Mark Blyth – An Inflated Fear of Inflation?

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Yves here. Mark Blyth is such a treat. How can you not be a fan of the man who coined “The Hamptons are not a defensible position”?

Even though he’s not always right, he’s so incisive and has such a strong point of view that his occasional questionable notions serve as fodder for thought. And I suspect he’ll be proven correct on his topic today, the inflation bugaboo.

By Paul Jay. Originally published at

Paul Jay

Hi, I’m Paul Jay. Welcome to Please don’t forget there’s a donate button at the top of the website. There’s a subscribe button on YouTube, share buttons all over the place, and the more you share, the more we grow. And we’ll be back in a second with Mark Blyth.

Is inflation a thing of the past, or as former Treasury secretary for Bill Clinton, and economic adviser to Barack Obama, Larry Summers wrote in an op-ed for The Washington Post in February that Biden’s “stimulus might cause, quote, inflationary pressures of a kind we’ve not seen in a generation with consequences for the value of the dollar and financial stability.”

In March, he repeated his warning that, quote, “The risks resemble those seen in the 1970s. The idea that inflation can suddenly spike to worrying highs is just plain wrong” he told Bloomberg TV. He added, “lifting taxes on wealthy Americans and corporations could double the spending risks”.

Olivier Blanchard, former chief economist at the IMF, agreed with Summers on Twitter writing that the Biden package could “overheat the economy so badly as to be counterproductive.” At a recent Munk Debate, the issue was described as following “20 trillion dollars of government stimulus in countries around the world. Interest rates so low there’s no incentive to save, and more than half a billion vaccinated consumers ready to pull out their wallets and kick off the roaring 20s of the 21st century. Some experts believe that a surge in inflation, such as we haven’t seen since the 1970s, is in the cards. Inflation bulls argue that the post-pandemic recovery is just one of the many trends converging to create rising prices for years to come.”

Other economists are saying the specter of a long-term rise in inflation is just that, a fiction in our imaginations. Now joining us for his take on the issue is Mark Blyth.

Mark is a political economist at Brown University. He researches the causes of stability and change in the economy, and as he says, why people continue to believe stupid economic ideas despite buckets of evidence to the contrary, and every time I introduce him, I going to keep saying that because I like it. So, Mark, thanks for joining us.

Mark Blyth

It’s always a pleasure.

Paul Jay

And is the idea that inflation is about to come roaring back one of the stupid ideas that you’re talking about?

Mark Blyth

I hope that it is, but I’m going to go with Larry on this one. He says it’s about one third chance that it’s going to do this. I’d probably give it about one in ten, so it’s not impossible. So, let’s unpack why we’re going to see this.

Can you generate inflation? Yeah. I mean, dead easy. Imagine your Turkey. Why not be a kind of Turkish pseudo dictator? Why not fire the head of your central bank in an economy that’s basically dependent on other people valuing your assets and giving you money through capital flows? And then why don’t you fire the central bank head and put in charge your brother-in-law? I think it was his brother-in-law. And then insist that low interest rates cure inflation. And then watch as the value of your currency, the lira collapses, which means all the stuff you import is massively expensive, which means that people will pay more, and the general level of all prices will go up, which is an inflation. So, can you generate an inflation in the modern world? Sure, yeah. Easy. Just be an idiot, right? Now, does this apply to the United States? No. That’s where it gets entirely different.

So, a couple of things to think about (first). So, you mentioned that huge number of 20 trillion dollars. Well, that’s more or less about two thirds of what we threw into the global economy after the global financial crisis, and inflation singularly failed to show up. All those people in 2010 screaming about inflation and China dumping bonds and all that. Totally wrong. Completely wrong. No central bank that’s got a brass nameplate worth a damn has managed to hit its inflation target of two percent in over a decade. All that would imply that there is a huge amount of what we call ‘slack’ in the economy. (Also) think about the fact that we’ve had, since the 1990s, across the OECD, by any measure, full employment. That is to say, most people who want a job can actually find one, and at the same time, despite that, there has been almost no price pressure coming from wages, pushing on into prices, to push up inflation.

So rather than the so-called vertical Phillips curve, which most of modern macro is based upon, whereby there’s a kind of speed bump for the economy, and if the government spends money, it can’t push this curve out, all it can do is push it up in terms of prices. What we seem to actually have is one whereby you can have a constant level of inflation, which is very low, and any amount of unemployment you want from 2 percent to 12 percent, depending on where you look and in which time-period. All of which suggests that at least for big developed, open, globalized economies, where you’ve destroyed trade unions, busted up national product cartels, globally integrated your markets, and added 600 million people to the global labor supply, you just can’t generate inflation very easily.

Now, we’re running, depending on how much actually passes, a two to five trillion-dollar experiment on which theory of inflation is right. This one, or is it this one? That’s basically what we’re doing just now. Larry’s given it one in three that it’s his one. I’d give it one in ten his one’s right. Now, if I may just go on just for a seconds longer. This is where the politics of this gets interesting.

Most people don’t understand what inflation is. You get all this stuff talked by economists and central bankers about inflation and expectations and all that, but you go out and survey people and they have no idea what the damn thing is. Think about the fact that most people talk about house price inflation. There is no such thing as house price inflation. Inflation is a general rise in the level of all prices. A sustained rise in the level of prices. The fact that house prices in Toronto have gone up is because Canada stopped building public housing in the 1980s and turned it into an asset class and let the 10 percent top earners buy it all and swap it with each other. That is singularly not an inflation.

So, what’s going to happen coming out of Covid is there will be a big pickup in spending, a pickup in employment. I think it’s (going to be) less than people expect because the people with the money are not going to go out and spend it because they have all they want already. There are only so many Sub-Zero fridges you can buy. Meanwhile, the bottom 60 percent of the income distribution are too busy paying back debt from the past year to go on a spending spree, but there definitely will be a pickup. Now, does that mean that there’s going to be what we used to call bottlenecks? Yeah, because basically firms run down inventory because they’re in the middle of a bloody recession. Does it mean that there are going to be supply chain problems? Yes, we see this with computer chips. So, what’s going to happen is that computer chips are going to go up in price. So, lots of individual things are going to go up in price, and what’s going to happen is people are going to go “there’s the inflation, there’s that terrible inflation,” and it’s not. It’s just basically short-term factors that will dissipate after 18 months.

That is my bet. For Larry to be right what would have to be true? That we would have to have the institutions, agreements, labor markets and product markets of the 1970s. We don’t. So, I just don’t actually see what the generator of inflation would be. We are not Turkey dependent on capital imports for our survival with a currency that’s falling off a cliff. That is entirely different. That import mechanism, which is the way that most countries these days get a bit of inflation. That simply doesn’t apply in the U.S. So, with my money on it, if I had to bet, it’s one in 10 Larry’s right, rather one in 3.

Paul Jay

The other point he raises, and we talked a little bit about this in a previous interview, but let’s revisit it, is that the size of the American debt, even if it isn’t inflationary at some point, creates some kind of crisis of confidence in the dollar being the reserve currency of the world, and so this big infrastructure spending is a problem because of that. That’s part of, I believe, one of his arguments.

Mark Blyth

The way political economists look at the financial plumbing, I think, is different to the way that macro economists do. We see it rather differently. The first thing is, what’s your alternative to the dollar unless you’re basically going to go all-in on gold or bitcoin? And good luck with those. If we go into a crushing recession and our bond market collapses, don’t think that Europe’s going to be a safe haven given that they’ve got half the US growth rate. And we could talk about what Europe’s got going on post-pandemic because it’s not that good.

