Bob Pollin: Modest Inflation Is Good for Workers

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Yves here. I’m so glad to see Paul Jay take on some of the misperceptions, or perhaps more accurately, neoliberal propaganda that comes up again and again in discussions over inflation, via inviting Bob Pollin to discuss it. Because labor bargaining power has been so badly eroded, any price increase over the past few decades, whether due to actual inflation or due to monopoly/oligopoly practices, hit household budgets.

However, notice what is happening now. We have serious enough inflation in some categories, like building materials and cars, to move the overall inflation figures to high levels relative to the “hardly any” of the last couple of decades. Funny, at the same time, we have labor shortages because workers won’t accept McJobs at their former levels of pay, and some employers are reluctantly paying more.

This is not a perfect example, since the current inflation is very unevenly distributed, but it still suggests that having the economy run hotter net leaves workers better off. Yes, they face more inflation but they have better odds of coming out ahead in real wage terms.

Even though businesses love to whine, nearly all can cope so long as the level of inflation is not so high that it erodes businesses’ ability to understand their own financial results (having lived through the 1970s stagflation, it occurred then at around 7%). One big reason higher rates are problematic is you will see great variation between the rate at which various income statement items are inflating. Put it another way, when financial analysts have to worry about LIFO versus FIFO inventory accounting, that means the enterprises’ true condition is more guesswork than it ought to be. High inflation also destroys the value of the depreciation tax shield.

By Paul Jay. Originally published at TheAnalysis.net

Paul Jay

Hi, I’m Paul Jay, welcome to theAnalysis.news. Please don’t forget the donate button, the subscribe button, and all the buttons and we’ll be back in a second with Bob Pollin.

The Biden administration is trying to pass its $2.2 trillion infrastructure plan, although it’s been reported Biden is willing to cut that plan by 25 percent to make a deal with Republicans who warned of a new round of inflation. Some liberal economists, notably former Clinton and Obama adviser Larry Summers are also raising the alarm that trillions of dollars of government spending will be inflationary. The inflationary cautions are also being raised by well-known economic columnist Martin Wolf, writing in the Financial Times in March, “The likelihood, then, is that there’s going to be a huge expansion in spending and little in the way of additional taxation. Given the monetary expansions, too, the chances of an inflationary overshoot have substantially increased. If this happens in the U.S., worldwide spillovers are quite likely, not least in the UK. But in other high-income countries, too, household savings are high, fiscal deficits large, and monetary policy expansionary. The kindling needed to light an inflationary fire can be seen almost everywhere.” Further down, Wolf writes, “Above all, an inflationary overshoot will trigger a disinflationary response from central banks. That will mean much higher policy rates. That could lead to waves of default, far more pervasive than in the early 1980s when the big story was the debt crisis in developing countries. This time, the debt crisis could be almost everywhere, because there’s so much more debt.” Wolf concludes with, “Inflation has not come back. It may never do so. But the political and policy shifts we are seeing today after Covid, together with longer-term changes in the world economy, have raised the chances of an inflationary shock of some kind. Investors must take this possibility into account.”

Now joining us to discuss whether the inflation fears are justified, as Bob Pollin, he’s co-founder of PERI, the Political Economy Research Institute in Amherst, Massachusetts, and author of the book he co-authored with Noam Chomsky titled Climate Crisis and the Global Green New Deal: The Political Economy Saving the Planet. Thanks very much for joining us again, Bob.

Bob Pollin

Thanks very much for having me on, Paul.

Paul Jay

So before we get into what Wolf and some other people are saying. I’ve done a couple of stories on this issue of is inflation really coming back and so on and some people are writing in saying maybe the overall inflation rate hasn’t gone up, but when I look at my cost of living, it’s gone up. So, talk a bit about the relationship of the cost that ordinary people feel and this overall still relatively low level of inflation.

Bob Pollin

Well, the thing that’s clearly gone up dramatically are oil prices and people experience that day to day and of course, the price of oil, petroleum is, you drive in the street and you see it posted. Four months ago, roughly speaking, it was $2 a gallon and now it’s roughly $3 or more depending on your community. So that’s definitely gone up and that’s what people are seeing and I think they’re incorporating that, but if you look at the overall, as you just said, overall consumer price index, which includes oil, that includes everything else. It has gone up, but it’s gone up very modestly. Whether it’s going to continue to go up remains to be seen. It’s possible that it could go up sharply. The main thing, pulling up overall inflation in the 1970s, referring to the experience, Martin Wolf was talking about, was oil prices. I don’t think oil prices are going to go up like they went up in the 1970s. They’re going to go up from where they were. In April 2020, oil prices were actually negative. You couldn’t give oil away. There was an oversupply. So, yes, of course, it’s gone up, but oil prices, in general, are still at a level lower than where they were before the global recession, but they’re not going to stay at a negative level, and not surprisingly, oil prices have gone up.

