Everyone Else Admits We Were Right About Inflation

doubted myself. Last week we did an episode about inflation, and we told maybe half that story and the part of it that we didn't tell. You know, we got through the most of the part about like, you know what this sort of theory of inflation that the people are trangged better to fellows. We got through what it was.

What we didn't really talk about was what happened next, which is a very very interesting set of sort of maneuvers that happened where this theory started spreading through a bunch of very disparate academic circles and you know, sort of like economic circles and different political circles that usually

don't have anything to do with each other. But we're all, I don't know, taking taking things in very interesting directions and to talk about how how how this sort of supply Chaine theory of inflation like spread through the world and all of this very very interesting, somewhat bizarre stuff that happened. Next, we once again have Steve Mann and John Michael Cologne, who are co editors of Strange Matters. Yeah, Steve jmc welcome back to the show.

stuff like that. Who otherwise wouldn't have really been talking to each other, but suddenly having a different theory of inflation, one that was like a lot different than what sort of like the people who thought it would be super transitory or the people who thought it was like purely

a monetary phenomenon or something like that. Like having that option sparked good conversations, and it eventually led to some writers approaching us who are sort of inspired by those conversations, and particularly a few of them really wanted to follow up on like specific key like either points from the paper or follow some of the implications as far as they think they could take them. So one such paper.

Oh and by the way, just as a refresher, the original theory that is laid out in part one of this series that we're doing is essentially saying that inflation has a tendency to propagate along supply chains first and then through supply chain networks secondarily. And so it's it's saying it's essentially that that's that's how it propagates. It

starts in supply chains. Things like bottlenecks along production processes have give the price setters, who are people at companies social acceptable reasons to eventually if they need to raise prices, and but they but that generally pricing managers refrained from raising prices unless that us like every other lever they've pulled,

essentially has not worked. So like people took that theory and wanted to follow up on it, and so one author who did that was Alex Vacolo who approached us, and we essentially wanted to do an updated version of the pricing manager survey that we found really helpful in

writing those initial pieces. So we like in my piece and that sort of theory of inflation, I relied upon like a wealth of pricing manager surveys that showed that where they asked these pricing managers under what circumstances would

you raise prices? And they sort of went through each scenario of that over the decades, starting in the thirties and going into the nineties, and do that in order to not have a replication crisis, Like we need more and more studies, right, Like this is a that's phenomenon across social sciences and elsewhere, So you want to have

good replication studies. One way to do that is to have an updated pricing manager survey that talks to like sort of modern corporations in the twenty twenties, So are they still concerned about some of the same things, are they not? Are there innovations and pricing that we should

know about? And so Alex Paccolo, who's a financial journalist by trade, he went and interviewed some managers at Walmart and other big companies and some smaller ones and found that, like, broadly speaking, a lot of the same issues are at play.

So companies have cost plus market pricing as kind of their bedrock, and from there they developed some innovations such as like so called dynamic pricing, where they have the like if you're a larger company who knows that they are viewed as a price leader, you have some leeway in responding to sales forecasts and changing your pricing, like Walmart does what they have like everyday low prices, that

type of thing. And if you're a grocery store and one of your competitors is Walmart, Serve on the flip side, you might start developing indexes of prices set by Walmart or like one of the other big like behemoth chains, knowing how important they are to the overall supply chain network. And knowing how important they are for the demand for groceries. Like if wherever Walmart goes, many people have no choice but to follow them in terms of their pricing schedules.

And so that's another thing that is going on, Like people are developing just entire price indices of like Walmart or Costco or Sam's Club or whoe have you.

of it, a lot of it. Very much seems to be like if you are if you are like the largest company in a market, like if you are like Walmart, right, you have this incredible ability to sort of like like you have this ability to like like force people force your like downstream or like I guess upstream suppliers to like sell it to you at low at lower prices, because you have this enormous sort of like you know, amount of buying power that like, you know, if you're

like if you're like a smaller thing, you don't necessarily like you know, like like the same company will charge like another grocery store more for like the same thing, because Walmart, Walmart has the ability to sell it a lower price than if I'm remembering this right, I'm gonting, I'm gonna I'm getting strange looks.

It's like, you know, like people who supply Walmart with products because Walmart is such a big customer, you get the Walmart contract and you're a small producer or a medium sized producer, like you're set right because like you know, then you can basically just like you know, they can even be your only customer in many cases. But that comes at a cost, which is that you sell at the price that Walmart dictates. Otherwise they'll just tell you

to fuck off basically. And you know, it's not only price, it's also the quality. You have to hit the standards. And oftentimes what these firms that are like the big important firms, so called nuclear firms in a supply chain do is that they set those standards like very rigidly,

and you have to be certified with them. So McDonald's does this for example, you know, like all those poultry farmers or whatever who supply the chickens for the chicken mc nuggets, they have to go through this extremely rigid process in order to be able to qualify to be a McDonald's certified supplier or whatever, because that's how they keep the product standardized even though they're not in house.