So what’s your alternative (to the Dollar)? Buy yen? No, not really. You’re going to buy Chinese assets? Well, good luck, and given the way that their country is being run at the moment, if you ever want to take your capital out. I’m not sure that’s going to work for you, even if you could. So you’re kind of stuck with it.

Mechanically there’s another problem. All of the countries that make surpluses in the world make surpluses because we run deficits. One has to balance the other. So, when you’re a Chinese firm selling to the United States, which is probably an American firm in China with Chinese subcontractors selling to the United States, what happens is they get paid in dollars. When they receive those dollars in China, they don’t let them into the domestic banking system. They sterilize them and they turn them into the local currency, which is why China has all these (dollar) reserves. That’s their national savings. Would you like to burn your reserves in a giant pile? Well, one way to do that would be to dump American debt, which would be equivalent to burning your national savings. If you’re a firm, what do you do? Well, you basically have to use dollars for your invoicing. You have to use dollars for your purchasing, and you keep accumulating dollars, which you hand back to your central bank, which then hands you the domestic currency. The central bank then has a problem because it’s got a liability – (foreign) cash rather than an asset. So, what’s the easiest asset to buy? Buy another 10-year Treasury bill, rinse and repeat, rinse and repeat.

So, if we were to actually have that type of crisis of confidence, the people who would actually suffer would be the Germans and the Chinese, because their export-driven models only makes sense in terms of the deficits that we run. Think of it as kind of monetarily assured destruction because the plumbing works this way. I just don’t see how you can have that crisis of confidence because you’ve got nowhere else to take your confidence.

Paul Jay

If I understand it correctly, the majority of American government debt is held by Americans, so it’s actually really the wealth is still inside the United States. I saw a number, this was done three or four years ago, maybe, but I think it was Brookings Institute, that assets after liabilities in private hands in the United States is something like 98 trillion dollars. So I don’t get where this crisis of confidence is going to come any time soon.

Mark Blyth

Basically, if your economy grows faster (than the rest of the world because you are) the technological leader, your stock markets grows faster than the others. If you’re an international investor, you want access to that. (That ends) only if there were actual real deep economic problems (for the US), like, for example, China invents fusion energy and gives it free to the world. That would definitely screw up Texas. But short of that, it’s hard to see exactly what would be these game-changers that would result in this.

And of course, this is where the Bitcoin people come in. It’s all about crypto, and nobody has any faith in the dollar, and all this sort of stuff. Well, I don’t see why we have faith in something (like that instead . I think it was just last week. There wasn’t much reporting on this, I don’t know if you caught this, but there were some twenty-nine-year-old dude ran a crypto exchange. I can’t remember where it was. Maybe somewhere like Turkey. But basically he had two billion in crypto and he just walked off with the cash. You don’t walk off with the Fed, but you could walk off with a crypto exchange.

So until those problems are basically sorted out, the notion that we can all jump into a digital currency, which at the end of the day, to buy anything, you need to turn back into a physical currency because you don’t buy your coffee with crypto, we’re back to that (old) problem. How do you get out of the dollar? That structural feature is incredibly important.

Paul Jay

So there’s some critique of the Biden infrastructure plan and some of the other stimulus, coming from the left, because, one, the left more or less agrees with what you said about inflation, and the critique is that it’s actually not big enough, and let me add to that. I’m kind of a little bit surprised, maybe not anymore, but Wall Street on the whole, not Larry Summers and a few others, but most of them actually seem quite in support of the Biden plan. You don’t hear a lot of screaming about inflation from Wall Street. Maybe from the Republicans, but not from listening to Bloomberg Radio.

Mark Blyth

You don’t even hear a lot of screaming about corporate taxes, which is fascinating, right? You’d think they’d be up in arms about this? I actually spoke to a business audience recently about this, and I kind of did an informal survey and I said, “why are you guys not up in arms about this?” And someone that was on the call said, “well, you know, the Warren Buffet line about you find out who’s swimming naked when the tide goes out? What if a lot of firms that we think are great firms are just really good at tax optimization? What if those profits are really just contingent on that? That would be really nice to know this because then we could stop investing in them and invest in better stuff that actually does things.”

Paul Jay

And pick up the pieces of what’s left of them for a penny if they have to go down.

Mark Blyth

Absolutely. Just one thought that we’ll circle back, to the left does not think it’s big enough, etc. Well, yes, of course they wouldn’t, and this is one of those things whereby you kind of have to check yourself.

I give the inflation problem a one in ten. But what I’m really dispassionately trying to do is to look at this as just a problem. My political preferences lie on the side of ‘the state should do more.’ They lie on the side of ‘I think we should have higher real wages.’ They lay on the side that says that ‘populism is something that can be fixed if the bottom 60 percent actually had some kind of growth.’ So, therefore, I like programs that do that. Psychologically, I am predisposed therefore to discount inflation. I’m totally discounting that because that’s my priors and I’m really deeply trying to check this.

In this debate, it’s always worth bearing in mind, no one’s doing that. The Republicans and the right are absolutely going to be hell bent on inflation, not because they necessarily really believe in (inevitable) inflation, (but) because it’s a useful way to stop things happening. And then for the left to turn around and say, well, it isn’t big enough, (is because  you might as well play double or quits because, you know, you’ve got Biden and that’s the best that’s going to get. So there’s a way in which when we really are trying to figure out these things, we kind of have to check our partisan preferences because they basically multiply the errors in our thinking, I think.

Paul Jay

Now, earlier you said that one of the main factors why inflation is structurally low now, I don’t know if you said exactly those words.

Mark Blyth

I would say that yes.

Paul Jay

Is the weakness of the unions, the weakness of workers in virtually all countries, but particularly in the U.S., because it matters so much. That organizing of workers is just, they’re so unable to raise their wages over decades of essentially wages that barely keep up with inflation and don’t grow in any way, certainly not in any relationship to the way productivity has grown. So we as progressives, well, we want workers to get better organized. We want stronger unions. We want higher wages, but we want it without inflation.

Mark Blyth

And it’s a question of how much room you have to do that. I mean, essentially, if you quintuple the money supply, eventually prices will have to rise…but that depends upon the velocity of money which has actually been collapsing. So maybe you’d have to do it 10 times. There’s interesting research out of London, which I saw a couple of weeks ago, that basically says you really can’t correlate inflation with increases in the money supply. It’s just not true. It’s not the money that’s doing it. It’s the expectations. That then begs the question, well, who’s actually paying attention if we all don’t really understand what inflation is? So I tend to think of this as basically a kind of a physical process.

It’s very easy to understand if your currency goes down by 50 percent and you’re heavily dependent on imports. You’re import (prices) go up. All the prices in the shops are going to go up. That’s a mechanism that I can clearly identify that will generate rising prices. If you have big unions, if you have kind of cartel-like vertically integrated firms that control the national market, if you have COLA contracts. If you have labor able to do what we used to call leapfrogging wage claims against other unions, if this is all institutionally and legally protected, I can see how that generates inflation, that is a mechanism I can point to. That doesn’t exist just now.