Paul Jay

For some reason, the price of used cars went up. I saw a number of like 10 percent for some reason and then the other thing people are saying is going to kick in over the next while is higher rents and people are starting to feel that because there’s been such a spike in housing prices.

Bob Pollin

Well, yes, I mean, rents are going to go up because of what’s happened to the housing market over the last year. People weren’t paying their rent. Now that we’re moving out of the recession, then, of course, the landlords want to get paid back. So you’re going to start to see some increases, on the other hand, over the long-term because of the glut in office space and we’re going to see a shakeout as to the extent to which offices are going to reopen. You’re most likely going to see conversion of at least some share of the office stock into housing stock, and that will dampen any inflationary forces within the housing market. So overall, I mean, other than oil prices, I don’t think that there’s any reason to expect some immediate sharp jolt in overall inflation.

Paul Jay

So then the real question is whether it’s $2 or $3 trillion or if all the plans that Biden’s talked about come to fruition, and I don’t know how likely that is because it does seem like he’s going to have to negotiate with the Republicans on a lot of it, but it might be $2 or $3 trillion. Will that be inflationary or not?

Bob Pollin

Well, we’ve already passed his so-called Rescue Plan, so that was $1.9 trillion and that has created a floor for the economy so that we aren’t collapsing anymore. You could call that inflationary. You could also call it a recovery. That’s positive. I mean, the other point, maybe we can get to more in a minute. We have to ask the question, is inflation always bad? At what point is inflation benign and at what point is it a negative factor? I mean, if you’re running an economy in a severe downturn and you have falling prices, that’s deflationary. We’ve eliminated inflation, but that’s not positive. So if an economy is recovering and we start to see prices rising to a relatively modest extent, that’s not problematic at all. Now, the Biden Rescue Plan passed, now we have the so-called Jobs Plan, which is an infrastructure plan, and the so-called Family Plan, which is Care economy. The dollar amounts of those are $4 trillion overall. They’re probably not going to pass in full and keep in mind that those are spread out over eight years. So the level of overall spending of those programs is in the range of one percent of GDP per year. The rescue plan was $2 trillion this year. So that was a much bigger kick. The other ones are not going to be that large so that whatever forces they’re going to exert in terms of moving the economy upward, it’s likely to be pretty modest. Biden is calling it a Jobs Plan. It’s really the infrastructure plan, but keep in mind, it’s also true that if an economy is recovering, there are more jobs and workers should get more bargaining power. That’s a positive. Well, if that means wages are going up, there could be some inflationary pressures, one percent or two percent, but that’s good. That means that workers are getting higher pay. So we have to sort it out. Overall inflation is not necessarily bad. It’s a lot better, relatively modest inflation is a lot better than severe deflation.

Paul Jay

Now, you hear among some workers this idea of what’s the point of higher wages if you just lose it to higher prices? Does it always work out that way?

Bob Pollin

Well, I mean, the general relationship that’s critical here is the relationship between wages and productivity growth. So if the amount you’re able to produce is also going up, let’s say your wages go up by three percent, and let’s say the amount you’re able to produce goes up by three percent. That means the pie is bigger, there are more wages, and actually then there’s still the same share of the pie that is going to go to the capitalists, to the bosses. When you may get some inflationary pressures is if the wage is going up faster than productivity. So you have a pie that isn’t growing as fast as the workers share. Now, we could also say that’s a positive because we’ve had 40 years of wage stagnation and we’ve had massive redistribution of income up to the rich so that having workers get a relatively bigger share of the overall pie is a positive. Now, businesses will try to protect themselves in that situation by raising prices. That’s where you get the inflation, but if workers’ wages are rising faster than the inflation, then the real wage, how much you are able to bring home, how much you’re able to buy is also going up.

Paul Jay

So that is the critical issue, the relative strength of labor to capital. Labor unionization has been going down, the effects of obviously cheap labor from China, and so on. Do you see some change in that? I mean, is there anything, any signs that the relative strength of organizing and labor might get stronger in the coming days?

