to talk about, I don't know, a $15 minimum wage or really basic social services, all of a sudden, all of the pundits are screaming inflation or more recently, they're calling it bite inflation. And I'm going to read a quote from the author Corey Doctoro who just wrote an interesting piece on inflation. We just had him on last week, so I thought I'd bring it up. He says, inflation's scare talk is a whip that corporations and corporate leaders use to justify falling wages, rising mortality, and the race to the bottom in public services.

As Bernie Sanders said when he voted against giving the fraud riddled bloated US military another $778 billion in public money. No one talks about inflation or budget constraint when we're talking about the Pentagon's baby killer budget. And so yeah, can you unpack what's going on there? Are there solid economic foundations in terms of this like the media and their framing of inflation, or is it really a lot of just political spin? Well, there are economic foundations in a sense that I was just giving that story before where if we see excess demand, we see too much demand in economy pushing inflation higher.

So we are interested 6.2% where it 8% where it 10% where it's all 10%. That's a real problem. Again, I think there are a few of the problemss to dispute that. But the question is, okay, when do you start hearing that talk? And Cory's comment is 100 percent on the mark. So we're hearing that in reference to Biden's budget plan. And there's a big argument. And I think you as a reasonable thing to argue over Biden's package, his rescue package that he pushed through in February.

So you had a lot of people, Larry Summers, very prominent Democratic economist, Senator Stem, great. Thomas, you were saying that plan is too big. It's going to be inflationary. That's one point, I'm sure. So there was an argument about that, but that's history. You know, and I think they were wrong. I can lean to that, but I'll just say, but that was a clear argument that was a big package.

Now you have Biden's Build Back Better Plan where he's proposing things like child, parent-to-child tax credit. You want to expand Medicare, a number of other programs that will benefit tens of millions of ordinary working families. And now we're hearing this cry about inflation and it's really been out of any context. So first off, we hear about the plan. It's of course been downsized. It was originally three and a half trillion. I never was, oh, it's huge amount of money. Well, it's over 10 years. And now we're down to somewhere, you know, 1.9 trillion. We're

going to see what the standard, if they end up doing anything, but somewhere 1.9 trillion, 2 trillion, that's 10 years. Then you go, okay, well, what's that over one year? Well, it's 200 billion. Little more complicated in that, because some of it phases out this now. But relative to the size of the economy, it's about nine tons, eight tons of a percent GDP.

And you're just talking about the military budget, 800 billion. So this is a small relative to the military budget. But then on top of that, it's largely paid for. We're looking to get tax increases primarily from corporations and the wealthiest people in the country. But that should offset to a very large extent the spending in the bill, maybe completely.

I mean, we're looking at different revenue estimates. But we're likely to almost entirely, and maybe more than entirely, offset the additional spending with tax increases. So the idea that this is going to be some big inflationary story that makes zero sense. So when people are yelling about it in the context of the bill back better plan, it's totally disingenuine. Because again, you get argue are these good programs or the bad programs, reasonable discussion, but the idea that the plan is going to be hugely

and floccionary, that basically makes zero sense. And so I don't know if you're sort of in the business of this kind of speculation, but I'm wondering, why do you think that that rhetoric is coming out of the media right now? I mean, do you think that it is disingenuous? I'm just curious, like, what's your theory behind that? It is very interesting, because I read a number of outlets, but particularly in New York Times, you know, which is countries' leading newspaper.

And they generally have been supportive, and I'm talking about their editorial page, so not there, we could argue about their news coverage, which, you know, often it's not great, but just talking about their editorial page. It's often been very supportive of a lot of these programs like expanding childcare, increasing the child tax credit. And most of the things that are in the build back better plan or at least the original one, those were things that they'd often had supported. But they've now turned around and just said,

oh my God, inflation, inflation, inflation. And where that's coming from is it the higher ups there, it's hard to say. But we've seen the same sort of thing from the times, from CNN, from National Public Radio. I think part of it is that you don't get a lot of original thinking from these people. So they hear one of the outlets going on about inflation

and go, oh, we better do that piece too. And the people who might know enough to say, well, that's really not the story, you can't shun to decide. So I think presumably there are some fairly hung up people at the times, and these other outlets who want to push that inflation story, and insofar as you have people, you certainly have them at the times, but insofar as you have the people who know better and say that really isn't an honest story. That's not telling people the full picture. They're being told, no, this is what we're going to do. And you'll live with it or you'll go somewhere else because I don't see a way this makes sense. I mean, the stories have been so obviously distorted that it's just hard to see anyone who's at all familiar with the issue sitting down and going, this is good coverage.