Let’s unpack this for a minute. The sort of fundamental theoretical assumption on this is based is some kind of ‘marginal productivity theory of wages.’ In a perfectly free market with free exchange, in which we don’t live, what would happen is you would hire me up to the point that my marginal product is basically paying off for you, and once it produces zero profits, that’s kind of where my wages end. I’m paid up to the point that my marginal product is useful to the firm. This is not really a useful way of thinking about it because if you’re the employer and I’m the worker, and I walk up to you and say, hey, my marginal productivity is seven, so how about you pay me seven bucks? You just say, shut up or I’ll fire you and get someone else.

Now, the way that we used to deal with this was a kind of ‘higher than your outside option,’ on wages. The way we used to think about this was “why would you pay somebody ten bucks at McDonald’s?” Because then you might actually get them to and flip the burgers because they’re outside option is probably seven bucks, and if you pay them seven bucks, they just won’t show up. So we used to have to pay workers a bit more. So that was, in a sense, (workers) claiming (a bit of the surplus) from productivity.

But now what we’ve done, Suresh Naidu the economist was talking about this the other day, is we have all these technologies for surveilling workers (instead of paying them more). So now what we can do is take that difference between seven and ten and just pocket it because we can actually pay workers at your outside option, because I monitor everything you do, and if you don’t do exactly what I say I’ll fire you, and get somebody else for seven bucks. So all the mechanisms for the sharing of sharing productivity, unions, technology, now lies in the hands of employers. It’s all going against labor. So (as a result) we have this fiction that somehow when the economy grows, our productivity goes up, and workers share in that. Again, what’s the mechanism? Once you take out unions and once you weaponize the ability of employers to extract surplus through mechanisms like technology, franchising, all the rest of it, then it just tilts the playing field so much that we just don’t see any increase in wages. (Now) let’s bring this back to inflation.

Unless you see systematic (and sustained) increases in the real wage that increases costs for firms to the point that they need to push on prices, I just don’t see the mechanism for generating inflation. It just isn’t there. And we’ve underpaid the bottom 60 percent of the U.S. labor market so long it would take a hell of a lot of wage inflation to get there, with or without unions.

Paul Jay

Yeah, what’s that number, that if the minimum wage was adjusted for inflation and it was what the minimum wage was, what, 30 years ago, the minimum wage would be somewhere between 25 and 30 bucks, and that wasn’t causing raging inflation.

Mark Blyth

And there is that RAND study from November 2020 that was adeninely entitled, ‘Trends in Income 1979 to 2020,’ and they calculated, and I think this is the number, but even if I’m off, the order of magnitude is there, that transfers, because of tax and regulatory changes, from the 90th percentile of the distribution to the 10 percentile, totalled something in the order of $34 trillion. That’s how much was vacuumed up and practically nothing trickled down. So when you consider that as a mechanism of extraction, why are worrying about inflation (from wages)?

The best story on inflation is actually Charles Goodhart’s book that came out last year. We got a long period of low inflation because of global supply chains, and because of demographic trends. It’s a combination of global supply chains, Chinese labor, and demographics all coming together to basically push down labor costs, and that’s why you get this long period of deflation, which leads to rising profits and zero inflation. A perfectly reasonable way of explaining it. And his point is that, well, that’s coming to an end. The demographics are shifting, or shrinking. We’re going back to more closed economies. You’re going to create this inflation problem again.

OK, what’s the timeline on that? About 20 years?

A few years ago, we were told we had 12 years to fix the climate problem or we’re in deep shit. If we have to face the climate problem versus single to double-digit inflation, I’m left wondering what is the real problem here?

Paul Jay

All right, thanks for joining us, Mark.

Mark Blyth

It’s been a pleasure as always.

Paul Jay

And thank you for joining us on Don’t forget the donate button, the share button or subscribe button and see you again soon.

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  1. cocomaan

    Great piece. He put to words something I’ve thought about but couldn’t articulate: if wages are stagnant, how could you possibly get broad based inflation?

    There is no upward pressure on labor costs anywhere in the economy. The pressures are all downward.

    You would need government spending in the order of magnitudes to drive up wages. Or release from a lot of debt, like student loan forgiveness or what have you.

    1. Left in Wisconsin

      I’m not sure you need wage growth to get inflation. As Blyth notes, most of the time inflation is a currency or a monetary issue. In the 70s, it was initially an oil thing – and oil flows through a lot of products – and then really went crazy only when Volker started raising interest rates. I don’t think there is an episode of “wage-push” inflation in history. (The union cost-of-living clauses don’t “cause” inflation, they only adjust for past inflation. If unions can cause wage-push inflation, someone needs to explain how they did this in the late 70s, when they were much less powerful and unemployment was substantially higher, than in the 1950s.) One could argue that expansive fiscal policy might drive inflation but, even then, the mechanism is through price increases, not wage increases. You do need consumption but that can always come from the wealthy and further debt immiseration of the rest of us.

      1. topcat

        “I’m not sure you need wage growth to get inflation”
        It all comes back to the definition of inflation. If you have a shortage of oil like in the 70’s then the price increases due to demand and the only way to solve the problem is to reduce demand, you can do this in any way you want but for things like food that have really inelastic demand the only answer is rationing. Raising interest rates is not going to help defeat this kind of inflation as it is not monetary but structural.
        Also, if a company like Apple has a monopoly on some product and raises the price at will, then this is not really monetary inflaton rather monopoly price setting. You can as a consumer chose whether to pay for a new iPhone or just leave it and buy food instead. Etc etc.

    2. Adam Eran

      Blythe is one of those guys who is *almost* correct. For example he declares that expectations drive inflation. What about genuine shortages? The most recent U.S. big inflation stemmed from OPEC withholding oil–a shortage we answered by increasing the price ($1.75/bbl in 1971 -> $42/bbl in 1982). In Germany, the hyperinflation was driven by the French invading the Ruhr, something roughly like shutting down Ohio in the U.S. A shortage of goods resulted. Inflation! In Zimbabwe, the Rhodesian (white) farmers left, and the natives who took over their farms were not producing enough food. A shortage of food, requiring imports, resulted. Inflation!

      I guess you could say people in Zimbabwe “expected” food…but that’s not standard English.

      JFYI, Blythe is not a fan of MMT. He calls it “annoying.” Yep, that’s his well-reasoned argument about how to think about it.

      As a *political* economist, he may have a point in saying MMT is a difficult political sell, but otherwise, I’d say the guy is clueless about it.

      1. eg

        I’ve been watching Blyth for a while now, and he’s come some distance towards embracing aspects of the MMT framework, but you’re correct that he is not fully convinced. Give it time.

      2. topcat

        True shortages only result in inflation if the money supply is increased as a means of combating the problem, which it can’t because money can’t buy you love. If a government decides to compab structural inflation such as a shirtage of food by prniting money and increasing wages, then you get monetary inflation. If however the government resorts to rationing as in WWII in the US and UK then there is no inflation just reduced consumption.

      3. Philip

        Weimar hyperinflation caused by the French? Nah
        During WW1 the Reich government printed a lot of money to fund the war, this resulted in the Reich Mark losing 75% of its value. The post war Weimar government thought they could do the same. Unfortunately for them the same conditions did not apply. During WW1 the German Reich was cut off from international trade and finance which meant that that Germany’s finance class had to take the inflation losses during the war. After the war with international trade and finance restored the rich had an out. With high inflation anticipated they sold their Reich Marks for foreign currencies. This pushed the value of the Reich’s Mark on foreign exchanges down, producing windfall profits for the “investors” when they bought back into Marks, the banking sector pushed this scheme very quickly, providing loans to “investors”. Germany’s finance class bet big time against their own currency, destroyed its value on international markets, which in turn destroyed its value at home. You may think this is a stupid thing to do but Germany’s finance class had very close ties family and political to the previous Imperial German Government and hated the Weimar republic. If hyperinflation could bring down the Weimar republic and they could make a lot of money at the same time, why not?

