The IMF Admits We Were Right About Inflation

starting this episode. It could happen here the podcast where we taken into Noverhre's victory Lap Because yeah, so, if you've been following the discourse about inflation over the past about two two and a half years, and especially in the last like maybe year or so, so very interesting stuff has been happening, and the stuff that we've talked about on this show, and then also stuff that's been sort of moving around in the sort of broader discourse

and has now reached like the IMF. And the thing that's been happening is that the theory of inflation that I've we've been pushing on this show and that also very importantly that has been being developed by Strange Matters has been like incredibly vindicated to the point of everyone else adopting it and then claiming that they invented it. So yeah, we're this is this is this is the

this is the Inflation Victory Lab episode. And to talk about the fact that these two people and their colleagues were right about inflation and a bunch of other stuff too. Is John Michael Kolan and Steve Mann, who are both co editors of the magazine Strange Matters, And yeah, both, Fiji, welcome to the show.

democratic and federalism. We've got like people who don't like a lot of those labels but are really into like direct democracy stuff. But like you know, the the four of us basically converge on the direct democracy, you know, socialism is putting people in charge of the decisions that

affect them kind of school of things. So in terms of our economics pages, however, we've for the last couple of years been really dedicated to publishing heterodox economists, economists who don't correspond to the usually quite right wing mainstream

of the economics discipline, but challenging in fundamental ways. And there's a bunch of different schools of heterodox economics, like you know, everyone knows about, like Marxists, but there's also post Kinesians and ecological economics and feminist economics and a

whole bunch of different schools. We've been dedicated to publishing people from all those different schools and trying to kind of get them to write in a style that's more accessible for ordinary people, so that some of those ideas actually start not just reaching the public, but actually reaching each other because they don't really talk to each other very much.

and I think that's a real strength. Actually, Yeah, like there's there's quite a there's quite a few pieces that at least one of us is like, I still don't really know about this thesis, but I've been there have been times in which I've been down on a piece, but it does amazing, so let's go with it.

the what are we going to do about like the Internet and its future? What are we going to do about these these horrible culture war type issues that like, you know, people talk about it as the culture of war, but actually it's these massive reconfigurations that we have to do of our consciousness in order to think about you know, gender, national identity, and ethnic identity and all these other things.

In different in new ways that are actually like freeing and emancipating and stuff like, Like all of these problems are vast and nobody actually knows what the answer is, and that includes leftists. Like there's a lot of these problems that are either like too technical or to complex

for any one person to have the solution. So there needs to be a space where we kind of come together people who are kind of like of good faith and who like are trying to kind of do the whole democracy and egalitarianism thing, and we actually butt our heads together across lines of difference and are like, Okay,

what are we going to do about this? And what are our different perspectives and what's the what's the common ground, and what are some little bits and pieces of things that people have figured out that we can kind of stitch together into something that will let us not just

get steamrolled by the fascists. And that that's the kind of space that we're trying to be, and that's why we try to accommodate these different perspectives, even though we ourselves tend to come from rather strong perspectives both individually and as a group.

we're writing it like two years ago. Is a is a sign that something is going right?

on stuff happening like backwards in the supply chain. And yeah, that turns out to have been a really useful both predictive thing and explanatory thing once the inflation actually started.

like this. And you know, in the in the last period of like runaway inflation in the eighties, people were having a similar reckoning, although they didn't quite coalesce around supply chain and cost puss related theories of inflation like

they are at this time. But like the theory like in a nutshell, the supply chain theory of inflation is essentially saying that along there there are groups of businesses called supply chains who buy inputs from each other in order to produce products and sell them to either the next person in the chain or to outside consumers that the end user and over time, given stressful enough biophysical conditions that they all find themselves in even if they

don't want to raise prices. And broadly speaking, we know from empirical studies that most businesses most of the time