And sticking with the build back better programs, you've actually said that you think that they might have anti inflationary outcomes? Yeah, so at the beginning I was saying inflation's the story you get when you have demand exceeding supply. And what's going on with many of the billback better plans, they will be about increasing supply. So one of the things, this is going to be the infrastructure package, but broadband. So we saw this in a big way with the pandemic that a lot of people had difficulty with kids in school or in many cases, but there were a situation because they didn't have access to good broadband. Well, you expand your labor force if everyone has access to broadband because you're allowing people,

many people to get jobs that wouldn't get otherwise or be more productive at those jobs because broadband, it's a part of life, you really can't work in a large range of areas, not just a small subset, but really a large range of areas without broadband. So having more access to broadband is one way to increase productivity. I should also mention that respect because we had some occasion deal with that live in rural Utah. Tell them that it's a great thing that I mean, it's like a replace if you need surgery, obviously I have to go in for that but have a consultation with the doctor You could do that now consult with someone's two thousand miles away For most purposes. That's probably good as sitting in the office with that doctor

So expanding broadband. That's a great thing that will increase productivity other aspects of that the childcare Universal pre-K. We know there's a lot of parents who women who would like to be working, but aren't able to do so because they don't have access to affordable child care. So if you could expand access to child care and have PK, you're going to see more people, particularly women in the labor force, which again increases supply against counter inflationary. Also, I think this has probably been killed, but originally, President Biden wanted to have expanded home health care, because you have a lot of people that I have to care for disabled sick family members, older family members, and having better access to home health care could certainly facilitate working for a lot of people.

Otherwise, have to drop out of labor force because they're caring for someone their family. So these are ways in which you would be increasing supply. I should also mention I was talking about the first building infrastructure package that's already passed and I'm into law. But there are two, there's just some obvious things we see now with our reports. We're talking about supply chains and one of the big issues is that all the goods that we're trying to import from Asia and Europe wherever it might be, they're piling up at our ports rather than being distributed. Well, we modernized our ports, we could get a lot more goods through them more quickly. So these are things that will increase supply

and in that way put downward pressure on inflation. And just to be clear, because sometimes people make this a silly argument, it's not going to happen next month. So it's not as though the free press build back better. We're going to see big counter inflation on the pressures the month later. But over the span of time, six months a year, two years, we'll start to feel that, particularly with women being able to work because they have good child care arrangements.

So then might be fairly quick. But the full impact of the bill, both the bill back better bill and the infrastructure bill, that rolling to see over many years. I wanna talk a little bit about this recent trend in higher prices. There was a viral news segment recently about the price of milk going up,

which you mentioned earlier briefly. And I think maybe one of the most high profile examples of this that comes to my mind is that the retail chain, the dollar store, just said they announced that they were going to be raising all of their prices to 125. And I thought that that was really interesting in light of the fact that, I don't know, the CEO makes over $10 million a year, for example, and there's no announcement of pay cut or anything in terms of the C-suite level employees

and owners and whatnot of Dollar Tree. So I'm just wondering maybe that's a specific example, but broadening out this question is like, why are we seeing prices go up? And is that really just a one-to-one thing that a labor shortage will lead to prices going up? Or is there something else in terms of the buck being passed on to customers?

Well, there's a few things going on. First off, at the dollar store, I read a piece on that. They had actually been planning that for a while. It's bad timing, obviously, for present Biden that happens under his watch. But even though we had more rapid inflation this year than in prior years, if you take it over time, 2% inflation, roughly what we had say the prior decade, 2% annual inflation, that adds up. So they've been planning this for some time.