        For hyperinflation to really take off a currencies value has to be destroyed on international markets first. This drives up prices for imported goods and commodities which injects inflation directly into the shopping basket. Otherwise printing money’s usual effect is to push up asset prices initially followed by wages and shop prices as the costs of assets trickles down the socio-economic ladder. This takes time, which usually allows a response to occur. Crashing a currency can be very quick.

        PS. Germany’s hyperinflation period is not remembered as a time of banking crisis and failure, because it wasn’t, the banks were making money hand over fist at the time. Its much later in the early thirties after the beginning of the great depression that the banks failed and created the conditions for the Nazis to seize power. Never under estimate a banker they capable of far worse things than you can think of.

        1. topcat

          “For hyperinflation to really take off a currencies value has to be destroyed on international markets first.”
          implies that inflation is not possible when the currency is not convertable which isn’t true.

    3. deplorado

      You are forgetting inflation in the 90ies in Yugoslavia, Bulgaria, Romania, late USSR and then Russia – wages were stagnant, then inflation happened, driven by a gigantic loose wave of credit and ruination of productive capacity – and after that wages and pensions were truly crushed, regular folks’ savings annihilated, and companies’ debts zeroed out. Great for privatization (“grabitization” as they called it in Russia) and for those with access to plentiful ever growing credit.
      I see obvious parallels with the US today – the difference is in degree only.

      Inflation doesnt have to be Weimar level to have the above effects. Those with access to plentiful ever growing credit are doing too well as it is – so Im not sure what use is the exercise of divining whether wage growth is required to recognize that society at large is getting robbed by inflation (ridiculous asset inflation not enough?) – and that truly is bad enough. No need to pretend the wolf isnt already at the door – or in the house.

  2. CH

    Inflation isn’t caused by the amount of money in the economy but by the amount of *spending*.

    Like the other commenter, I’ve wondered this too–if wages have been stagnant for a generation, then how are we going to get inflation? By what mechanism? It seems like almost all of the new money just adds a few zeros to the end of the bank account balances of the already rich (or else disappears offshore).

    Still, you just cannot people to understand this because of houses, health care and education. One might even argue that inflated house and education prices are helping keep inflation down. If more and more of our meager income is going to pay for these fixed expenditures, then there’s no money left over to pay increased prices for goods and services. So there’s no room to increase the prices of those things. As Michael Hudson would point out, it’s all sucked away for debt service, meaning a lot of the “money printing” is just subsidizing Wall Street.

    But if you pay attention to the internet, for years there have been conspiracy theories all across the political spectrum that we were really in hyperinflation and the government just secretly “cooked the books” and manipulated the statistics to convince us all it wasn’t happening. Of course, these conspiracy theories all pointed to the cost of housing, medicine and education as “proof” of this theory (three things which, ironically, didn’t go up spectacularly during the Great Inflation of the 1970’s). Or else they’d point to gas prices, but that strategy lost it’s potency after 2012. Or else they’d complain that their peanut butter was secretly getting smaller, hiding the inflation (shrinkflation is real, or course, but it’s not a vast conspiracy to hide price increases from the public).

    I’m convinced that this was the ground zero for the kind of anti-government conspiratorial thinking that’s taken over our politics today. These ideas was heavy promoted by libertarians like Ron Paul starting in the nineties, helped by tracts like “The Creature from Jekyll Island,” which argued that the Fed itself was one big conspiracy. I’ve seen plenty of people across the political spectrum–including on the far Left–take all of this stuff as gospel.

    So if the government is secretly hiding inflation and the Fed itself is a grand conspiracy to convince us that paper is money (rather than “real” money, aka gold), then is it that hard to believe they’re manipulating Covid statistics and plotting to control us all by forcing us all to wear masks and get vaccinated? In my view, it all started with inflation paranoia.

    Blyth explains why housing inflation isn’t really a sign of hyperinflation. But the average “man on the street” just doesn’t get it. To Joe Sixpack, not counting some of the things he has to pay for is cheating. So are “substitutions” like ground beef when steak gets too pricey, or a Honda Civic for a Toyota Camry, for example. The complexity of counting inflation is totally lost on them, making them vulnerable to conspiratorial thinking. Since Biden was elected, the ZOMG HyPeRiNfLaTiOn!!&%! articles are ubiquitous.

    Does anyone have a good way of explaining this to ordinary (i.e. non-economically literate) people? I’d love to hear it! Thanks.

  3. TomDority

    “There is no such thing as house price inflation. Inflation is a general rise in the level of all prices. A sustained rise in the level of prices. The fact that house prices in Toronto have gone up is because Canada stopped building public housing in the 1980s and turned it into an asset class and let the 10 percent top earners buy it all and swap it with each other. That is singularly not an inflation.”
    Maybe I am totally off but, I would say…. By your definition, inflation does not exist in the economic terminology as inflation only exists if generally all prices go up and a singularity of soaring house prices and education and healthcare do not constitute an inflation because the number of things inflating do not meet some unknown number of items needed for a general rise in all prices to create an inflation.
    What I read you to say is that if Labor prices go up – that could lead to inflation – but if house prices go up (as they have) that is not inflation.
    Hypothetically – if labor prices do not go up and the ‘nessesities of living’ prices go up (Housing and Med) – would you not have an inflation in the cost of living? – I am convinced that economists and market experts try to claim that the economy and markets are seperate and distinct from humans as a science – and that Political science has nothing to do with what they present. Yet, humans are the only species to have formed the markets and money we all participate and, the only species, therefore, to have an exclusive asset ownership, indifferent to any other species – IE – if you can’t pay you can’t play and have no say.
    I submit that one or a few asset price increases that are combined with labor price stasis(the actual money outlayed for those asset price increased products not moving up) – especially one that is a basic to living (shelter) and not mobile (like money) is inflation – Land prices going up will generally increase the prices of all products created thereon.

    1. Chris

      Exactly my interpretation.

      The “transitory” “food inflation” (but it’s not inflation since TVs went down!) is no issue. Just eat 2 years from now or a TV instead.

    2. Objective Ace

      I think there’s two things going on here. There’s different inflation indicators, and asset prices are by definition never a part of inflation

      The main indicator of CPI has so many different things in it that the inflation of any one item is going to have little effect on it. But you can look up BEA’s detailed GDP deflator to see inflation for more specific things like housing expenses (rent) or transportation.

      So back to real estate/land: real estate and land are like the stock market. They aren’t subject to inflation. They are subject to appreciation. There is somewhat of a feedback effect for sure though: Increased real estate prices can drive up inflation. Rent for sure gets driven up, but also any other good that’s built domestically if the owners of capital need to pay more to rent their factories/farms etc.

      As noted in the article though, capitalists can simply move their production overseas so there’s a limit to how much US land appreciation can filter into inflation. Its definitely happening with rent as housing can’t be outsourced. But rent is only one part of overall inflation

    3. jsn

      The point he was making is that the price change in housing is the result of a policy restructuring of the market: no new public housing and financial deregulation.