are very biased towards not raising prices. If the situation gets dire enough and they've run they've exhausted all of their non price based mechanisms for dealing with bottlenecks what are called bottlenecks in the supply chain, Like they just don't have enough of the inputs that they need in or to sell enough stuff at assert at their normal price in order to make enough revenue to socially reproduce

themselves and their supply chain. Of evidentially, they will exhaust all options and there will be one person who's kind of like the progenitor price increaser. And because like every single and like, what is inflation really, it's a general

rise in prices. What are prices? Prices are things that people themselves inside of firms, it's their job to set and so any theory of inflation needs to start with a theory of price essentially, and like, so these managers whose job it is to set prices, when they change prices, why did they do it? Well, we have answers going back many decades, almost a century of the surveys of economists who have gone out and actually conducted surveys asking

under what conditions would you raise prices? And at no time did anyone say, oh, I raise prices because I looked at monetary aggregates and I saw that there was too much money, so I raised prices that and so like that was kind of a starting point for me when I read those these surveys conducted by Gardner Means, who is an economists and doing this work in the twenties and thirties long. If I don't burrow, I got really excited because I'm like, oh, of course, well, of

course it's if inflation. There's so much mysticism about like piles of money building up, and then it's like demand pull and cost push, and like what does this all mean? Right? Well, at the bottom of it, it's what are pricing managers doing when they make that fateful decision to be the

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

because they have to get a certain amount of revenue in order to make it as a business. So that's essentially what the supply chain theory is is that when that happens, it propagates along supply chains first and then because nowadays our economy is so extremely integrated, it's not just one supply line. It's an entire supply chain network nowadays, and it's global in scope, so even if it can't it's it's increasingly less constrained to just like one industry or even one country these days.

really profound. I think the first person to articulate that I'm aware of was John K. Galbraith in an essay that he wrote about that, but in like the fifties. But like, that's honestly not the way that we usually think of it, right, Like, usually we think that inflation is when money, the value of money goes down value money buys you less than it usually does. And that is not just because that's how we experience it in

our pocketbooks. Everything else is just scott more expensive. It also has to do with the kind of history of theories of inflation, because back in the day, the first and og theory of inflation, which people still some of them believe in, is the quantity theory of money, and it basically envisions like the entire economic universe as a bunch of like atomized individual agents. And by the way, there's no like distinction between companies and households or anything

like that. Here, everyone's kind of like funny, everyone's an individual agent. And there's a bunch of stuff that already exists out there in the economy. How it was produced, I mean, you deal with that in a production function. Other than that, like you don't talk about it. So there's a bunch of existing stuff out there in the economy, and it's scarce, right, so like how is it going to be distributed? Well, we're trading the stuff that we have for the stuff that we need. And when things

are more scarce, they're more valuable. When things are more abundant, they're less valuable. And when we want them more they're more valuable, we want them less, they're less valuable. So that's kind of like like the very basic universe that they're kind of like operating in. And money was just seen to be one one good being traded like any other. It just so happens to be the one that we

trade in exchange for everything else. So rather than doing barter like like of every thing, you know, this many chickens for this amount of haircut, you know, like, instead it's like, you know, we choose one thing to be exchangeable for everything else, but it still has a value, which is basically determined, according to this theory, by how much of it there is. So if you increase the money supply, money gets less valuable, which is why you know,

everything becomes more expensive, prices go up. Whereas if the money supply shrinks, you know, then the value of money is higher relative to the goods that it buys, so therefore prices will go down. This was the theory that was developed in like the sixteen and seventeen hundreds to try to explain a massive global inflation that happened then in the so called price revolution of the seventeenth century.