Bob Pollin

Well, I certainly hope so. Again, we’ve been through 40 years of neoliberalism in which workers have gotten clobbered.  The average wage for a non-supervisory worker has not gone up in 40 years. I think that’s a fundamental thing that we have to keep in mind. It’s been recognized in kind of these very neutral terms. I mean, way back in the 1990s, you had Alan Greenspan, who was chair of the Fed, saying, well, why don’t we have any inflation, we have low unemployment, but why don’t we have any inflation? And he himself said, well, because workers are traumatized. That was his own term. I myself wrote some papers based on the traumatized worker effect. Janet Yellen, who was a member of the Fed in the 1990s, also recognize the same effect. She said workers are afraid to bargain up wages even at low unemployment, because they’re afraid, as you said, competition from China, other low wage countries, weak unions, and so forth.

So this is well understood and has been for decades. So that if we want to say we absolutely don’t want any inflation. Well, OK, then. Here are two things that you can insure yourself. You’ll never get inflation. Workers never get raises and we have a recession and we will have deflation. So obviously that’s not what we want. So inflation in the range of two, three, four percent is, generally speaking, going to be positive for the working class. It’s going to recognize their increased bargaining strength and lower unemployment. The only other major source of inflation historically in the U.S. and elsewhere has been oil price jolts, shocks, and we have had that again over the last six months. Relative, like I said a year ago, you had to pay people to take the oil. So, of course, the oil prices have gone up. The main thing is if we can control energy prices and that gets us on to the issues around Green New Deal and substituting out of fossil fuels, we can control energy prices, then we are not likely to have very sharp inflationary impacts.

Paul Jay

Yeah, in fact, more inflationary impact came from fossil fuel than wages because wages barely moved. Is that right?

Bob Pollin

Yeah, whatever increase in the overall consumer basket, the so-called consumer price index, that has gone up and it’s gone up modestly, but it has gone up, has been pulled up almost entirely by oil prices.

Paul Jay

And now with the pandemic, it’s a lot of supply chain stuff, too, which in theory is temporary.

Bob Pollin

Yeah, so again, what happened during the pandemic is, the oil producers stopped producing because they couldn’t sell any oil. Now they’re coming back and you had the one pipeline that was hacked. So you have these short-term supply shortages, just as the economy is coming back. So airlines, for example, couldn’t sell tickets. Now they’re filling up the flights again, so they have to buy oil. That’s what’s happening. So it’s pushing up the price. I just checked right before our interview, it’s still lower than it was before the pandemic. Oil prices.

Paul Jay

Let’s revisit some of the conversation we had last time about this Jobs Plan, which is also supposed to be a fossil fuel/climate plan. We talked last time when we saw the number of buildings that were being planned to be retrofitted, which was, I think a target of two million, which seemed extraordinarily low if they’re serious about all this. So it’s been a few weeks since we talked about this. Did you get a better sense of what Biden’s planning? Are there more teeth in the climate plan than we felt there was the last time we talked?

Bob Pollin

I don’t know. I’m fairly closely in touch with various groups in DC that are working on the progressive side, trying to push the so-called Thrive Agenda, which was introduced by Senator Markey (D-MA) and Representative Dingell (D-MI), which is the competitor to the Biden plan. The Thrive Agenda is basically structured along the same lines as Biden, but spending is 3x higher. It’s $1 trillion over 10 years, as opposed to $300 billion. It’s $1 trillion per year over 10 years ($10 trillion total) as opposed to the Biden proposal. Who knows where it’s going to land. I guess what’s critical when Biden cut back his proposal from $2.3 trillion to $1.7 trillion over the last few days, that was apparently an effort to bring along Senator Manchin, the West Virginia Democrat, who is claiming that we have to get Republicans. Republicans come back with $600 billion. So they’re coming back with a third of what Biden is proposing.

I’m certainly not an expert on the Washington poker game, but my guess is that Biden has made this proposal to the Republicans to prove to Senator Manchin that there’s no way you can make a deal with Republicans that is going to have any serious positive impact. So who knows where it’s going to end up? I myself wrote a study for West Virginia on a Green New Deal for West Virginia, demonstrated and I presented it to the Manchin staff, showed how actually, a very generous green new deal will benefit West Virginia almost more than any other state, especially because Senator Manchin is going to be able to bargain it up for his own state.

So we’re looking at a program that could generate about 40,000 jobs in the state and create a new industry or new infrastructure for generations to come, as opposed to clinging to a dying industry, coal. So who knows where it’s going to end up. I mean, the Markey-Dingell so-called Thrive Agenda has over one hundred members of Congress have endorsed it, including Chuck Schumer, the Senate majority leader. So we’ll see.

Paul Jay

Most of Wall Street and we’ve talked about this has not been so concerned about inflation. They don’t seem to really be – I shouldn’t say concerned – much of Wall Street seems quite in favor of the Biden plans of spending at those levels. When you look at articles warning of inflation, it’s pretty limited how much they’re warning about. I saw ING had sent a letter to their investors where they said, well, there might be enough inflation to cause interest rates to go up a little bit by the Fed, but it’s pretty modest stuff. What’s driving the Republicans here? It’s hard to believe they’re really afraid of inflation. Is it just because they’ve got to do something to fight the Democrats on?