I imagine they probably pulled it forward. So I'm just saying that's the people are going, oh my God, even the dollar store now. They would have done that if Joe Biden weren't doing the long of physical and had the uptick in inflation, it would have done that anyhow. Maybe they'd have done it in 22 rather than to are going to do that. So that's again, just something people want to pin that on Biden.

That's not right. You could say, brought it forward, but he didn't, but that's not right. Now, in terms of how much of this is just passing on higher wages, what we actually see, and we have good data on this, that the profit share is actually increased in 2021. So you hear a lot of stories that, oh my God, firms have no choice. They're seeing higher wages, higher cost.

They have to pass that on. And of course, that is, to some extent, you know, for companies aren't going to operate at a loss. I didn't get one understands that, but the reality is, they've been pushing a price is more than wages. So what's going on here to put it simply, they're taking advantage of the shortage that their various items take cars that in short supply now that there's issues there. There's a shortage of semi-conductors because of a fire in a plant in Japan longer story, but in any case, shortage shorter cars, so what are the car companies doing?

Well, they're racing prices. So some of that is covering higher costs, but some of that is they're going, well, people want cars, we can't produce enough cars to satisfy demand when they're race prices. So we're seeing that in a number of sectors that they're racing prices, because they are short, it gives them various areas

and basically they can. So it goes beyond just seeing prior cost. Now there is another question, this is, you know, to my view, a very important question but some a different one. Now why is it that we've see us that got paid 20 million and sometimes more? And there's been a fair bit of analysis on this

that I've done some with other people, other researchers. And the question is, I mean, we could say, okay, no one deserves 20 million. You could argue that, and I understand that. But there's a separate point just as an economist, is the CEO who gets 20 million, are they producing 20 million for the company? So the way they come is like to talk about

and since people get paid, essentially what they're worth in some sense, for economy and I mean it worth this human being. So someone who's getting paid 20 bucks an hour working factory that's because that's if you if you want to get someone else to do as much work for that person you have to pay them $20 and someone gets paid $100 to now or let's say a doctor gets paid probably more than $100 an average But in any case that's because if you want to get someone else to produce the same value as that doctor You have to pay them a hundred hour and the question then for the CEO is okay Are we paying them 20 million because if we didn't have that person's CEO? We just grab next person in line You know, there's only someone with some experience in the corporate world

But whatever if we grab grab next person in line. You know, there's only someone with some experience in the corporate world, but whatever, if we grab the next person in line, well, that person's also getting 20 million or there would produce much less for the company. So if we just grab someone who didn't know what they're doing, then we'd see a huge fall in, you know, the company's profits and hit the stock prices, this and that. Well, as I say, I've done research and this others have as well. And we find as there's very little link between what the CEOs produce for their companies and what they're paid.

And the question is, well, then why do they pay them so much and the answer that I and others give as well? Because people determine their pay are the company's board of directors. And to large extent, they're friends of the CEO. So I always say it's kind of like, okay, my friends are all sitting on a huge pot of money. They're at X-On, they're at the board of X-On. And I'm doing work for them.

Well, they're my buddies, they're sitting on hundreds of billions of dollars. Why wouldn't they give me 20 million dollars? They'd give me 30 million. And that's basically the story I see with COP. And I think it's not just the question of COP, which matters, which, you know, you have people getting 20, 30 million, that matters. They say that that's a lot of money out of the economy.

Take that for thousands of top executives. But that affects pay structures throughout the economy. The CO is getting 20, 25 million, the Chief Financial Officer might gain 10 million. And then you go down and notch those people might be getting 2 or 3 million. And if you compare that to the world we had say 40 years ago when CEOs instead of getting 2 or 300 times the typical workers A got say 20 or 30 times, so imagine CEO is getting 2 million.