And frankly everyone by the twentieth century knows that there's huge issues with this, so they start trying to evolve away from it, away from the quantity theory of money, because it has no real empirical basis. I mean, some people tried to kind of like you know, juke the stats to make it look like there was but like, really, our best estimates of the money supply have no real good correspondence to prices in the economy. It's not it doesn't really work that way.

too technic to get into. Steve's essay has like the full version of it, but basically they started evolving away from a theory where the absolute amount of money in the economy is what matters most, and towards theories where, for example, it's the amount of money relative to the goods that can be bought by it. So if you have a bunch of people spending money to buy stuff,

but there's not enough stuff to meet that demand. Then that will basically mean that there's like scarcity and shortages and things like that, and that will cost prices to

go up. Although why they do, like the underlying microeconomics of why prices go up when they're shortages and stuff, this theory doesn't really address because it's a macro theory and it'll kind of like fall back on supply and demand stuff or various kind of weird hydraulic metaphors about like well god, yeah, yeah, yeah, you know, it's so it doesn't really like like you know, different people will have different versions of this that have totally differ and

explanations of why it's happening, but they'll generally say, if you look at the economy as a whole, if the stuff that's being made is less than the orders being put in for it, then that causes inflation because you're just not producing enough stuff. And they call that demand pull because the poll of basically it's like demand pulling, you know, for stuff that isn't being produced, so it's

like okay, well that that causes price rises. There was a parallel development where they're trying to get away from the QTM another way where some people were like well, what's the most important single cost for businesses across the economy And they say labor obviously, right, like everyone needs to pay somebody to do wages to keep the business going. So they just said, okay, well, if the cost of labor goes up across the economy, then that will cause

prices to go up. So that's called cost push, which now theoretically this could be true of any cost. And this is kind of like where you know Steve's theory comes in is because it actually like starts talking realistically

about what the cost of businesses are. But originally this was again a macro theory, so they picked the one cost that's common to all the things in the economy and they said that basically, inflation is the cost of workers agitating for higher wages, which leads wages to go up, which causes cost push inflation, the cost go up, so that pushes puts pressure down the supply chain because it's it's a cost for everybody downstream of it, so then

it causes it to the prices to go up. Now, the problem with these theories is that like they're very like rigid. It's like it has one cause and it's also like, you know, and it's this one thing and it has to operate across the entire economy. Right, But that's not actually how our economy is put together. Because our economy is not this general equilibrium produced by the trading of individual agents who are buying cheap and selling deer to each other. That whole universe doesn't really exist.

The universe that we actually live in is one where businesses are not isolated. They're interdependent. Right Like the the you know, the people who collect sands, you know, from the earth and other minerals, feed into the factories that turn it into glass, which feeds into the construction industry that puts those glass well actually, no, sorry I missed

a step there. You know, it feeds into the factories that turn that glass into windows, which then feeds into the construction industry, which puts them into buildings that then feeds into like real estate conglomers that rent it, which then feeds into businesses and households that live there. Right Like, that's the entire supply chain, and all those businesses depend upon each other because they're each other's customers. So how much glass do they make in the in the glass factory?

It depends on how much how many windows the window factories that are all their customers order. That's what determines how much they're gonna make. You know, this whole picture of the world as supply chains is common sense to anybody who actually like works a job, especially if they're like in a man position where they have to maybe be dealing with some of the supplier relations stuff or

customer relations stuff. Economists just don't talk about it. It's not really in their models because their models are developed from the ground up from this kind of like everybody's just trading as individuals perspective. And that's a great deal of the reason why Steve's theory is so powerful. Now.

A lot of this supply chain picture that I'm painting, besides coming from the real world, it also came from a particular heterodox economist that I wrote a very long profile of called Frederick S. Lee.

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

like mainstream neoclassical picture. But rather prices are a markup that businesses like set themselves. They're not receiving it from the market. They set a price markup over their total costs of production in order to get the money that they need to keep the lights on and stay in business. This all sounds very trivial, I know, but believe it or not, in economics, this is like a revolutionary idea.