Bob Pollin

First of all, the issues around inflation are almost totally misunderstood. Again, let me just emphasize, a positive inflation rate is not a bad thing unless you tell me why it’s increasing. A positive inflation rate that reflects rising wages for workers is good.

Paul Jay

Well, I guess the question is, is a positive inflation rate may be good for workers if it shows higher wages, but maybe it’s not so good for investors? So it kind of depends on what you’re reading.

Bob Pollin

Yeah. A relatively modest, say, two, three, four percent inflation rate, if it is reflecting very tight labor markets and rising wages, that’s good. Now, it is true that the bonds in an inflationary environment if you have a fixed interest rate and let’s say the interest rate is fixed at two percent and then you have a four percent inflation rate, well, the bondholder is going to be losing two percent. So, yeah, that’s bad for them. So that you will see the interest rates on bonds will go up, but, we can’t really expect the world to stay at interest rates at zero percent, one percent forever. This has never happened before in history. So, yeah, interest rates probably will go up modestly.

Paul Jay

Are the investors also concerned? Right now, if you’re really rich, you can borrow at rates that normal people can’t even imagine. You know, one percent or even less take that money and go buy into the stock market and they’re making a killing, but a little bit of a rise in interest rates may drop the stock market prices.

Bob Pollin

Also, not so bad, I mean, look what we’ve experienced. Keep in mind over the last year –this is historically unprecedented – you had this severe depression, in terms of severity and although not in terms of length, it was worse than the 1930s Great Depression, the drop in employment, and overall economic activity. Half the people in the U.S. labor market filed for unemployment claims over the last year. 50 percent. 50 percent of the labor market applied for unemployment insurance at some point over the last year. I mean, astounding. At the same time, the U.S. stock prices went up by 50 percent and that’s true all over the world. Overall, stock prices all over the world went up by 50, 60 percent. Unprecedented that you have a depression, but you have stock prices going up. Well, that can’t continue and we don’t want it to continue, and, yes, you’re exactly right as to why. Why did it happen? Well, because, yes, the central banks, the Fed, and the European Central Bank kept their policy rates at near zero. On top of that, they injected massive amounts of money into the financial markets. So what happened over the last year in the United States, the Fed injected four trillion dollars into propping up Wall Street, 20 percent of GDP.

Paul Jay

Yeah, they’re not worried about that being inflationary.

Bob Pollin

Yeah, really. So, the rules of the game, yes, they need to change. I mean, that you should have this situation where half of the people in the United States are facing unemployment over the course of the year, where wages haven’t gone up for 40 years, but the stock market is rising at an unprecedented rate. Well, yeah, I think we need to change that. So, yes, there will be some adjustment and the stock market, should in principle, if you read the old fashioned textbooks, stock markets should generally reflect conditions in the real economy, but there’s been an almost complete decoupling.

Paul Jay

So let’s argue from the other way. One, that, yes, there’s no real threat about inflation, because even if there is some, as you say, it’s not a bad thing if it reflects higher wages, but two, that this Biden plan isn’t nearly big enough, not in terms of economic stimulus and particularly not in terms of dealing with the climate problem.

Bob Pollin

So there are three Biden proposals and it gets confusing. There’s the “Rescue Plan” that’s already passed. That’s big. That was almost $2 trillion to be spent over this year. That’s been the thing that’s propping up the economy. Then there is the Jobs Plan, which is the Green New Deal or whatever version of it he’s got, and the Family Plan. Let’s put those two together. So roughly speaking, those two are at about $4 trillion, but they’re over the course of eight years, nine years. They’re at 1.5 percent of GDP. So these are significant positive steps, but they are not massive spending programs. Moreover, Biden is offering to raise taxes to pay for them. So whatever increase spending is going to result through these programs is going to be matched by contraction of spending through taxes going up for corporations. So these are not in any way massive scale types of interventions that are going to lead to excess spending in the economy that is going to be inflationary.

Paul Jay

But are they actually too small? Like if you discount the right-wing argument from the left is coming the argument that they’re not ambitious enough.