And then the other thing that you were alluding to, which is a vocalos piece, is the relationship to competitors. So obviously Walmart's able to keep things cheap all the time in their famous every day low prices beca because basically those they have economies of scale. You know, there's this notion, I think common sense for a lot of people, especially those who don't have a lot of business experience, is that the more that you make of something, the

more expensive it's going to be. But actually it's almost

the exact opposite. Any firm that has survived, like over a period of time being able to make more and more of something has generally found ways of making more and more of the same thing using fewer inputs and less labor like you know, and that's something that happens through automation, but it's also something that happens through administers rate of innovation and through and sometimes through less than the nice things, right through through through you know, Amazon

warehouses where people aren't allowed to take bathroom breaks, or through sort of like you know, coercive measures that they can do because they've found a nice little spot in the economy that lots of people are depending on them and they can dictate terms. But whatever it is, you know, as firms get bigger, it actually gets cheaper to make

more of their kind of thing. So people in a bodega can't match Walmart's prices for everything from like hamburgers to detergent right because for them, it's more expensive to produce or to acquire. So what they do instead, knowing this and they're able to survive, is that they do Walmart's price, and then they do a markup over Walmart's price. So in the same way that like by themselves they would do a markup over their costs, Walmart's costs are lower and they do a markup, so they do a

percentage over Walmart's markup. And as long as it basically is something that's doable in terms of cost, they do that, which means that they're basically advertising them selves to customers as the slightly more expensive but more local you know, more you know, more reliable or easier to get to you can just walk to the corner store or whatever, you know, whatever conveniences. They're kind of like justifying themselves

with to the customer base. And in cities, this can be enough to keep you know, small to medium sized you know sort of retailers in business, although in the suburbs the competition is basically just all other all gobbalistic firms on Walmart's scale, like you know, Wegman's, or in Florida it will be something like Public's, you know, and

that kind of thing. So generally, uh Vacola was discovering, was I want to just emphasize Steve's point about replication, Like, you know, if if a lot of the supply chain theory depends upon a story about prices that most economists just don't believe in. Economists believe that supply and demand are automatically adjusting based on changing prices, and that those adjustments determine in turn how we spend and how we produce. You know, that's that's supposedly how everything works. They believe

in this thing called the price mechanism. The supply chain theory depends upon a story where the vast majority of prices in the economy are a markup over costs or you know, beyond that some kind of strategic decision being made in pursuit of a certain strategy. But like, you know, if some studies had verified that, but then other studies refuted it, then you would have a situation like psychology where you know, the psychologists are always saying all human

beings really have a neck fetish. But then you know, because some study of like some college students you know, said this, and then six months later it'll be like, actually, that failed to replicate this. It turns out that human beings don't have a neck fetish. You know. And I'm being rude to psychology, but this is a real crisis

that happened there, called the replication crisis. Now. Fred Lee that the economists who kind of like started us along this track in his famous book POSTKINSI and Price Theory, found seventy one pricing studies and they form Appendix called Appendix B in his book, which ought to be legendary, but it's not, because all this stuff is very obscure. The seventy one studies from very different book length studies from very different people with very different like political and

economic commitments. Some of them are business school literature. Some of them are empirical studies commissioned by states or by corporations on how corporate management works. Some of them are by like Marxist economists, some of them are by neoclassical economists like and they all converge, no matter what the biases of of the people involved, upon this same kind of

similar cost plus administered prices model. Vocolo writing now in the present day, not in the period that Lee was talking about, which is roughly from the thirties to roughly the nineties, Like you know, he is talking about the twenty twenties. He just went out and started talking to pricing managers and capitalists and all this other stuff, and

lo and behold he found the exact same thing. So the evidence base, the empirical evidence base, for the underlying basis of the supply chain theory is very very sound. The ball is in other people's court in mainstream economists court who want to defend the supply and demand bullshit and the price mechanism bullshit to to prove us wrong, because frankly, the weight of the evidence is so strong that they're the ones who have the who have to

prove their case, not the other way around. You know that the what's it called when you when you've got the you know, the the I think the burdensump the burden of proof, thank you. The burden of proof is on their side.

They will never make money. And the third thing that's really interesting about is that like that kind of pricing, like you know, if if if you have some people who go in ideologically and like we're gonna build an algorithm to like try to have pricing respond to demand or whatever it like. It fucking sucks and everyone hates it because it means that, like, you know, suddenly, like when you actually need a thing, it's unbelievably expensive, and

it pisses people off. Like most most people who have to deal with actual like the normal things that a business do don't do. And the only people who do it are like the insane tech people who are like like, I don't know it. I almost want to call it like intensely ideological, and also assholes and also don't make any money, which is just I don't know, it's it's

I think it's kind of a coincidence. But it is just very funny to me that the people who actually try to use the neoclassical like pricing theory, it sucks and everyone hates them.

a very manual process. And even I would I would go so far as to say, like Walmart has teams of tech people, Yes, but they're liaising heavily with the finance department and sales and marketing to determine what is an appropriate margin based on historical like in industry and sub industry trends and like what is our historical cost

structure for each product down to the product level. And they have so many different products that they might actually say, well, because we're selling everything to everyone, maybe some things can just be what are called lost leaders and have a negative margin because they get people in the store and then those people are there and they see other things which have higher markups and then they buy those and then overall they've made more of a profit because they

use something's a negative margin on them. And it's like it's a really complex process. And even if an algorithm is being developed by say by say Uber to like dynamically priced things up and down based upon events like a baseball game or something they're going on in a city so you can get more revenue, that was still a people. It was a group of people in a

room in a very extremely manual process. Coding is extremely manual still, and like liasing with like sales, marketing, finance people all at once.