So then it's like, okay, well, if that's the way that an individual company is, how are the companies linked together? He basically comes to he doesn't call it this, but to a supply chain view of the economy, especially in his last textbook, which tries to create a model of the economy as a whole, and he says that the entire economy is basically just a circuit of supply chains. It's all the businesses sort of linked up together, forming

a closed circuit that loops back on itself. And that is the economy that we use to produce the goods and services that just keep society going day to day, week to week, year to year. So he Lee basically had all of that and that was the main ingredient that we used. But it was Steve who then took that framework and used it to create a new theory

of inflation. Because if you have a world of the supply chains, then it becomes very obvious that if prices are gonna rise all across the economy, it's gonna be because people's costs go up. So then the question becomes why do people's costs go up? And the answer is

almost always what Steve called his progenitor price increase. This this first guy who chooses to raise his prices if and only if that person is even only if that person is in the uh you know, in a position in the supply chain where a bunch of people are

downstream of them. And that tends to happen when, for example, an input that goes into the entire economy, like energy, suddenly goes up in the price or becomes scarce, or it happens when a natural disaster causes disruptions in a couple of businesses that everybody else depends upon, or when there's an adverse shift in the balance of payments, you know, the the Let's say that the peso you know starts

becoming you know, versus the dollar. You know, the dollar becomes much more expensive, So imports become much more expensive. So any business that depends upon imports, you know, will suddenly will suddenly have their costs go up. These are the kinds of events that are like an external shock that leads to arise in prices and keynodes in the supply chain that because so many people are connected to them as customers, their costs become more expensive, and that's

these costs increase travel across particular supply chains. So you have to actually know how all the businesses are linked together so that you can identify what the origin of the stress was and see which particular supply chains is traveling down. It's not this like this thing that has to do with a single factor across the whole economy or this or much less the amount of money that's being printed. The amount of money is almost like irrelevant

in this situation basically. I mean, it maybe has relevance inasmuch as, like you know, if people have the amount of money in their pockets that they have, usually they might start purchasing more things than can be produced at this moment. But that's usually like like usually it balances

out in normal situations. The only reason why that would be true is because there was some kind of disruption upstream, so that what's normally produced isn't being produced, And so you always have to look at the particular supply chains and the kinds of stress that they might have. Did I did I communicate that roughly? Right?

the audience already kind of understands, and it makes a lot of sense that you would go to union fights in particular since they're like one of the big items that they typically fight over is cost of living adjustments

built into their wage increases. And so that's like an obvious like, Okay, if there is ever a time in which academic forces would convene in to specifically to raise inflation, it would probably be fought over like the cola adjustments, cost living adjustments, and like the that leaves so much

of the story untold. Focusing on cola adjustments in these union fights leaves so much of the story untold because it's it's putting like what's really this incredibly interdependent, micro based phenomenon onto the backs of like one union against one company fighting over one contract, and the way they make it work in like a lot a lot of the modern interpretations of cost push in this macrodynamic sense, the way they square, the way they square how it

gets from that fight to become a generalized inflationary episode, which is what people want to know about, Like they don't want to know about one well, they want to know about politically about a union fight, but in terms of the economics, they want to know about the inflationary episode. The way they square that is that there's typically like in what they call an information diffusional component to this.

It's where and that's a fancy way of saying people learn about the outcome of the fight and then replicate.

not enough people, Like it can't it literally cannot be true that it is purely like a union cost a testment thing because they're just not enough people.

like you know, social democratic ones, you know. But the thing is that, like it sounds really fancy to be talking about like the district what was it the informational informational communication coefficient or whatever like that sounds that sounds incredibly sophisticated, right, but like, actually what it is is that it's this kind of like Nutsoe story about how the reason why price rises happen across the economy is because people are picking union fights when like empirically, labor

economists often do this, like you know, the ones who work for unions and stuff. It's like it is almost always the case that wages lag cost of living, you know, like significant, so cost of living goes up, and that's why people at some point, usually years later, will try to, if they're organized, agitate for for for higher wages to catch up with cost of living. So like the causality of it of cost push you know, probably is not labor action. Like that's that's a sort of macro brain superstition.