Bob Pollin

They’re not. Well, let’s focus on the part on climate. I’ve been in some pretty interesting discussions with various groups about this. The Biden proposal, by design isn’t even targeted at hitting its own emission reduction goals. Biden himself has said we want to get to a 50 percent reduction in emissions by 2030. In principle, you would therefore plan your clean energy and overall climate investment program to hit the target, but it doesn’t hit the target, it doesn’t come close to hitting the target. The only conceivable way that you could hit the target with the spending levels that is in the Biden plan is if you get massive additional spending from the private sector. The only way you get massive additional spending from the private sector is if you establish strong regulations like you said. To utilities, you must cut your emissions by five percent per year, compounded every year for 10 years or else, you know, you pay $100 million fine, you go to jail or something like that. Well, then you’ll get the mobilization of private funds. They haven’t done.

Paul Jay

All right. Let me just rephrase what you just said to make sure everybody gets this. Regulations that would force big utilities and I assume auto manufacturers and other sectors that are involved in a lot of use of carbon and fossil fuels through the regulation, they must transition to clean energy, thus, it makes it more profitable to invest in clean energy because you’re going to have forced purchasers here, right?

Bob Pollin

Yeah. So, if you don’t do that. If we just talk about Biden’s proposal and again, it’s fluid as to where it is, you’re roughly talking about maybe $100 billion a year in public money. That is not nothing. I don’t want to dismiss it altogether, but it isn’t close to what’s needed in order to hit Biden’s own emission reduction target. The only way that you can get from, say, $100 billion to $500 billion, which I think would be a rough amount that you would need in order to hit the target is to get the other $400 billion from the private sector. You could, but the private sector has to be motivated to put that level of spending into clean energy. Right now the oil companies are coming back. I just saw in Japan and Australia, they also have beautiful plans to get to zero emissions, but they just objected to the International Energy Agency’s program that says no more investment in fossil. We can’t invest in fossil fuels if we’re going to hit the emission reduction targets. They said no no no we want to keep investing in fossil fuels. So if you shift the private investing to clean energy as opposed to fossil fuels, yeah, the money is there. You just have to motivate the private investors to get there. You have to make it the law that you can invest in energy. You can make profits, but you have to do it by investing in clean energy.

Paul Jay

And to quote Bernie Sanders, then you have to take on the fossil fuel industry because they’re not very interested in that. Your plan.

Bob Pollin

No, they’re not. Yeah, I have a doctoral student writing his dissertation on why they’re not and you could ask the question, well, why can’t they just shift into clean energy instead of the fossil fuel industry themselves, invest in clean energy? Well, the reason is that they have a near-monopoly power in the fossil fuel industry that they wouldn’t have in clean energy. So they want to keep fossil fuels and they have a lot invested in it, and yeah, we have to take them on.

Paul Jay

I think that the fossil fuel industry is planning to do that in about 25 years, which is way too long a wait.

Bob Pollin

Well, they have nice commercials and all that, and yes, they are investing in clean energy, but to a very, very modest extent. They may be spending more on the TV commercials than they’re actually investing. That’s where we are, but, the Biden program is a positive step forward. It’s just not big enough.

Paul Jay

In the time frame, we have not to hit. I’m not sure when you’re saying the target Biden wants to hit. Is he, at least on paper, on board with not hitting more than 1.5ºC by 2030? Or is this the don’t hit 2ºC by 2050?

Bob Pollin

It’s net-zero emissions by 2050 and 50 percent cut by 2030, which is consistent with the Intergovernmental Panel on Climate Change saying that’s what we need to do in order to be at 1.5ºC above pre-industrial levels and to stabilize at 1.5ºC.

Paul Jay

Well, we’ve talked about this before, but we should revisit it because it gets repeated so often that I think it needs clarification. Net-zero doesn’t necessarily mean zero. Net-zero can be a lot of smoke and mirrors.

Bob Pollin

It can be tricky. That’s another big issue and concern I have with the Biden plan more generally. What’s the path through which we get to zero? If we’re talking about a lot of carbon capture technology, which is yes, that is central to the Biden plan, we’re still going to keep digging up oil and coal and natural gas, still burn it, but presumably in 10 or 20 years, we have this technology that knows how to capture it, store it underground or convert it into a liquid fuel again. That’s very problematic. Just at the level of technology, the technologies don’t exist, and then on top of that, yeah, if we have carbon capture, that means you can still emit CO2, but we’re going to assume that a lot of it is going to get captured and stored underground. So the positive way to capture carbon, the way that’s proven, is planting trees, reforestation, and organic agriculture to supplant industrial agriculture so that we don’t use nitrogen fertilizer and that the land is able to absorb CO2. So we don’t have to get to absolute zero because of these natural sources of CO2 absorption, but we should get pretty damn close to absolute zero.