one thing. The price of that thing is not something that is really under their control. It automatically fluctuates based on demand, which I guess you can roughly measure as sales and like the UH and in turn, like what the price of that thing is determines how much they produce and how much of it people buy, because people's buying decisions are in some fixed functional way, and people's production decisions in some fixed functional way are tied to

that price. Like if you want to create an algorithm that includes as a consideration doing a discount when you haven't yet sold all the seats in an airplane in the hopes that you'll get some last minute sales, which, by the way, statistically is shown to not actually help that much. Those kinds of last minute sales and discounts. I mean, I suppose in a flight where there's a

time limited thing, it might work better. But for a typical product, it doesn't move the dial very much in terms of sales, which is why Walmart pursues an every day low prices strategy, just keeping prices down in general, so you don't do sales and discounts which don't move the dial much. But like you know, that's a strategic pricing decision that you've chosen to make because you think that it might move the dial in some way, and you experiment it with it and see if it works

or whatever. That's not the automatic lawlike functional relationship that is supposed to exist according to neoclassical theory between supply demand and prices. People will say that the algorithm is about supplying demand, but that's not really how it works.

That's it's it's not the same thing as the theory, right, It's just a pricing system that takes into account among many other variables and usually not as the primary thing whether or not for example, there is available available slack in the in the you know, in what you're producing to be able to get some last minute sales if you do a discount or something like that, like or like Steve was saying, like, you know, there's a there's a game today, so you can do surge pricing because

people are gonna you know that a bunch of people are going to want to get in the game, So you're basically just price gouging based on this opportunistically based on this event that's happening or whatever, like like, yeah, you can do that, and you can say that it's pricing that tries to take into account supply and demand, but it's not the supply demand price mechanism of neoclassical theory. And also, as McColo like you know, finds out it attempts to do this are very very mixed in their

success at best. You know. Basically, people who are trying to do it are like, yeah, maybe it could work, and then they try it, and nine times out of ten it doesn't work very well. So they go back to some variation on a cost plus model, you know, or a price leadership model or something like that. You know, the kinds of methods that Lee discusses.

same seven billionaires they've conned. And that's like a I think there's an interesting interplay of how dependent you are on actually making like actually having revenue be the source of like the continuing existence of your company, and how ideological you can be about running do you have a gameshom.

sensibility of the customer. He said, it could create a universe of very inconsistent prices across categories in time, which I don't think. Human beings to align to these dynamic models need common sense judgment attached to them, which is not always necessarily available. Now, this is a very diplomatic statement by somebody who's formerly of Sears Canada. Now I find this very funny because there's a kind of subtext here. Vocola doesn't get into it, but Sears Canada obviously kind

of related to Sears. In the nineties, Sears had a CEO who was like this ultra libertarian, you know. He basically believed that the problem with the free market is that it's not free enough. Right at the height of neoliberalism. So he's really pissed off about the fact that inside the corporation there's no free market. It's all a planned economy,

you know, which is true. There's no there's no market exchanges in there, like, it's all allocations, Like, Okay, we have this goal, so we're going to allocate these workers to this place and blah blah blah blah. You know, and and we're and and and you know, anything that the company owns, they just use it to pursue their goals. He wanted everything inside the company to have a bress so that everything could just be you know. But and this is kind of a mad scientist experiment done on

this like very old American corporation. But somehow, I guess it was the nineties, you know, people were coked up on this kind of thing. They tried it, and it was a catastrophic failure that actually generally seen as contributing to the end of Sears as a as a major player in retail. And it's like like, so it shows so I think that the fact that this person very diplomatically from Sears is like this doesn't work, you know, And that might be born of more experienced than than than not.

through Obama, Like they really have market brain. And like, I think the most market brain thing anyone ever did was the the I think it was the Army Joint chiefs of Staff brought in like a group of aonomists who were you know, like you were doing the whole like okay, we like, how how can we make how can we use the market to make the army run

more efficient? And the first polls that they put on on the table is we're going to have each each like like each like section like what's the tap time declartum. We're gonna have each branch of the military bid for control of who of who gets controlled the nuclear weapons. And there's a bunch of just like five star generals sitting at this table going like what the fuck are

you guys talking about? This kid about and that that was the end of like but that was like like peak absolute peak nineties brain of like these these people thought you could solve terrorism by like having futures markets on like where when terrorist attacks would happen, Like it was these people were wild. None of this stuff worked, Unlike the products and services that you're gonna you're gonna now hear ads for and we're back from these fine

products and services. If you're if the thing you were doing right now is you have your finger on the button. We are about to message Sophie about the fact that we have gold ads again, like please don't like please

leave Sophie alone. Oh my god. I think we we've gotten We've gotten a little we've we've gotten sort of into the weeds of I guess, like the kind of research stuff it's been produced, but I wanted to move on, I think to some of the some of the other like kinds of like I don't know, kinds of discourse and kinds of sort of work that's been produced out of this.