Then the next person in line that Chief Financial officer is getting one and a half million. The lower downs are getting 6,7,800,000. That's a lot of money for everyone else. So I think there is a very big issue of COP, but that's not just what we're seeing in November of 2021. This has been a very big issue for several decades that we've had seriously bloated COP. And basically, because there's no check on it, you just have their friends are sitting on huge pots and money and they figure sure we'll give the CEO 20

million, why not? You've been listening to an upstream conversation with economist Dean Baker. We'll be right back for the second half of the show with economist Richard Wolff. I'm trying to take that advantage of I'm trying to take that advantage of And when will that advantage be Nothing, nothing, oh yeah Nothing, nothing, oh yeah I'm telling you, Chad, I'm telling you, you're friends I'm telling you, Chad, I'm telling you, you're friends I'm telling you, Chad, I'm telling you, you're friends Let's see the sea, nothing to death I'm not in the same room, I'm in the same room I'm not in the same room, I'm in the same room I'm not in the same room, I'm in the same room I'm not in the same room, I'm in the same room

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I'm not in the room, I'm in the same room I'm not in the room, I'm in the same room Nothing, no, yeah You're free, nothing, no, yeah You're free, nothing, no, yeah You're free, nothing, no, yeah That was Supreme Nothing by TigerTrap. Now here's our conversation about inflation with economist Richard Wolff. Hi, Richard. It's great to have you back on the show. Thank you. Glad to be here. Okay. So, inflation can feel like kind of a wonky theme sometimes in the field of economics. And so, I wanted to bring you on because you have such a great way of explaining these sort of mundane feeling, economics topics in ways that are not only accessible, but that are

also sort of animated and different to from the more traditional narratives that you often hear. And so with that being said, you're an economics professor and you've been one for your entire adult life. So let's start with basic table setting. Help us understand the real relationship between monetary policy, fiscal policy, inflation, where money comes from, et cetera.

Let's say you're teaching an Econ 101 course. How would you describe inflation in this broader context? What is it? What do we really need to know? What an inflation is is pretty well agreed. It's a general rise in prices. It's when most things, not everything, but most things are going up in price, produced goods and services on the one hand, and wages, the money earned by the people who do the work usually goes up to in general, not as quickly as the prices, which is bad for working people, but it's

good for profits and that shouldn't surprise you because capitalism is a system that is geared to doing things that are good for profits. Most capitalists will tell you that they're in business to make money, that profit is their bottom line, and there's no reason to doubt them or to disagree with them. I think they're telling us what it is they do, and that they're decisions, whether it is to increase production or to invest over here, or to buy a new truck, those decisions are generally guided above all by profit. We'll doing this, enhance my profit,

we'll avoiding that, enhance my profit, and so they make those decisions. And therefore, I wanna link those two together to explain an inflation. Who is in charge of prices in a society like ours, a capitalist system? And the answer may surprise you, even though it's obvious. A tiny minority of people, employers, set prices. Employees don't do that. When you went to work in a factory or a store or an office and you ask, well, what is my job description? Setting prices is never in there because that's not an employee

function that is an employer function or what they call a prerogative of the employer. He or she a prerogative of the employer. He or she sets the prices, decides when the prices go up, when they go down, when they stay the same. Now, the vast majority of us are employees. We are excluded from setting prices. We can't even set our own price, namely the price of what we sell, which is our ability to work. Even that is usually set by the employer who lets us know, remember when you applied for a job, the employer lets us know what he, she is willing to pay. And we then decide, yes or no. But we don't set the price. We don't come in there with our guns blazing,

telling the employer what our price will be. So the employers set the prices. Employers are 2 to 3% of our population at most. So the first thing to understand is that if inflation means prices are going up in general, it means that the employer class of people is raising their price. And that's what an inflation is, and that's who makes it happen. Not the government, they don't set prices. Not the employees, the employers. And you know, this puts those folks, our wants you to have a lot of sympathy

for these employers, of course. That puts them in a tough spot. Why? Well, let's see. We've just established that they're in the business of making profits, which they tell us. And we've also established that they're the ones who set prices. Guess what follows? They set the prices to maximize their profits. If you go to business school and you get an MBA, they've taught you in class exactly how to do that. Now this is embarrassing. Why? Because the employers, being a tiny minority, will typically enjoy raising the price of

whatever they sell, because that's likely to improve their profits. Not always, they may make a mistake, but that's what they're trying to do. And if they're honest, they would have to say to us, dear customer, you may be buying a bag of potatoes, you may be buying an automobile, you may be buying a software program. But we have jacked up the price because we want to make more profits. We want you to pay more for what we're selling you so that we can have more profits. That doesn't sound very good.