Paul Jay

And just finally, Biden’s plan looks so good compared to Trump’s, which was not a plan, but if it’s not enough, then it doesn’t matter if it looks good next to Trump. One of the things that I know people are concerned about, and rightly so. Seventy-five million votes for Trump and a lot of those votes came from states that have high fossil fuel and big fossil fuel industries and resources, and we’ve talked about this before, but again, I think we’ve got to keep repeating it. I still am mystified why in all these trillion dollars of spending, there isn’t a clear-cut promise from the Biden administration to fossil fuel workers in all of these states that you won’t lose your level of wages. You’ll transition and we’ll make sure you get paid whatever you were getting paid working at your fossil fuel job. I still haven’t heard that view. Have you?

Bob Pollin

It’s in there, at least at the level of rhetoric, it’s in there. No, it hasn’t been laid out. I’ve laid these out for various states, including most recently West Virginia, and yeah, that’s why we think we can at least have a conversation with Senator Manchin because we lay it out. We say, OK, this is how many fossil fuel workers you have in this state. If we have a 20-year transition, you’re going to have about a thousand per year that are going to be displaced and another thousand per year that actually are going to move into voluntary retirement. So for those thousand per year that are going to be displaced, yeah, you have to guarantee them a job. You have to guarantee their pension. You have to guarantee their wages being the same. You have to guarantee as needed that they’re going to have the retraining that they need and if they have to move, which we don’t want them to have to move, but if they do, you have to pay for their relocation. Then when you do all that, it’s actually minuscule. The budget effects are minuscule. If we think about coal, there are only sixty thousand people in the entire country employed in the coal industry. That’s less than half of filling up a big football stadium. You could give every single one a million dollars and it still wouldn’t make a dent in the federal budget. So, yes, a generous transition is central to any viable program. I think in West Virginia, maybe not myself, but the organizers that I’ve been in touch with are getting through, and that’s why the AFL-CIO leadership in West Virginia, Ohio, and Pennsylvania are endorsing the programs that I worked on myself and the organizers have really been fighting for. So those are positive developments. Pennsylvania also has a lot of fracking workers, and to get the unions behind it is a major step forward.

Paul Jay

I don’t get why this isn’t front and center of Biden’s. Even his election campaign. I don’t get it, but with 2022 coming up, how can this not be at the point of the spear that this is what they’re going to do?

Bob Pollin

It should be. I mean, I’m trying I know these the various groups I’m working with. We have a study coming out from California in a couple of weeks and it is getting supported by unions, and, in a way, California, I think, really plays a central role because obviously it’s such a big economy and they have committed. Jerry Brown before him and now Newsom have committed to the IPCC targets, in fact, even more aggressive climate emission targets. They also have fairly significant fossil fuel activity, especially in one county, Kern County, and so they are going to have to implement a just transition program. I think once California does it, maybe it’ll have a really positive demonstration effect for the Democrats overall.

Paul Jay

I mean, the only answer I can give to my own question is that Biden just doesn’t want to have that level of war with the fossil fuel industry between, relying on carbon capture, which allows fossil fuel to carry on, as you say, and if you start this kind of talking the way you’re talking about a real just transition, that means you’re getting serious about regulating fossil fuels out. It puts them at war with the fossil fuel industry and like Sanders said, they don’t want to do that.

Bob Pollin

They’re going to have to if we are going to really do something about not destroying life on Earth as we know it, fossil fuels can’t be part of the equation. Again, if we think carbon capture is a beautiful technology, let’s say maybe it’s going to work in 20 or 30 years. We don’t have 30 years. If we’re talking about hitting a 50 percent emission reduction in nine years, 2030, why don’t we use the technologies that we know work? We know solar works. We know wind works. We know efficiency works. So let’s focus on those things and create a lot of jobs and yes, a transition that working people committed to the communities that are dependent on the fossil fuel industry, let’s transition them, and it’s really inexpensive. I mean, I’ve done it for the whole country. My estimate for the whole country was an average of $2 billion a year to give everyone this generous transition. $2 billion a year.

Paul Jay

$2 billion? That’s not even lunch money for the federal budget.

Bob Pollin

No, and these are generous transition funds.

Paul Jay

All right, thanks very much, Bob.

Bob Pollin

OK, thank you.

Paul Jay

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18 comments

    1. John Zelnicker

      @Bud-in-PA
      May 29, 2021 at 9:43 am
      ——-

      We say, OK, this is how many fossil fuel workers you have in this state. If we have a 20-year transition, you’re going to have about a thousand per year that are going to be displaced and another thousand per year that actually are going to move into voluntary retirement. So for those thousand per year that are going to be displaced, yeah, you have to guarantee them a job. You have to guarantee their pension. You have to guarantee their wages being the same. You have to guarantee as needed that they’re going to have the retraining that they need and if they have to move, which we don’t want them to have to move, but if they do, you have to pay for their relocation.