      The price of food is similarly a response to policy changes: industry consolidation and resulting price setting to juice financial profits.

      The point is distinguishing between political forces and market forces. The former is socially/politically determined while the latter has to do with material realities within a more or less static market structure.

      This is a distinction essential to making good policy but useless from a cost of living perspective.

      1. Starry Gordon

        One could prevent crossover for awhile, but eventually certain policies are going to affect certain markets. The policy of giving the rich money drives up asset prices, real estate is a kind of asset, eventually rising real estate costs affect the market the proles enter when they have to buy or rent real estate.

        If state institutions tell them there is no inflation, the proles learn that the state institutions lie because they know better from direct experience. Once that gap develops, it’s as with personal relationships: when trust is broken, it is very hard to replace. Once belief in state institutions is lost, significant political effects ensue. Often they are rather unpleasant.

        1. jsn

          Yes. Discussing complexity in a low trust society makes definitions of terms within a discussion necessary.

          The same words are used in different contexts to mean different things making a true statement in one place a lie in another.

    4. Skip Intro

      Blyth pointed to the lack of systemic drivers of price increases, and how the traditional ones have disappeared. I think one that he missed, that results in a disconnect with the evidence of price increases across multiple sectors, is the neoliberal infestation. Rent-sucking intermediaries have imposed themselves into growing swaths of the mechanisms of survival, hollowed out productive capacity, and crapified artifacts to the extent that their value is irredeemably reduced. This is a systemic cause for reduced buying power, i.e. inflation, but it is not a result of monetary or fiscal policy, but political and ideological power.

    5. cnchal

      > . . . The fact that house prices in Toronto have gone up is because Canada stopped building public housing in the 1980s and turned it into an asset class and let the 10 percent top earners buy it all and swap it with each other.

      That is a total load of baloney. The eighties were a time when the Conservative government came up with the foreign investor program and it was people from Hong Kong getting out before the British hand over to China in 1997.

      I was there, trying to save for a house and for every buck saved the houses went up twenty. I finally pulled the plug in 89 when someone subdivided a one car garage from their house and sold it for a small fortune. The stories of Hong Kongers coming up to people raking their yard and offering cash well above supposed market rates and the homeowner dropping their rakes and handing over the keys were legendary.

      It’s still that way except now they come from mainland China, CCP members laundering their loot.

      Any government that makes domestic labor compete with foreign richies for housing is mendacious.

      When a Canadian drug dealer “saves up” a million to buy a house and the RCMP get wind of it, they lose the house. When a foreigner show up at the border with a million, it’s all clean.

  4. Robert Hahl

    Many people who talk about avoiding inflation are speaking euphemistically about preventing wage growth, and only that; dog whistles, clearly heard by the intended audience. Yet they are rarely confronted directly on this point. Instead we hear that they don’t understand what the word inflation means, and Mark seems to be saying these euphamists (eupahmites?) needn’t be so concerned because wages will not go up anyway. If so, what we are talking about here is merely helping workers stay afloat without making any fundamental changes. Well, both sides can agree to that as usual. Guess I’m just worn out by this kind of thing.

    1. F

      Thanks for this link!! Not only enlightening but also hilarious. Long time ago a laughed as hard reading about finance.

  5. The Rev Kev

    The thing that I like about Mark Blyth is how he cuts to the chase and does not waffle. Must be his upbringing in Scotland I would say. The revelation that the US minimum wage should be about $25-30 is just mind-boggling in itself. But in that talk he unintentionally put a value on how much is at stake in making a fairer economic system and it works out to be about $34 trillion. That is how much has been stolen by the upper percentile and why workers have gone from having a job, car, family & annual vacation to crushing student debt, a job at an Amazon fulfillment center and a second job being an Uber driver while living out of car.

    1. Skip Intro

      That $25-30 wage was keeping up with inflation, if it were keeping up with productivity it would be, IIRC, nearly twice that. It is interesting to see a dollar figure put on the amount you can reap after a generation or two of growing a middle class, by impoverishing it.

    2. cnchal

      This is key.

      But now what we’ve done, Suresh Naidu the economist was talking about this the other day, is we have all these technologies for surveilling workers (instead of paying them more). So now what we can do is take that difference between seven and ten and just pocket it because we can actually pay workers at your outside option, because I monitor everything you do, and if you don’t do exactly what I say I’ll fire you, and get somebody else for seven bucks.

      Praise be the STEM workers. Without them where would the criminal corporate class be?

      Every time I listen to the news (without barfing) the story is, we need moar STEM workers, and I ask myself, what do they do for a living?

    1. Mikel

      If that kind of tidbit excites you:
      Before going into economics, Alan Greenspan was a sax and clarinet player who played with the likes of Stan Getz and Quincy Jones.

      Go figure….

    2. HotFlash

      And Michael Hudson studied piano and conducting. Do failed musicians gravitate to economics? Perhaps for the same reason as my bank manager, a failed bass player (honors graduate from Classy Cdn U in double bass), they see the handwriting on the wall. He told me his epiphany came when he and his band-mates were trying to make cup-o-noodles with tap water in a room over the pub in Thunder Bay where they were playing.

  6. Tex

    The mental gymnastics to get to “everything needed to survive costs more but wages have not gone up in decades so therefore its all transitory and inflation does not exist” must be painful. How high does the price for cat food have to get before we stop eating?

    1. freebird

      Thank you. Most things I buy or am forced to pay for are rising in price. The economists may enjoy the article, but here in Topeka, it’s not flying.

  7. KLG

    Yes! “The Hamptons are not a defensible position” ranks right up there with “It is easier to imagine the end of the world than the end of (neoliberal) capitalism” by Mark Fisher (and F. Jameson?).

    1. Jeff W

      “The Hamptons are not a defensible position”

      From Mark Blyth’s 2016 interview with AthensLive here.

  8. Return of the Bride of Joe Biden

    Does anybody here have knowledge of how much hedonic adjustments influence our official measures of inflation?

  9. chuck roast

    Very good, Mark. This leads to the next Q. How do we maintain aggregate demand? The rich guys increasingly Hoover everything up and pay no taxes. So, there is no T. Is the only way to get cash and avoid deflation deficit spending by the G? There is no I worth a damn. (X-M) is a total drain on everything since it’s all M in the US and no X. The deficits will have to go out of sight in the future.

    You say that there is no velocity of money. Is this because the more money pored into the economy by the G, the more money the rich guys steal? So, there is a general collapse in C. Maybe the work around for the rich guy theft is a $2,000 (sorry, $1,400) check every now and then to the great unwashed. The poors can circulate it a couple of times before the rich guys steal it. Seems like the macro-economists have a lot of ‘splainin’ to do. Oh, right, they are busy right now measuring the output gap.

    1. eg

      Can someone please define the variables in this comment?


      Also, is there an equation that goes with them?

      1. chuck roast

        GNP = Consumption + Investment + Government + (Exports – Imports)

        I’d like to see Mark go into a discussion on the velocity of money. I remember the old timey Keynesians lecturing about it, and that’s all I remember. I’m guessing that it’s related to the marginal propensity to consume.