If you were honest like that, you would risk the majority of us, me, employee, being a little bit, what can I dare say, pistol of? That you're making us pay more so that your profits can go up? I'm not too happy with that. So what do our employers do? They hire advertisers, they hire economists like me to come up with other reasons why prices are going up. Lots of other reasons throw as many reasons out there as you can in order to distract the

public, in order to make the public think that it isn't the fault and it isn't the responsibility of the employer, but it is something else. Now, a day is we therefore hear it's the COVID-19 pandemic or it's the federal reserves policy of injecting money into the economy or Or, its supply chain disruptions and goods and services are not available, and we're all supposed to nod as if we acknowledge, oh yeah, all these other reasons that have one peculiarity and common. They shift the responsibility off of the employer who actually raised the price onto something far away, nebulous, unclear, mystical, out there in the world.

It's a hustle. It's an attempt to avoid dealing with the real reality. And you know, it has a parallel in our culture, which if you don't mind, I'd like to remind folks of. Americans are peculiar. When they lose their job, when we have mass unemployment. They don't get angry at the company that fired them. They get angry at the government, who is ever in power. Man, vote for the other guy. What an interesting thing. The person who took your job from you, that's the employer, because that's the person who hired you. The government, the senator, the president doesn't hire and fire you. The employer does. But by having Americans get used to blaming a government for an honor, you've nicely saved the employer from getting the anger from

the people whom he fired and who are upset. Here's another example. Over the last two economic downturns we've had, millions of people lost their homes. Now how did that happen? Well, they couldn't pay their monthly mortgage bill. And so who threw them out of their home? The lender. And you know who the major lenders in our society are? The banks

that are private, capitalist institutions run by the employers who sit at the top of these banks. So if you've lost your home, you should be angry, if you're going to be angry anybody, at the banker who decided to kick you out of your house, take your house, and sell it to recover the part of the mortgage loan you haven't paid back. But you don't. We Americans get angry at the politicians. It's as though we've arranged for a system in which the employer can keep kicking us as employees knowing that we will get angry at him, we will get angry at the government and get all excited about getting rid of Trump and getting Biden or vice versa. As if, as if, that is going to solve our problem which it isn't doing and never has done.

Okay, so now let's turn to a couple of the arguments that shore up this kind of mistaken understanding of what an inflation is. Probably the biggest one, and we can start with that, is what's called monetary theory, or if you like monetary policy. The government in capitalist economies has a very important role to play in the monetary system. Governments are given an enormous amount of power by being given the right to create money. You all know that if you look at the dollar bill in your wallet, it's got all over it, federal reserve system. That is an agency of the government, the sort of independent, but it's an agency of the government. And so the government is literally making the pieces of paper that you have in your wallet.

And indeed it is a crime for anyone else to do that. If I make those pieces of paper, they will arrest me and stick me in jail. So the government has an enormous economic power. And it has it in every capitalist country because every capitalist country has tried, at some point in its history, to not have the government run the money system, and it got itself into such trouble that it stopped allowing the private banks to produce their own money, which they all once did, including here in the United States. But that lent itself to levels of corruption and multiple money systems within the same country that were unwieldy and that were eventually rejected in every capitalist country.

And so it was decided, either that the government alone controls the money or that the government together with the banks together manages the monetary system. For my libertarian friends, I need to underscore what I just said. Capitalism everywhere relies on the government and always has. The notion that we could have a capitalism without the government is a utopian fantasy, never existed, doesn't exist now, and has a future only in the minds of libertarians who don't ask these questions and for the reason for that I don't speculate about. Alright, so the Federal Reserve is what in other countries is called the Central Bank.