He's an economist based in Australia and I should remember the name of his university, but it was the University of Something and it starts with W and it's a very long name there you go, University of Yeah, And he's a political economist. He does a lot of stuff pertaining to kind of like international relations type stuff, but

he also comes at economics from a particular perspective. So we mentioned last time that there's these the orthodoxy and economics is this one school called the Neoclassicals, who believe in the supply and demand stuff and along with a whole bunch of other dogmas. Then there's a bunch of

dissident heterodox schools. And there's a whole bunch of these, and one of them is called the capital as Power school, which is named after a book called Capitalist Power by these two professors called Bickler and Nitsen, and it has a lot of things to say about a lot of subjects.

But so Capital's power is a book that says a lot of things and a lot of different subjects, but at its core is the idea that what makes the capitalist system tick is the process of capitalization, and that that process of capitalization is controlled by certain people, and their control over that process is the basis of the entire economic system. That's very heavy stuff. It tends not to have to do with what we're going to be

talking about, but it informs the perspective that Demutzio comes from. Now, Demuzio saw Steve's brilliant essay on the splashing theory of inflation, was very inspired by it because there are certain affinities between the framework that we're coming from in this kind of research and the capital's power framework. They don't agree one hundred percent on everything, but there's a lot of common ground there. So he basically hopped aboard to say, well,

why don't we talk about interest rates? Because remember the main upshot of Steve's of Fred Lee's administrative crisis theory, and then and then by extension, Steve's theory about inflation is that inflation is not about money, it's about prices.

And in order to understand inflation, you have to understand why people set the prices that they do, and why prices across the economy will go up at any given moment because it's people who set prices, not the market, not the money supply, and not any of these other sort of automatic general macroeconomic things. It's a microeconomic decision made by particular people within particular institutions with the ability

to pull the lever on particular prices. Right, So the interest rate is a price, you know, it's a very important price too.

loans in the rest of the economy. And it's basically you can see it as a supply chain, even though it's not a physical one and it's basically the main cost for banks that want to borrow, you know, and they then have to set a markup over that cost as the price for anyone who wants to borrow from them, which includes other banks but also includes end consumers and firms. So that's basically I mean, I'm oversimplifying and Sea probably a more nuanced version of this, but that's the basics.

have costs just like anyone. One of their principal costs is the rate of interest that they pay on deposits of their customers in order to get them to get new customers in Like, that's one of their main services that they provide is checking checking accounts and savings accounts and like, so how much interest are you is a bank willing to set on its savings account is like an important decision that's like part of its cost structure.

But where people if the Federal Reserve were to raise its federal it's the federal funds rate, it's a principal policy rate up to what they have now five and a half percent or so, when it was less than one percent only a year ago. In order to compete with all of the other products which are based upon this so called risk free rate of return that the central bank offers that governments used to like set the

rate of things like treasury treasury bills and stuff like. Eventually, if you're a bank, you have to start charging higher and higher interest rates. Sorry, you have to start offering

higher and higher interest rates on your savings accounts. And likewise, you need to, like, you need to start charging higher interest rates on the products that are your actual money makers, like mortgages and home equity, lines of credit and that sort of thing, and so like the cost so the cost structure of a bank will shift as the Federal Reserve is changing its policy rate, and so too will its margin over time as it competes with other banks

for like a narrowing pool of qualified mortgage applicants, and also for people who are willing to shop around for where to keep their deposits in a way that they previously they weren't because there was no sort of differential in interest rates at all. It was just being held steady.

describing what we regard as the real world. Like everything that we've just described, we can see it in action like in the world right Like if the FED raises this interest rate effectively, what that means is that this whole supply chain of people lending to other people, who lend to other people, who lend to other people, the cost of lending has essentially increased, which will eventually lead to a rise in the cost and the cost of lending to people downstream until for end consumers, which is

basically like firms and households trying to get a loan from the bank, those loans are going to be more expensive. And conversely, if the Fed's interest rate goes down, those prices will tend to go down as well.

But of course all these firms are making their own decisions based on their own reasons, so you know, they can make all sorts of decisions based on their priorities and based on like like, all sorts of things. Now, by the way, if you want the more detailed version of this story that actually talks about the different agents at each step of this process in much more detail,

you should check out Perry Merling's work on this. And there's even online online lectures that kind of get into the nitty gritty which I have absorbed and then since completely forgotten the details of, so I would need to watch them again to actually be able to name the names. But the point is that so far, so real. Right. Now, here's where things get a little bs.

money is able to buy. Now. People have been moving away from that towards theories that get more realistic, but still retain the basic structure where the money supplies the main thing that matters, and they'll say, for example, that it's the amount of money circulating in people's pockets relative to the amount of goods being produced, such that if too much money is chasing too few goods, like there isn't enough supply to meet the demand, and that causes something,

although people disagree on what, that causes prices to be bid upwards, and that's called the demand poll theory. It's the dominant theory that most economists, classical mainstream economists that you talk to today will will will pedal to you. The ones who are not orthodox monitorists, they still believe in this, which means that they still think that you have to when there's an inflationary event, you have to attack the

money supply now from them. From their point of view, it doesn't have to do with the absolute amount of money circulating. It has to do with the amount of money in people's pockets relative to the amount of stuff that can be bought. So, if there's too much money in people's pockets, how do people use their money? They spend it on goods and services that are produced by firms.