        1. Ed S.


          I may be getting a bit out over my skis, but the St. Louis Fed calculates the velocity of money ( It is defined as

          The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

          So as velocity slows, fewer transactions happen. Based on the linked chart, the peak velocity was 2.2 in mid-1997. In Q1 2021, it was 1.12. By my understanding, although the money supply continues to increase, the money isn’t flowing through the economy in the way it was over the last 30 years (or even 10 years ago).

          It’s beyond my level of understanding to say with any certainty as to why the slowdown in velocity has occurred, but I speculate it’s directly related to the ever-growing inequality in the US economy and the ongoing rentier-ism that Dr. Hudson discusses. [simplistically, if Jeff Bezos has $1.3 billion more on Monday than on Friday, that money will flow virtually nowhere. If each of Amazon’s employees equally shared that $1.3 billion (about $1,000 each), the preponderance of the money would flow into the economy in short order].

          I’ve always speculated that money velocity is one of the key indicators of the stagnant economy since 2008. It certainly has coincided with the dramatic increase in wealth in the top fraction (not the 1% but the 0.001%) of the US population.

        2. eg

          Much obliged — sorry to have missed the I
          And yes, the velocity of money is affected by the income and wealth distribution due to the varying propensity to spend (greatest at the bottom and least at the top)

  10. flora

    Thanks for this post. Blyth is always good at explaining in a way I can understand.

  11. Mikel

    What Blythe has laid out is not a tale about inflation or money, but a tale about power.

    If money goes to the non-elite, you get inflation.  If it goes to the elite, you don’t get inflation.
    If you are a country with little control of your resources (not lack of resources, but control) and/or loans (think IMF)/debt (think war reparations) that give people with little interest in whether you live or die control over your countries’ finances,  you can be prone to inflation or even hyperinflation.

    Yeah, I figured  out a long time ago that none of this is any “natural economic law” because there is no such thing as “nature” in economics.  Inflation is all about political decisions and perceptions.

    And I saw this on YouTube a couple of days ago…and I still can’t think of anything around me that hasn’t gone up on price.

  12. politicaleconomist

    This is a good response to Summers. But I have a quibble and a concern.
    My quibble is that he offers no theory of inflation except implicitly aggregate supply exceeding aggregate demand and there is nothing but hand-waving regarding what he is referring to that he feels has a one chance in ten of happening versus Summers one in three. A second part of this quibble is: what does it mean for inflation to “come roaring back.” I assume it means more than just a short-term adjustment to a shot of government spending and gifting. I believe if he thought this through he would have to conclude that without changes in the current structure of the global economy there is no way for this to happen. That really is the case he has made. With labor beaten down not only in the US but worldwide inflation will not come roaring back, period. That is unless there is a chance either that a labor renewal is a near-term possibility. I doubt he believes this. Or does he believe there is another way for inflation to roar back? If so, what is that way, what is the theory behind it?

    A more fundamental concern is the part where he relies on marginal productivity theory when discussing employment and exploitation. Conceptually that far from Marx’s fundamental distinction between labor and labor power.

  13. Wukchumni

    Hyperinflation doesn’t seem to be possible in this age of digital money no matter how much you conjure up because nobody notices the extreme amount of monies around all of the sudden as the average joe isn’t in the know.

    Used houses are always appreciating in value, but none dare call it inflationary, more of a desired outcome in income advancement if you own a domicile.

    There were no shortages of anything in the aftermath of the GFC, and now for want of a semiconductor, a car sale was lost. Everything got way too complex, and we’ll be paying the price for that.

    I think the inflation to come won’t be caused by a lack of faith in a given country’s money, but the products and services it enabled us to purchase.

    1. Mikel

      “…and now for want of a semiconductor, a car sale was lost….”
      Sometimes car sales are lost because the price of cars has gone up (new and used)…just don’t call it inflation…

      I’m going to let some more time pass, but stimulus or not, we went from all economic problems being laid at the feet of Covid to now moving on to “shortages” everywhere…

      Just enought to make you go…hmmmm….unti more time passes.

    2. Ed S.

      Used houses always appreciate – or is it that they appreciate due to a combination of inflation in income over time and the dramatic decrease in interest rates over the last 20 years?

      A very quick back of the envelope calc (literally – and all number are approximate):

      In June 2000, median US income was $40,500; 30 yr mortgage rate was 8.25%. 28% of monthly income = $945. That supports a mortgage (30 yr fixed, P&I only – no tax, insurance, etc) of roughly $125,000.

      In June 2005, median US income was $44,000; 30 yr mortgage rate was 5.5%. 28% of monthly income = $1026. That supports a mortgage (30 yr fixed, P&I only – no tax, insurance, etc) of roughly $180,000.

      In June 2010, median US income was $49,500; 30 yr mortgage rate was 4.69%. 28% of monthly income = $1155. That supports a mortgage (30 yr fixed, P&I only – no tax, insurance, etc) of roughly $225,000.

      In June 2015, median US income was $53,600; 30 yr mortgage rate was 4.00%. 28% of monthly income = $1250. That supports a mortgage (30 yr fixed, P&I only – no tax, insurance, etc) of roughly $260,000.

      Finally, In June 2020, median US income was $63,000; 30 yr mortgage rate was 3.25%. 28% of monthly income = $1470. That supports a mortgage (30 yr fixed, P&I only – no tax, insurance, etc) of roughly $340,000.

      And for fun, if you went to 40% of income in 2020 (payment only), a $2100 monthly payment will cover nearly a $500,000 mortgage in 2020.

      For the vast majority of home buyers, the price isn’t the main consideration – it’s how much will it cost per month. So a small increase in median income (roughly 2% per year) combined with dramatically lower interest rates can drive a HUGE increase in a mortgage – and ultimately the price that can be paid for a house.

  14. Michael Ismoe

    I find it amazing that when you give poor people money, it creates inflation. If you give rich people money, it creates jobs (LOL. Sure it does.).

    As long as billionaires pay as little as possible, the world is fine.

  15. Tom Bradford

    Can’t say I really understand this sort of thing but saying rocketing house-prices is ‘a singularity’ rather than ‘house-price inflation’ has to me echoes of the Bourbon’s “Bread too expensive? Let them eat cake.” And Versailles wasn’t a defensive position either.

    In my version of economics-for-the-under-tens you get inflation in two situations. First is where enough folk have enough cash in their pockets for producers/manufacturers/retailers to hike their prices without hitting their sales too much and secondly where there’s a shortage of stuff people want and/or need which leads to a bidding war. However I’d agree with Blyth that neither condition exists now or seems likely to arise for a while, making a ‘spike’ in inflation unlikely.

  16. Sound of the Suburbs

    Global policymakers have all been using the Roaring Twenties economic growth model.

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.

    The money creation of unproductive bank lending makes the economy boom.
    Debt rises faster than GDP until you get a financial crisis

    1929 – US
    1991 – Japan
    2008 – US, UK and Euro-zone
    The PBoC saw the Chinese financial crisis coming by looking at the private debt-to-GDP ratio. The Chinese were lucky; it was very late in the day.

    Everyone has made the same mistake; only the Chinese worked out what the problem was before the financial crisis.
    Steve Keen saw 2008 coming in 2005 by looking at the private debt-to-GDP ratio
    He did see it, but no one listened.

  17. ArvidMartensen

    I am a non-economist, and so my thoughts below may be wrong. However, here goes.
    I would say we have had inflation. Roaring inflation. For the past 20 years of so.