It's called the like in France, it's the Bank of France or in England it's the Bank of England and so on. In those countries the bank of the country determines with the bankers how much money circulate and that's of course very powerful. Your uncle like mine used to sit around the dinner table saying things like money makes the world go around. Everybody understands that how much money is around is no minor matter. Things are not going to be sold if there isn't the money to pay for them. And if there isn't the money to pay for them, not only will there not be sold, but no one's going to make what can't be sold in a capitalist system. So money is as important

as anything else, which means that the government controlling the money gives the government a very powerful tool to shape the economy. And how is the tool used? It's really childishly simple. If the economy is going down by which I mean people are losing their jobs, businesses are going belly up, the government pumps money into the economy, increases the amount of money in circulation, and as a half a dozen ways of doing that, in order that there is more money, then hopefully people will spend more money and then they'll buy more things and that'll put people back to work. No rocket science here. So when the economy goes down, the Federal Reserve pumps in money.

Likewise, in reverse, if prices are going up crazily, inflation, the idea is inflation, the idea is pull money out of the system, which the Federal Reserve can do. All central banks can do. Then the idea is, if there's less money around, people will be buying fewer things. And if people are buying fewer things, those who sell them will be a little bit squeezed, and they'll lower the price, or at least they won't raise it because there isn't a money to pay for the goods and services if you raise the price. That's why as I speak, the Federal Reserve is wrestling with the question, do we pull money out of the US economy now because we have an inflation that is causing trouble in our system. All right now let's make a look at

this as an argument why inflation is caused by the Federal Reserve, something that you hear in this country every day ten times if you pay attention. That is also false. Let me go through with you why it's false. Absolutely, the government can increase the quality of money in circulation. No question about that. But now let's ask the question, what happens when there's more money around? Here's what happens in the mind of every employer who follows the news and knows that there's now more money in circulation because the Federal Reserve is trying to cope with unemployment or whatever the problem is by increasing the money supply.

Every employer now has a choice to make. I'm going to use as an example your local supermarket. Okay, the supermarket knows, hmm, with more money in people's pockets, I might be able to get away with raising my prices because there's more money out there, and that would give me maybe more profits. So I want to think about that. But I have a choice. I could not raise my prices. What I could do is order more stuff because people having more money

could buy more stuff at the same price rather than the same stuff at higher price. That's a choice stuff at higher price. That's a choice only if the employer chooses to raise his price. Is there any connection between more money and an inflation? To blame the inflation on the money is to neatly remove from the story the decision that employers had to make if an increase in money was going to get the inflation going up. In other words, blaming the Federal Reserve, or more generally the government, has really won basic function since logically it's simply wrong. The function is to distract people from where their anger might go to the one who actually makes the decision, the employer, and shift it onto the Federal Reserve, which is a murky institution most Americans don't know very much about because it isn't taught in most schools at all, even in university, very poorly taught. So, no, we don't have an inflation because there's more or less money in the economy.

At best, that's a part of the story, but the crucial part, the one that's carefully avoided, is the power we give to a tiny minority of people, employers, to determine what the prices are we pay. Let's be real clear. We're allowing a minority that lives off profits to decide what the prices are. Whereas we who don't live off profits, we live off wages. We are excluded from the prices, even though what the wages are for us depends on the prices we have to pay. A minority thereby shapes the economic reality of the majority. And that, folks, is not democratic. It is the opposite of democratic. So that the next time you hear some apologists of capitalism telling you that it's a system that's democratic, My advice to you is talk to somebody else

because this one is not an analyst. This is something we call an apologist. This guy is selling you a half interest in the Brooklyn Bridge. And I'm here to tell you, he's not in a position to do that. He doesn't own one Iota of the Brooklyn bridge You did briefly bring this up, but I want to dive a little bit more into it I want to talk about the failure of mass media in covering economics more generally one might challenge and with good reason whether it's actually a failure or whether it's intentional

It's definitely more relevant challenge and with good reason, whether it's actually a failure or whether it's intentional, it's definitely more relevant broadly, but also very much so in this inflation discussion that we're having right now. You see, like, all of these interest stories, for example, like the price of milk going up, I think it was a CNN story that went viral, got a lot of pushback too, but it's a really great example of how the media sort of frames economic discussions. You have human interest stories about inflationary spirals, which is, you know, spooky, spooky stuff. We don't see the same stories, though, about the positive

impact of, say, the child tax credit, or similar stories about skyrocketing CEO pay. And I think an interesting example of this is one of the most recent stories that I've been seeing around inflation is that the dollar tree has now raised its prices from a dollar to a dollar 25. And you don't really see that the CEO of dollar tree makes over 10 million dollars a year, right? So yeah, I'm wondering what your thoughts are in this. Yes, well, let me put it this way. I don't think it's an accident that the coverage of economics in our mainstream media is, and I'm going to be as polite as I know how. Poor. I'm going to use the adjective poor. Economic literacy in the United States is remarkably poor.