So if you reduce that amount of money, that basically the only way that you can do it is by putting people out of work, right, you know you by because then they don't get the wages which they would have spent on stuff that you know, the factory is in Walmart and everything else, the agriculture and whatever, all the stuff that gets made, the goods and services. Now they think that if you raise the interest rate, it

makes the cost of finance more expensive. Some firms are depending on finance, so if that cost increases for them, they're going to go under. And when they go under, people get unemployed. When people get unemployed, they have less money in their pockets, which means that they're spending less, which means that some other firms go out of business,

and then those people go unemployed. Now, the full version of this is like the crash of two thousand and eight or nineteen twenty nine, where suddenly a whole bunch of people are unemployed and a whole bunch of companies are empty. They don't want to go all the way with that, but they want to kind of get part

of the way to that. They want to put the squeeze on the economy and get some companies put out of business and some people unemployed on the dole so that people don't have money in their pockets, so that the supposed pressure of too many people spending money on goods that are not being produced enough to meet that demand, the demand pressure goes down, so therefore it equilibrates and

inflation prices. Inflation ceases because prices go down too, because the idea is that there's a law like relationship between demand and prices such that if demand goes down, the price will go down. The actual explanation for this is will vary depending on the thing. They basically accept it as a religious orthodoxy, and then different economists justified in different ways. But that's why they're trying to raise interest rates so that basically people get thrown out of work

and that'll cause prices magically to go down. Now, as we discussed, the actual cause of the inflation was an exogenous shock based on like the chip shortage, the labor shortage, and key things like agriculture, the container shortage and the war in Ukraine causing increases and grain prices that have cost cost increases. That firms tried to hold off price increases as long as they could, but then they couldn't, and then they traveled down the supply chain and a

whole bunch of prices across the economy went up. So we know that because we have looked at the news stories that you know, and talk to people at these different companies. By we, I don't mean strange matters. I mean like you know, journalists or whatever, and like you know, that's what they say. And yet nevertheless they're trying to make the interest rates go up to throw people out of work and partially induce a recession in the hopes that that will drive prices down.

the seventies. If we hadn't done the vulgar shock, which is basically the same thing, they raised interest rates through up the yazoo, you know, like like we and hadn't induced that unemployment or whatever, prices would never have come down. But you see, Demucio did something that you're not supposed to do, which is that he actually checked up on

the relationship between between interest rates and prices. And what he found was that basically, there's either that I believe that I explained his essay is that there's a strong version of his argument and there's a weak version. The week version is definitely true. The strong version is speculative. So he charted it and you found that there is absolutely no inverse relationship between interest rates and prices. They raise interest rates, they raise interest rates, the prices keep

going up. Then they're not coming down, right, And the prices don't start to go down until oil because remember the oil shock caused by the war in the Middle East between Israel and Weal and UH and Egypt and a whole bunch of other places caused OPEK to raise their prices in order.

of the war. But also it's slightly more complicated than that, and I want to I want to I want to put that on the record, just because the oil knowers will get mad at us. We Yeah, yeah, so that's the version of it that like like ninety nine percent of accounts will give you. It's just slightly not quite exactly what was happening.

is from. But yeah, although I want to say sorry, I guess I want to say one other kind of interesting thing about that that makes specifically trying to use the interest rates arguments about like I think it is it is pretty clear that raising the interest rates directly would like did not immediately did wasn't the thing that

brought down prices. I think there's like an interesting there's like a weird thing going on there too, because the like almost all like when when economists tend to look at this, what they tend to look at what the interest rate rises was what was happening to the US economy and the other the other thing that the vocal shock did was it raised the interest rates on It raised raised the interest rates in all of these adjustable rate loans that like all of these countries like all

over the world had and those economies got fucking obliterated. And that actually I think, I think actually that there there is an argument that like my my argument would be, I think it kind of probably prevented prices maybe from going up more, But it did that because it prevented any more opex fromforming and just like absolutely annihilated any kind of political movement to like have pricing be set by like raw material producers rather than by like countries

that do production. And this is a kind of like separate thing, but like this is I think, I think the moral of my story with this before we get back to sort of like the I don't know, the the other arguments about this is that like that moment was such a fucking shit show. There were so many

things going on. It's so complicated. It is absolutely nuts to try to base literally your entire theory about how you stop inflation by raising interest rates on one event in like probably the most complicated economic crisis, and it like we've ever had. And yeah, because like it did, like the Volker shock did a lot of things that weren't what Volker or not even not not what Vocal were trying to do, but it did a lot of things that aren't what economists talk about when they talk

about what the Volcan shock did. Like it had all of these incredibly like powerful political ramifications that they just don't put in the equations because it doesn't feel like how do you mathematically model like the collapse of the like like the collapse of the non online movement and like the Third World movement, Like you can't, right, And so they just sort of like wave their hands and pretend that it was just like directly it caused more unemployment,

the unemployment prot inflation rydown.