      I think he covered all the bases, including pensions.

      When talking about transitions from fossil fuel jobs, I think the key point is that everyone affected must be kept whole, both in their current income and their expected retirement income.

      Reply
  1. TomDority

    Prices for Housing, 1967-2021 ($100,000) According to the U.S. Bureau of Labor Statistics, prices for housing were 795.53% higher in 2021 versus 1967.
    So how did wages grow in that time frame??? 100-200%???
    How is housing cost not inflationary when compared to labor wages or labor losing 5% just to the inflation index.
    I am a little confused how modest inflation is good for workers or how it has been good by example in the past – in the real world, because 40 or 50 years has shown no good outcome except if cherry picking data or good outcomes if neo-feudalism is the goal.
    It would be better to lower the cost of living and doing business than it would be to inflate the cost of living and doing business – which, by the way, we have been inflating the cost of living for decades and have, as a result, outpriced ourselves on the international market – thus putting downward pressure on paychecks in the USA and lowering our standard of living — Yet … to the financializers, asset price inflators, and owners of same – it is truely another roaring time – a once in several lifetimes opportunity to be feudal lords and kings and queens of the planet –even though the planet and every living thing (except themselves) will suffer greatly.

    Reply
    1. John Zelnicker

      @TomDority
      May 29, 2021 at 10:30 am
      ——-

      You are absolutely correct. This is a point that Bill Black, IIRC, has emphasized. The intensive financialization of the US economy has pushed up the cost of living due to the debt service imposed on the people in order to line the already-bulging pockets of the 1%. It makes everything more expensive and simply raising wages won’t be enough since the banks will lend more money (esp. on real estate) to siphon off the wage increases into debt service, just like Taibbi’s “vampire squid”.

      We need to completely overhaul the financial system in this country, but it’s going to take a whole lot of education, regulation, and in some cases, nationalization (e.g., the banks).
      ——-

      Modest inflation is good for workers as long as it includes wage increases. Zero inflation (with no wage or price increases) leads to deflation because of the savings desires of the public which reduces their discretionary income and hence, overall spending in the economy. That’s a recession or worse.

      Reply
  2. Glen

    I wonder how much of what we’re experiencing is due to the fact that both the Fed and the government keep pouring free and cheap money into Wall St and corporations. Providing unlimited funds to the people that are largely responsible for how the middle class and poor are being destroyed is not going to make anything magically better.

    Reply
  3. Tom Pfotzer

    Nice article, thanks. Gives a nice summary of the Biden stim-paks, and addresses the inflation issue fairly well.

    I agree that if inflation takes the form of higher wages and thereby re-directs wealth from the 1 pct to the rest of the population that is a net good thing for the economy. This redirect is long overdue.

    Naturally, the problem of getting the 1 pct on-board is the sticky wicket. The 1 pct has the power, and has demonstrated little regard for others. That’s the political problem.

    I have a question:
    why is “carbon capture” even taken seriously?

    There are few geological formations which can reliably store carbon, and the yield on the combustion reaction – the energy harvested – has to be diminished to the degree CO2 has to be compressed and pumped underground. That makes coal even less competitive than it is now .vs. solar.

    Next question is:

    How can agricultural yields be kept as high as they currently are using “organic” farming methods? The reason farmers use chem fertilizers is that those fertilizers offer a much greater amount of nutrients (primarily Nitrogen, Phosphorous, and (K) Potassium) than organic fertilizers do per unit volume/weight/cost.

    What’s going to be the hit to yield if we migrate to organics? What’s going to be the hit to the farmer’s income statement? And which organic fertilizer are we planning to use? Besides sewage treatment plant effluents, I can’t think of a source of organic fertilizer that can scale enough to displace chemical fertilizers.

    This needs to get factored into the “transition” plan. Remember, I’m not advocating BizAsUsual, I’m advocating recognizing the major impacts on business models that these ideas entail, and identifying supply chains and associated business models that can handle the load.

    I also agree with the author’s assertion that the best use of carbon is to get it into the soil where it came from and where it can do us all some good. I think there is great additional potential for ecological benefit to the degree carbon gets sequestered into soil.

    If “carbon capture” is to have any real benefit, maybe the coal-fired power plant’s CO2 / Nitrogen oxide stream should be directed into something like algae ponds or the like, and capture the CO2 into cellulose and the nitrogen into proteins / fats. That would provide a fertilizer by-product, and it would sink the CO2 into something (cellulose) that can get incorporated into soil.