When you so kindly said in introducing me, I believe you said it, and I'm often introduced, as what I do is try to make the complex economics simple. And I do try to do that, no question. But it's not difficult because the things in economics, the basic understandings and ideas and relationships are simple. There's no great skill in describing simply what is in fact simple. Economics in that way is like the legal profession, about which I'm about to say something not very complimentary, but I want to remind you I'm saying it because

economics is just to say it. You take a few simple ideas and what you do is you rewrite them with an unbelievably opaque, giggly, messy vocabulary that nobody knows. And then you create a school that you have to go through for two or three years to learn the vocabulary. And then the lawyer, when she has his law degree, goes out in the community and says to the people, every time you have a legal problem, you're going to get involved with a language you do not understand that only an occult group of lawyers can navigate because they've had to do it for years. So I'm here, I'm going to sell you my service. And you know what it is? I'm going to retranslate the gobbledygook of law back into the simplicity that it originally

was. Like, if you steal my cow and I catch you, you've got to compensate me. I mean, you can't just walk away with my cow. There's this thing called property law. And if you take my cow and I can show you did it, well, you've got to give me the cow back or pay me or something like that Economics is like that very simple, but we have a language that makes it opaque The result is that the people who run our newspapers and I got to be honest with you have met with many of them They don't understand it either But they're not stupid people that perfectly smart. Everybody smart as the rest of us. And they understand which side of

the bread is the gutter on it. They know that if they start talking anti-capitalism, they're jeopardizing their job. And they know it. They don't talk about it a lot. But you know, after three beers, they'll talk all you want about it. They understand it. But the problem is worse than that. That's why the answer is a little bit complicated. Many of the reporters, not the editors, not the owners of the newspaper or the TV station or the platform, they are not doing it out of malice or out of ideological commitment. They just

don't get it. And that's because they've gone through our school systems and our school systems don't do the job. If you push me, I would say in the end, the reason the school systems don't isn't all that different from why the executives at the media company don't either because they don't want to get questions asked. They don't want people to look at them funny. They don't want a phone call to go to the president of the university saying, what is this Marxism you're teaching? They don't want these experiences. They may not even agree with all of that, but they want their job, they want their life to run smoothly, and so there's a gentleman's agreement that used to be called

leave all that stuff out. Spend a lot of time on inflation. Is it pushed by the rising cost that's called, by the way, cost push inflation. Or is it driven by exploding demand, demand pull inflation? You know, that's beautiful. Costs demand, no mention of the employer who actually sets the price. It once you understand what they're doing, it becomes downright funny to watch them

because it is the person who's left ear itches but who's only thought is how to get his right hand over there to scratch the itch and all you really want to tell him is it's much easier if you lift your left hand it's just built that way. So I want to talk to you about a similar topic, not necessarily directly focused on inflation, but so we talked a couple of episodes ago to labor reporter Alex Press and we talked about a lot of stuff, including the labor shortage.

And I'm putting that in podcast air quotes because I don't think it's a very good way to frame what's going on, but I'd't think it's a very good way to frame what's going on, but I'd like to just read a CNN news headline to you first and then follow up with my question. So this headline, I think it was yesterday or the day before, goes, when a worker shortage closed her favorite restaurant's dining room, a retiree grabbed an apron to help. And to me, it just reads so much just like blatant propaganda. But yeah, just to get things rolling,