And so like the first time the FED chairman who proceeded Paul Voker was blamed for not raising interest rates during an inflationary crisis because of the emerging theory, said that maybe that would be a good idea, and so like the monitorists had like their one moment after that to say like they were, they became more than simply

an academic movement and became like briefly hegemonic. With with the the vulgar interest rate arise that happened to like in set in nineteen seventy five or so, when the

oil price was about fifteen dollars per barrel. That's when inflation and the oil price start to move closely in conjunction with each other, going into nineteen eighty, which is also when the interest rates are being raised more like give or take nine to eighteen months or so, and the economic historians, the neoclassical economic historians, will forget about the supply chain pressures like the oil price, which has nothing to do with the FED, and like that happened

in this inflationary when oil prices were up to like one ten. During our current inflationary crisis, this exact debase debate was taking place again. Yeah, which like where it's like, I mean, there's like all of the prices that the FED has no control over. It's like, well, if you ignore those ones, then actually our theory is like kind of getting close to being right.

like you get into this mess. You have to figure out the new classical explanation, right, is that like, okay, well, the reason it looks like the fund rate increasing increases prices is because you do that in response to the

inflation happening. Right, But like you can also just very easily look at this as like a panic index basically like where you know, it's like, okay, well, prices go up, and then the Fed panics and so they raise their it doesn't, and you know, like it's it's this is one of those things where like the neoclassical economists have invented a mechanism that like allows them to explain their own actions in a way that's plausible enough that they

can call anyone that they've they've gotten a fagiblity that could say anyone who says they're wrong is just like nuts, right, right, And also it's it's it's entirely possible that not only are they not right, they're literally perfectly exactly wrong.

Trust us, right, And.

The uh. Now, the strong version of argument is he takes the he takes the the the fact that interest rates track prices very seriously, and he's like, well, what if making finance more expensive actually raises business costs and businesses choose to respond to it by raising their prices? You know, what if you what if you actually, by raising the interest rate, are contributing to inflation. Now, this is this is kind of how we framed the whole article in our title editors make titles, not not not

not writers do interest rate hikes worsen inflation? And I remember showing this to some of my friends who were financed bros. And they were like, what what are you talking about? This is a crazy idea, But like it makes a lot of sense because if you look at things as a supply chain. At the very least, rising financially rising cost of loans would be a higher cost for some businesses. Theoretically they could respond to that by

raising their prices. Now, in actual fact, it probably at least my solo opinion is this is a small effect, if it exists at all, it's much more plausible that there is simply no relationship. Yeah, and the general price.

even fixed rate, which will not be affected. And then businesses have other so many other means of liquidity other than loans these days, particularly the like medium large scale businesses, like the you know, you can go to the capital markets, private equity or the stock market and get the funding you need. That I'm in ways that don't don't depend upon what the federal funds rate is doing or only

weekly depend upon it. So it's just like there's so many other liquidity sources, especially like in the last thirty years or so, like well since since the Vulcar Shock. Basically they've like all of these like private equity and other capital markets methods for liquid you have opened up, and a good deal of the debt, a good deal more of the debt, that's a percentage of total debt

is fixed rate. So like on that basis, I'm like, all right, well, maybe it doesn't maybe it doesn't increase prices, but there is at the very least it's like non correlated.

a bunch of folks. I mean, Investipedia cited it as a source Economy called this a blog and not a magazine, you know, like like it ended up being taken up by another capital as Power influenced economists Blair Fix, who found yet more empirical evidence that there is no relationship whatsoever between interest rates and like the general price level, you know, and to the extent that there is, it's only because you induce a recession, you know, that that

that puts people out of work, in which case you've basically, you know, you've in order to deal with a paper cut, you've cut off your hand, right and even then, like they can't they can't reliably get unemployment up, you know, by raising rates. So like what like what use is that even if you accept that mechanism. So they found

more evidence and they got even more attention. Cory Doctoro, the science fiction writer and futurist and kind of left wing all around public intellectual, he found both Demusia's study and Blair Fix's study and was like really excited about it. And after that it really took off. It started getting

debated all over the place. There's a heterodoxy economics international organization called Rethink Economics, which is all about like, you know, inciting pluralism and the discipline, and in their Australian blog because they're all over the world, an economist called Matthew Harris, you know, took up took up the controversy and basically sided with with Demusio like and JW. Mason writing in Baron's also basically sided with us in an essay called

the Fed Can't Fine Tune the Economy. JW. Mason's a very important hederodox economists who's often on the cutting edge of a lot of these kind of theoretical developments. Interestingly, the first fellow though, Matthew Harris at Rethink Economics, he actually found a study which I was not aware of, which is why I love these. When we started all these conversations all over the place, people dug up stuff

that we didn't even know about. There was a study done by the National Bureau of Economic Research by two professors from the University of Chicago, but notably they were not University of Chicago economists. They were in the University of Chicago Business school. And as many people have pointed out, you know, capitalists started business schools because economists are basically just propaganda. But like you actually also need people who know how the world actually works in order to run

your companies. So that's why economics and business schools are two separate schools.