    Fish could also be grown in those ponds, taking advantage of the power plant’s waste heat (currently dumped into adjacent water bodies) to warm up the water enough to support fast-growing fish like tilapia or even shrimp. Tilapia and shrimp can grow fairly well on algae and plankton.

    Lastly, notably absent from the Infrastructure Plans is any mention…that I heard, anyway…of conservation.

    Reply
    1. dummy

      I always thought France had the right agricultural policy, mainly small to medium size villages with agricultural land and production around to sustain them and this system survived throughout the Middle Ages. Keeping agriculture small and fragmented allows for resilience, quality and diversity between regions. Only the French seems to be fighting hard to defend small agriculture in the EU, I don’t always agree with them but on agriculture they are right.

      Reply
    2. Copeland

      “How can agricultural yields be kept as high as they currently are using “organic” farming methods?”

      Don’t forget that for most of human agri-history there was only one way to farm – organically – because no other option was available. We knew how to do this, and plenty of people still do. The key is no “mono” anything, a productive organic farm is a complete system utilizing critters, their (rotated) pastures, and all of the rich spectrum of plants we grow for food. Animals are a key component in the sustainable production of all non-animal foods.

      That said, the 8 billion “problem” will have to be “solved” or it will solve itself, none of the above is compatible with the current population.

      Reply
  4. dummy

    Pollin’s take in inflation is political marketing.
    Yeah, inflation is good as worker wages will increase more than the rate of inflation says Pollin.
    Reality is that workers wages never kept pace with inflation in the past and they won’t in the future. We will end up with much higher prices in three years and much lower real wages.
    Workers would be much better off if Fed targets zero inflation, which is true price stability as their mandate requires.

    Reply
    1. Yves Smith Post author

      Stop making shit up. In the 1970s, wages did keep pace with inflation due to cost of living adjustment adjustments, and companies had to keep the same practice for salaried workers as they did for unions, because status.

      You need labor to have bargaining power. Having the economy run hotter produces that, as does stronger rights to organize.

      Reply
        1. Yves Smith Post author

          The chart in this table shows that the minimum wage in 1970, in inflation adjusted terms, was the same as it was as of around 1960. Peak minimum wage in real terms was around 1966, which suggests (as usual) there was a lag in putting through an increase after the last increase had put workers meaningfully ahead of where they had been.

          More important, it shows that post 1970, when inflation really kicked in, there were minimum wage increases that kept workers better off in real wage terms until about 1980.

          https://www.cnn.com/2021/02/21/politics/minimum-wage-inflation-productivity/index.html

          Reply
  5. Bruno

    Social-Democrats (aka “progressives”) can natter on endlessly about “Biden Plans” and dream up all sorts of ways to “improve” them–without even recognizing that Biden/Harris/Schumer/Pelosi have made an ironclad promise to their owners that “nothing fundamental will change.” Meanwhile, just yesterday, their trademark “progressive” Secretary of the Interior endorsed the Trump project for a huge expansion of petroleum extraction in the very epicenter of American atmospheric heating: Alaska!

    Reply
  6. rick shapiro

    It is well known that wage inflation is the root of persistent inflation, which is why central banks try to preserve international competitiveness by using high interest rates to squeeze wages. But, over the medium term, competitiveness can also be restored by allowing the dollar to decline, as a result of higher labor costs. The ultimate result of high mandated wage floors, together with government job programs to rescue those impacted by temporary loss of competitiveness, will be a decent life for the average worker at the expense of rentiers and the lucky beneficiaries of today’s pseudo-meritocracy.

    Reply
    1. TomDority

      “It is well known that wage inflation is the root of persistent inflation” — I did not know that wage inflation was the root. I believe that speculation in land and commodities is the root of persistent inflation and labor costs are a follow-on. All work, all business needs land upon which wealth is created through application of labor upon natural resources. To increase the cost of land (speculative) and natural resources (monopoly) or increase via rentier activity – nessasarily increases the cost of living and doing business – to keep labor means to pay enough to retain their services in a higher cost situation.
      As was said a hundred years ago –
      Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
      It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
      But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
      Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
      Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.

      Reply
      1. John Zelnicker

        @TomDority
        May 30, 2021 at 2:37 pm
        ——-

        I’d love to see a link to your quote, it’s definitely a keeper. This:

        Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.

        The writer is describing the “free market” as envisioned by the classical economists such as Adam Smith, as in free from the rentiers. It’s also the correct definition of wealth, i.e., increased productivity of goods and services, shared with all who contributed to that increase, including labor; not the unearned riches of the monopolists and speculators.

        Edit: My apologies to the moderators, I seem to be hitting trip wires more often lately. I’m not sure why.

        Reply

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