I wanted to read that headline out. And then I'd love to hear your thoughts on this idea of a labor shortage. And why, I don't know, maybe we shouldn't be celebrating stories of 81-year-old great-grandmothers in Ohio returning to work. Yeah, it's good point. I love this topic because it allows me to show folks

that even the economics taught in the university is done away with, is ignored when it leads you to an unpalatable solution ideologically, and nothing illustrates this better than the labor shortage nonsense. So here's what we teach in economics. We teach supply and demand. Every student who takes an economics course learns about supply and demand. And when they get taught that, they are taught as follows. If the demand for something is greater than the supply of it, you could say that there's a ready shortage of supply. But we don't worry about that because in the market you see, what will

happen is that the demand being larger than the supply will bid up the price of the thing being supplied. And as the price goes up, more of it will be supplied by those who make it, and less of it will be demanded by those who have to pay the rising price until you get to a point where the demand and the supply are equal, because then we're in equilibrium and that's how the system works. That's why, get ready now, all shortages in capitalism in a market are self-correcting. And we're told, isn't that wonderful that the system self-corrects? All right, now let's go. Let's suppose that the demand for workers, like in that restaurant you just told us about, is greater than the supply of people willing to come and wash dishes and mop floors and cook the food and all the rest. Okay? Then what's supposed to happen is that the buyer of this labor, that's the employer,

has to pay higher wages to get more labor supplied by the workers who supply labor. And that when they waive the wage, more workers will come forward to supply the labor, fewer of them will get hired because the wage is the wage, more workers will come forward to supply the labor. Fewer of them will get hired because the wage is gone up, but that's how the system solves the problem. Therefore, the thing to do with a labor shortage is shut up and do nothing because that's exactly what every course in economics that teaches this junk teaches students. But here we have a case where the employers don't like the analysis because the analysis says if there's a shortage of labor, raise the damn wage and you'll solve the shortage. They don't like that outcome because guess what?

It's not the best thing for their profits. So they don't want it and they want us to talk about labor shortage as if it were some mystical, mysterious thing that fell down from the sky like a bad storm. And then we have the four states, at least four, that I know of, Republican-led states who have introduced laws, I believe some of them had passed them, that allow 15 and 16-year-old children to work more hours than the law now permits Laws that we had to fight for on the whole 19th century fight against child labor They want to bring the young people back

Because they believe the employer can solve the labor shortage because they'll take less money since they still live at home with their parents who are responsible. I mean, it is so grotesque that it's hard for me, even to keep a level tone in my speech with you, at the abusive way this idea has been put forward. But there's another dimension if I may. We are seeing millions of Americans quit their jobs. It's been quite remarkable the last four or five months. Every month, the government, which keeps track, reports what are called quits. People who don't leave there, they're not fired. They don't leave their job because of any problem, they just choose to leave. These are at record numbers. We are also seeing a spurt of strikes. I think what we are seeing is, in fact, a delayed anger

by the American working class, and having been shifted for these last 30 years in this country, which the statistics indicate they have big time. But it's taken them a long time because of the media and the ideology to kind of figure it out, and they're pushing back. And I think what you're seeing is also a labor shortage that reflects this. Workers are saying, not that I'm not there to work, but I'm not going to go work. These many hours for what you pay me under these conditions, no. I'm not going to do it. And so you have to step up here, Mr. Employer, you've had it your way for 20 years.

Not for me, you're not going to. It's a bit of a burvado, it's a gonna. You know, it's a bit of a bravado, it's a bit of an anger, it's a bit of a rage. I don't know how long it lasts. I doubt the people feeling it, know how long it lasts. But there's something basic that's going on here too. But I think the funny part is the supply and demand analysis

they want us to learn mustn't be applied when they're in the position of having to pay the higher price. You've been listening to an upstream conversation with economist Dean Baker and Richard Wolfe. To find out more about Dean's work, visit deanbaker.net. You can follow Richard's work at democracyatwork.info and also rdWolfe.s.com. You can also check out Richard Wolfe's podcast, Economic Update on YouTube, Patreon, or wherever you listen to Upstream and your other favorite podcasts. Thank you to Beth and Mirror for the cover art for this episode.

You can check out Beth and's work at Be Mirror Draws.com or Be Under Slash Mirror on Instagram. Upstream Theme Music was written by Robert. Upstream is a labor of love. We distribute all of our content for free and couldn't keep things going without the support of you, our listeners and fans. Please visit upstreampodcast.org forward slash support to Donate. And because we're physically sponsored by the nonprofit independent arts and media, any donations that you make to upstream

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