to like go be a business person. And this has really interesting effects because it means that like you know, like the business school. I say, it's not like the business school is like a bastion of leftist or whatever. But they don't agree on stuff a lot because they're like like the University of Chicago Economics program. It it

produces basically two things. It produces like a bunch of people who go on to be investment bankers where you don't actually need to know how a firm works at all, and then it goes on to produce a bunch of

people who become economists. And so like it's it's actual sort of ideological purpose is is specifically it's it's a school that trains other economists, right, it's a school that teaches like the ruling class what to think, whereas the business school is like the school that teach And this is like this is a very very very explicit It's it's something that like when you're there you can like watch like in practice, the fact that these aren't the

same thing and the fact that like you know, they're they're they're they're going to produce different conclusions because you know, the the like because like because their actual like purpose is different. One is ideological, the other one is like making money.

more expensive. Now, according to the theory, and this is the most sophisticated theory the theory that people at the FED will tell you, which is, you know, you might need to put a few drinks into them first, but you know, it's like we have to induce a partial recession in order to make it so that people have less spending money in their pockets and prices get bidded down.

don't matter for inflation. But then suddenly, like you have a bunch once it gets taken up by a larger discussion, you have a bunch of quite reputable people saying the exact same thing, citing this directly, and even in one case, six months after our article comes out, Lo and behold that a certain little known economist rights in the Guardian.

In fact, raising interest rates could do more harm than good by making it more expensive for firms to invest in solutions to the current supply constraints the US federal reserves. Monetary tightening has already curtailed housing construction, even though more supply is precisely what is needed to bring down one of the biggest sources of inflation housing costs. Moreover, many price setters in the housing market may now pass the

costs of doing business onto renters. You know. So in other words, like maybe higher interest rates can actually induce price increases as the higher interest rates, and do businesses to write down the future value of lost customers relatives to the benefit of higher prices to be sure, a deep recession you know, parenthesis like the kind of they're trying to induce. That's my parenthesis. Back to the quote,

a deeper session would tame inflation. But why would we invite that, you know her own Powell and his colleague seemed to relish cheering against the economy. Meanwhile, they're friends in commercial banking are making out like bandits now that the Fed is paying four point four percent interests on more than three trillion dollars a bankers or balances. Blah blah blah blah. Now, this little known economist writing for The Guardian is Joseph Stiglitz, who won the Nobel Prize

in economics. Now does he cite our article who's talking points he's basically going through point by point? No, does he cite any of the better known places that cited us that are header box. No, he basically presents it as if it's his own idea. Now, maybe he did have this idea six months after we started.

why it's not true and presenting an alternative model. It's denied at first, but then increasingly it's just plagiarized, you know, perhaps accidentally, probably not, you know, like like and that it's presented as if actually, this is what the theory has always been all along, you know, and like, how

can anyone think differently? And it's this, it's this unfortunate thing because since the neoclassicals control the discipline, they control advancement through the ranks of the economists, so they're always wrong and never right, but they're never punished for it, and they control all the leavers of who gets to be an economist. So it's this sort of like continual sad, unfortunate thing. But on the bright side, we were right.

We were right early A bunch of people picked it up, and our talking points ended up making it too very very distant and well regarded places to the point where now it's it's a viable alternative that exists out there in the world in terms of like, you know, why keep raising rates. It's not doing any good. It could

even do bad. And that's the talking point that I don't think would have existed if it hadn't been for Democillo's research, which depended entirely upon the supply chain theory of inflation framework that Steve developed out of Fred Lee's work, which is basically a research program that now the magazine has put out there in the world that and it is continuing to build up on that. That actually makes it make more sense.

a professional clown Like this. This was a thing that like you could not you couldn't even like suggest this, and you know, like within a pretty rapid span, suddenly like Stinglets is being like, ah, what this is really

really maybe this is a plausible thing. It's like, oh my, like I don't know, I think it's I think it's it's really it's really impressive watching how fast I don't know, like how fast the combinations of like reality and having an explanation of reality that actually like lines up with it has been able to change, like has been able to actually just sort of like change what the discourse at like the highest levels of power and sort of like what what has actually been happening in the economy

like has shifted. And that's wild, Like I would not have guessed that that that was a thing that was even remotely possible, And and yet we are now here.