    Inflation in wages and ordinary costs of living? No, wages have been stagnant. Health care has led the charge in cost of living increases, but most other living expense increases have been low.

    Inflation in asset prices? We have had massive inflation in the costs of residential housing where I live.
    20 years ago I could buy a 5 br, 3 bath home on a decent block in a good area close to everything for $270,000 dollars. Sure it needed some renovation, but still…. Now to buy that home it would cost me around $1,250,000. So that home has gone up in value by 500%. Man, that is inflation.

    As I understand it, asset inflation is not counted by governments in the GDP or CPI. It appears that those who have most of the assets don’t want this to be counted, by the very fact that they control the politicians who control what is counted, and asset inflation isn’t counted in the economic data that the politicians rely upon to prove how prudent they are.

    So if you want a day to day example of where all this free money is going, look at housing. And also have a quick look at the insane increases in the worth of billionaires. They love all this government spending which magically? seems to end up, via asset purchase and asset price inflation, in their pockets.

    1. cnchal

      That home has gone up in price by 500%

      Price is what one pays, value is what one gets. That house is roughly the same, so the value has not changed, but the price has gone up by a factor of 5

      Same with stawks. One share of Amazon stawk is $3,467.42 as of yesterday.

      What is its value? If Bezos can work his tools ever harder, monitor them down to the nanosecond and wring ever moar productivity out of them before throwing them in the tool dumpster behind every Amazon warehouse, the value proposition is that someone else will believe the stawk price should be even higher, at which point one can sell it at greater price for a profit.

  18. Susan the other

    What is inflation? Good question. I’d say inflation is fear of monetary devaluation. Not devaluation, just the fear of it. We’ll never overcome this unease if we always deal in numbers. Dollars, digits, whatever. We need to deal in commodities – let’s call just about everything we live with and use a “commodity”. Including unpaid family help/care; and the more obvious things like transportation. If we simply took a summary of all the necessary things we need to live decent lives – but not translated into dollars because dollars have no sense – and then provided these necessities via some government agency so that they were not “inflated” in the process and thereby provided a stable society, then government could MMT this very easily. Our current approach is so audaciously stupid it will never make sense let alone balance any balance sheets. That’s a feature, not a bug because it’s the best way to steal a profit. The best way to stop demand inflation or some fake scarcity or whatever is to provide the necessary availability. That’s where uncle Joe is gonna run headlong into a brick wall. He has spent his entire life doing the exact opposite.

  19. William Neil

    The figure for the upward transfer of wealth from the Rand Study was $50 trillion between 1975-2018. It was adjusted up by the authors from $47 trillion to bring it up to 2020 trends.

    Here are the authors explaining what they found and their methodology:

    Now the interesting thing to me is this – look at the date of the publication in Time magazine: Sept. 14, 2020, so right in the heart of campaign fever, and it never came up in the debates, in the press…I didn’t hear about it until Blyth made one of his appearances on Jay’s show with Rana Foroohar. Long after the election.

  20. VietnamVet

    As long as 80% of Americans are head over heels in debt and 52% of 18-to-29-year-olds are currently living with their parents, there never will be the wage inflation of the 1970s. A majority of the people arrested for the Capitol riot had a history of financial trouble. The elite blue zones in Washington State and Oregon that prospered from globalism are seeing a spike in coronavirus cases. North American neoliberal governments have failed dismally. It is intentional in order to exploit more wealth for the rich from the natural resources and workers. If the mRNA vaccines do not control coronavirus variants, and a workable national public health system is not implemented; succession and chaos will bring on Zimbabwe type inflation.

    There is a reason why Portland Oregon has been a center of unrest for the past year. The Elite just do not want to see it. How can Janet Yellen deal with this? She can’t. She is an Insider. She was paid 7.2 million dollars in speaker and seminar fees in the last two years not to.

  21. HotFlash

    I am trying to get my head around this, too, and my head’s not going all the way there. OK, if I accept Mark’s def of inflation as the cost of everything rising due to rising wages (cost of labour), then no, we don’t have that, so much. But I actually live in Toronto, and the house I bought in 1982 was $41k back then. The ‘hood was a little seedy, but close to downtown, had/has good shops nearby, lots of schools, churches, mostly 100-yr old Edwardian brick or brick-faced houses (fire code due to the Great Fire of 1904) on quiet tree-lined streets, lots of orner stores. Now the realtors besiege us daily and they assure me that my small, two story, two/three bedroom house (small back yard, no garage or driveway) in my walkable, pleasant, safe and (of course) gentrifying ‘hood is “worth” well over a million bucks and probably closer to 2. Everything here sells ‘over asking’ b/c the realtors will not even accept an offer at the ‘asking’ price. Been that way for years. But I am getting ahead of myself.

    It isn’t simply the govt’s decisions to not build public housing. As far as I can see, public housing clients are not the same people who are buying up houses in my hood, I don’t see any conflict there. I agree with Mark that the bought-up houses are passed (flipped?) betw the 10%ers with the price going up every time, but I think it is being driven not so much by rapacious 10%ers, but by rapacious banks and their minions, real estate agents. Let me explain.

    My then-partner and I bought this house in 1982. The mortgage payments plus utilities and taxes were a little less than what we had been paying in rent and amounted to less than one week’s pay for the both of us. That makes sense, our landlords were paying mortgages, utilities and taxes, too, we were just cutting out their profit in return for a long-term commitment. The rule of thumb back then was one week’s pay for your rent, one for your groceries, one for savings, one for extras (clothes, furn, dinner out, gifts, vacation), and if there was a 5-pay month, WOOHOO! We had saved a 10% down payment as then required, and showed the loan officers our budget book, 4 years of meeting all our expenses and exceeding our savings goals. They were impressed! OK, we now fast-forward.

    I know Mark is not an MMT fan, but how I see the asset inflation of real estate/housing is that Canadian banks are monetary sovereigns creating money with keystrokes, just like MMT. Yessir, Canada no longer has any reserve requirements for the money it loans out. Banks can create any amount of money, they no longer need your deposits *at all*. Ever wonder why interest paid on deposits is basically zero and you don’t see ads courting depositors anymore? B/c they don’t need your stinking deposits, they have all the keystrokes they need. However, banks can only create the *principal* of the loan out of nothing, but *you* have to earn the *interest*, which is their profit. Yeah, ‘inventory’ for nothing, great racket.

    So, if you own a house, that house is ‘worth’ whatever a bank will lend a buyer for it. Banks have no constraint on what they will lend, not even the buyers’ creditworthiness, since they can always repossess and sell it again! The higher the price, the more interest the banks make *and* the higher commissions the realtors make, lather, rinse, repeat. The realtors laugh all the way to the bank, and the big winners, the banks, are already laughing at home.

    So yes, this may not be some kind of ‘classic inflation’, but it is still causing rising prices in residential housing, rental prices are gauged to home-owning costs (and vice versa), which affects everyone: everybody gotta live somewhere. Retail is similarly impacted as commercial landlords want a cut, raise their rates (been there…). Oh, and where property taxes are based on ‘valuation’, as in my city, that can hurt hard.

    So there may be no ‘inflation’ by the strict definition, but we actual humans are finding our costs of living rising out of proportion to any increase in our compensation, we are just getting squeezed tighter and tighter. What is it then, a ‘bubble’? I don’t really care what they call it, we are hurting.