So technically it's the Nobel Memorial Prize in economics, you see, and it's and it's just it's basically like peeling off the skin of the face of the Nobel Prize and then wearing it, you know, and saying, where we have a Nobel price too. Totally basically it's not and you know, it puts the loution on its skin or else it gets the hose again, you know. And they did this specifically. There's a historian of of economics. Oh my god, what the hell is his name? The it's it's the it's

the more heat than like guy. He's Oh my goodness, I cite him in the Friendly thing and I can't. Morowski. That's the guy. Yeah, okay. So he actually like went and like studied the origins of it, and it turns out that they specifically did it as a scheme to only give the Nobel Prize to people who are basically like neoclassical economists, and they mostly have so sometimes they've diversed, but mostly they've done it to very reactionary economists in

order to promote neoclassical economists in Europe. Because it was stronger in America than it was in Europe. And in order to promote the idea of central bank independence, which is a fancy term for uh, you know, a central bank should not need to operate under a political, uh a democratically controlled you know, legislature that says, actually, we don't want more unemployed because that would be bad, so

don't do that. Like, instead, they should have independence, the independence that allows them to technocratically decide that it's time for people to get out of work, you know, and and and that kind of thing. So you know, that's that's the story of the so called Nobel Prize. It's really the fake Nobel, yeah, which is I just call it the fake Nobel yeah, which is.

graduate level like math in high school. And if you talk to these people and you talk to like math professors about the Nobel Prizes, they like, they will like yell about it for like twenty minutes because the math is so bullshit. It's like, yeah, this guy like the like the math involved in these Nobel prizes are like they figured out too plus two weekos four and they gave them like this fucking fake Nobel prize. You look at like the fields metal and it's like, I don't know,

like it's it's, it's, it's it's it's really nonsense. All the math people are really mad about the fact that the econ people think that they know math because they don't. And the consequence of this is you get these like that, you get people handing out Nobel prices for saying shit like the economy can't miss like the market can't miss price, like in like assets that are like the price of houses, and then the entire housing market immediately implosed because it

was all miss priced. It's it's it's a disaster. It has been. I don't know. We should everyone at all times should be doing anti fake Nobel price propaganda against the economics Nobel price because it's it's it's fake and bad and we should all say it more.

Like if you're a small country that that does not have hegemonic monetary authority like the US do is to get people to use its currency and you have to go out and import things and some other currency, how does that affect your ability to socially provision yourself as

a nation state and like do development work. And we're developing a theory of for X essentially that is it's a it's an extension of the chartlist framework that informs MMT, but with some important criticisms about how like the central MMT insights sort of is like you can create if you're the sovereign issuer of your own fiat currency. You can always provision enough of it to you can always spend as much of it into existence as you need

to to do productive things. And yes, that's true. You can create infinity of your own money, but your own not other people's money. Yeah, So other currencies like if you're.

and have balances of those. You need to maintain your balance of payments and your balances of specific currencies in order to meet the biophysical obligations that your whatever your development strategy necessitates, because in most instances, not all, but most, you're going to need to Like no one's going if you're Sri Lanka, no one's going to want to to transact in your currency for major purchases of like staple goods, You're going to need to use like dollars or euros

or end or are you on perhaps you know who knows exactly one of the major trading currencies, and this.

discussed independently of each other. And the politics of what is going to be used as the what Steve and I are tentatively calling the international means of payment, in other words, what you can use in international transactions across a whole region or across the entire planet. That is a hugely political question that all the major great powers in their interimperial conflict or constantly fighting over. So right now it appears that China is attempting to make a

bid for a global UoN. First they tried to do it through the digital UoN. Now they're seemingly trying to do it through bricks by getting the other bricks countries to agree to a kind of EUON gold standard, mirroring the Breton Woods Agreement that was basically the dollar piggybacking off of gold to reach global pre eminence. Will it work, will it not? Nobody really knows. It's a total mess.

But in theory, that could be one way that you could suddenly have, like the YUON, at least in a certain currency zone, be used as the main way of doing imports. And if the US suddenly needs an import from that zone, which hypothetically, if it existed right, they couldn't use dollars anymore, or or maybe dollars would be at a high disadvantage, you know, in the exchange rate between dollars and that currency at that point, or maybe

they would just be banned entirely from using dollars. They have to get it in that currency, which means is suddenly the US, which has basically been able to print for X, to print the international means of payment for some fifty years now, would suddenly have to actually hold reserves of this thing. Now, if we have to hold reserves of it, that means that we have to sell something to the people who issue that currency. That means that we suddenly have to worry about which firms are

the most profitable exporters. And I bet you anything that none of our listeners know what the most important company in America would become if that situation happened. Is it Luber?

less developed countries than the US. And this is exactly the kind of like thinking that is important because you know, obviously, the other thing that would happen if dollar hegemony ended is that it would be a huge economic crash in the US, Like suddenly the import the costs of importing anything that we're in that zone would skyrocket, and it would mess up, you know, our balance of payments, and

it would cause inflation. Depending on how quickly it happens and how how little, how much or how little time firms have to adjust their supply chains and stuff like that. So it's, uh, this is exactly what you need in order to understand everything from the decline and fall of

the Roman Empire to current geopolitics today. And and and I'm hoping that that Steve and I, through developing the theory, will create a general framework that can be used to tie discussions that people usually have in purely political terms about interimperial conflict into economic questions so that there's no longer a kind of division of labor between between economics

which denies the existence of imperialism. And then the people who study imperialism as historians or political scientists or whatever.

we use to keep the website going. And the magazine going. All of it goes to our writers, and we try to pay them a both market rate for little magazines of our size. So if you want to see more of this stuff and more arts, philosophy, anthropology, history, all the other kind of stuff poetry that we publish, definitely please consider.