  22. Tom Pfotzer

    Mr. Blyth said that, in aggregate, across all product/service categories, there is little inflation.

    As many commenters have noted, for those products and services consumed by households, there’s been plenty of inflation. Education, housing, transport, healthcare…plenty. That is obvious to nearly all of us.

    But the prices to industry have not risen nearly so much. Energy and labor – two of the biggest inputs into industrial operations – haven’t risen nearly so fast.

    So inflation is in the eye of the beholder. And the beholders are – as a generalization – divided into the good ol’ capital .vs. labor buckets.

    A related, but different notion is that of “buying power”.

    How much “quality of life” is your paycheck buying you these days?

    A few days ago, NC posted a long lament by the younger generations, and the main thesis was the younger generations’ perspective that “my paycheck isn’t buying me nearly as much quality of life as my parents’ paycheck did when they were my age”.

    When I entered the workforce the main household inputs of education, housing, transportation, healthcare and food cost a lot less of my paycheck than what I see young people paying today.

    I remember reading that Milton Friedman said “inflation is always and everywhere a monetary phenomenon”. He didn’t mention unions or labor power or globalization or asset price appreciation. He said “it’s monetary, stupid”.

    I would have enjoyed hearing Mark Blyth answer this question:

    “Mr. Blyth, given that the money supply has been expanding more rapidly than the underlying stock of goods and services for sale, doesn’t that equate to inflation? (more money “chasing” the same goods)? ”

    Will Mr. Blyth assert that the stock of goods has expanded as fast as the money supply, or will he say that the money supply hasn’t expanded, or will he say that M. Friedman’s definition of inflation is wrong?


    Onto the velocity of money. I’m glad it was brought up, because I see many attempts to sidestep or ignore this important economic metric. Falling velocity means that there are fewer and fewer purchase transactions per year, per unit of the money supply.

    One way to express GDP is M (money supply) times V (velocity … number of times per year each dollah of the money supply got re-spent).

    GDP = M * V (note: there are several formulas in common use to compute GDP. Another is the GDP = C + G + I + (exports – imports) used above.

    If one accepts the GDP = M * V formula above…and we know (Federal Reserve publishes stats) that velocity is falling – and it has been for many years now, the only way to keep GDP elevated is to increase the money supply.

    I note – as many others do – that the money supply is expanding way faster than I can ever remember happening here in the U.S.

    Why is velocity falling? Because the households have less buying power than they used to, so they can afford to buy less, and so they buy less. And since most of the economic activity in this country is Consumption, and households can’t consume, it follows that velocity must fall. And so it is.

    And that, my friends, is why we now have stimmies. We are creating money, and giving it to households to spend, so that GDP will rise, because both money supply and velocity are increasing at the same time.

    Will that create inflation? If all that stimulus money ends up in the hands of rich (it will) and the rich buy up assets like houses or health-care companies that jack up costs to households, then yes, your household will experience inflation.

    If the money ends up in the hands of the capitalists (it will) and they use that money to automate and outsource (and they will) which serves to undermine your household’s buying power (the value of the labor you sell), then your buying power will also erode as inflation increases.

    1. TomDority

      Below was written in 1925 from an annonomous source…..
      Just goes to show it’s a bit of history repeating

      In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
      If a man earns his income by producing wealth nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
      If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
      If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
      Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.

      Written around 1925

      1. Tom Pfotzer

        The inference I draw from your excellent contribution is that … in the context of “capital” and “labor” above, that I should refine the category of “capital” into “productive capital” and “speculative capital”.

        Duly noted, and thank you.

        I’ll add that the conditions have changed some since 1925. Automation and globalization – while certainly present in 1925 – have mushroomed in economic significance since then.

        Most people sell their labor. As such, they recognize that the power relationship between capital and labor has changed a lot, and is still changing to favor capital.

        If we restore labor power via unions, do we restore earning power to labor, or just “taking” power (labor gets to wear the rentier raccoon-tail cap for a while)?

        If we transferred wealth-creation capacity instead of money (via re-distribution, stimmies, entitlements, etc.) would that help?

        Short of expropriation, how does a society “redistribute” wealth-generation capacity?

  23. ChrisFromGeorgia

    I do think there is a very decent chance that the US dollar loses its’ reserve status over time. The scenario is something like this – Russia and China decide they’ve had enough of the US and Europe using it as a political weapon via sanctions, and slowly disengage from dollar based trade. This is already happening with Russia, they have sold off most of their dollar reserves and converted to gold or other investments.

    China has a trickier path, but the digital Yuan might be one option, or create a regional currency involving a basket of Asian currencies and maybe bitcoin.

    This would not be the end of the dollar but would diminish its’ role in global trade. Another big blow would be if alternative energy replaces oil, ending the petrodollar trade.

    This would of course play out over decades and make the US look more like the UK economy post world war II, an increasingly irrelevant but still decent sized one.

    1. Yves Smith Post author

      There needs to be a country that can step in to the US role of running sustained deficits. That is tantamount to exporting jobs. China is not willing to do that. China would love the reserve currency advantages without the costs. Russia is too small an economy to provide the reserve currency and has the same issue.

      1. ChrisFromGeorgia

        I believe that implicit to what you’re saying Yves is that the entire world cannot run a deficit. But it doesn’t have to be only one country carrying such a burden. China is understandably hesitant to go down the road the US has – one has only to look at our criminal healthcare system that puts profits over everything, or our corrupt financial system that produces mainly parasitic elites. Good for them wanting no part of either.

        It would I think be possible for multiple countries to take on more deficit spending, reducing the US role as the chief exporter of jobs and importer of cheap consumer goods. Obviously it comes down to policy choices. Trump tried to make some noise about bringing manufacturing jobs back to the US, but it appears to have been mostly Trumpian bluster.

        To me it is a depressing situation because I don’t foresee much hope except maybe a climate or natural resource catastrophe forcing the issue. And while the latter would fix the problem, it would come with its’ own set of horrors. Turning the developing countries into mini-consumer driven economies like the US has been the pipe dream of Wall St. for decades, and I don’t see it happening, and even if it did, it would accelerate the climate disaster.

        Perhaps a thought experiment would be in order – if the US simply disappeared overnight, including the land, how would the world economy adjust?

        1. Tom Pfotzer

          Great question. Here’s a go at it:

          1. China would accelerate the Belt and Road initiative, and it would accelerate internal consumption to sop up all the excess production it has
          2. Russia and China would step up bilateral trade, and the trade transactions would be denominated in rubles, yuan, gold, oil or some other intermediate store of value
          3. EU would turn East, led by Germany. Trade in euros
          4. US’s former asian trading partners would increase trade among themselves, with China running the supply chains. Std of living in Korea, Taiwan and Japan would fall and take a while to recover
          5. Mid-east oil producers would be marginalized a bit; their share of total oil sales would fall, and their std of living with it.
          6. Africa would haltingly continue its development (use of foreign investment, raw materials extraction, etc.), working along the same trend lines as present, maybe sped up a little

          So basically the current trends would just accelerate. This process of US’ reduction of role globally has been going on a while, and it would just get sped up a bit

        2. Yves Smith Post author

          Then you have a lose/lose situation: many countries exporting jobs but not enough of any currency circulating generally for there to be one reserve currency.

          One of the reasons for the Great Depression was the inability to restore the Gold Standard after WWI. That was also a period of unstable transition from UK being the dominant banking center to the US.

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