But funnily enough, this is kind of like like the devil is in the details. Because cost push as a general framework ought to probably be the basis for any reasonable theory of inflation, because the idea that it's costs going up, that then whatever prices now stream of those costs also go up, that is probably true. It's just that you have to look at particular supply chains and their costs and not just like their labor costs, but all the costs that they have and what cost in

particular went up that affects those particular supply chains. Like that's but that's a different story, and it's a story that looks more like sieves and also a story that looks more like what's been going on in the world since twenty twenty.

on just wages or just like one union fight. And then some like people see it and just copy it or something, and it's just to least so much of a story, I'm told.

It's like you can have it, you know, it has the what like for what for a normal person is a really simple idea, but for an economist is like unbelievably galaxy brain, absolutely impossible to comprehend idea that something can have multiple causes at the same time, and those multiple like those you can't literally just reduce an entire like thing that's happening to exactly one driver, which you know, you would think would be a pretty like not that

controversial thing. But then economists can't tell the difference between a theory in which you can have multiple different things that are working on a supply chain and a theory where you can have like a thing yeah.

this like macrodynamic cost push story eventually of like well, either like but you can you can tell that they are kind of hedging because there will be there's like a bifurcation of interpretations of it, like one is the like it really is, just you can tell it's not that strong of a theory because there are two like diametrically opposed interpretations saying that like, oh, you'res this corporate price gouging or it's workers causing inflation themselves, which like

if like James was saying, there's a lag typically associated that workers are just trying to catch up with the prices that were being raised by firms in order to keep up with inflation they generate.

It was March of twenty twenty two, the that's right, but but we'd been working on the magazine all through like twenty twenty and twenty twenty one and twenty And the thing is that Steve's Peace was kind of like taking shape, and you know, we as editors, but then also as people who were like helping with the research and talking things out internally and talking with other people outside the collective, we're all kind of like sort of

imbibing it and thinking about it. When COVID hit right and one of the things that was rather magical, And there is written evidence of this, funnily enough, not as an article because the magazine didn't exist yet, but as a Twitter thread that I made actually on March third of twenty twenty one. And the reason I'm being so specific about dates is because of what happened where we and I was just summarizing basically conversations that we had

been having inside the magazine internally. You know, that was when some of the news stories were starting to come out about shortages that were being caused by COVID. So most famously the chips shortage were semiconductors, which take like a year to make, like from the moment that the order is put in to the moment when the thing is actually shipped, it's like a year. And if that process is disrupted, you have to start from the beginning.

So the shutdowns in China shut down semiconductor production, and actually I say China, but it was really China and Taiwan, like because because the both of those places have major chips companies, and the that basically screwed up chips production for like as long as the shutdown happened, and then after that at a lag of like a year at least, and then that in turn caused a bunch of other shortages.

The fact that we were all inside meant that like there was a huge problem in food, both in agriculture itself and in food processing factories, you know, where the raw products that we take out of the earth are turned into the packaged you know, bits and bobs that you know, go to restaurants or to you know, food product factories and things like that, Like you couldn't get people to work there, or if they did, you know, and you tried to like pay them a sure or whatever,

they would get sick so they would stop production. So there was a labor shortage in agriculture as well. Then there was a container shortage right in in shipping, where we weren't producing enough containers to actually ship stuff around the world. And if you can't do that, well, everything is made. Everything that somebody needs to make something is often now made in another country or at least another part of a country, you know, that's connected by trucks.

So if there's no containers, how do you get stuff from one place to the other? And the answers that you don't So they were just piling up like mountains in the in the docks of various countries, including here on the West Coast and the East coast. So all of these shortages caused by the pandemic. Basically we're hitting key sectors of the economy, right that everybody depends upon. So transportation, everybody needs it, you know, semiconductors, a whole

bunch of manufacturing needs it. So that's why cars suddenly got super expensive, is because the chips in the machines that make the cars got more expensive and scary, and not just expensive, it's scarce, like you just couldn't get them. And then food everybody depends on, and you know, like everybody buys groceries, restaurants needed, so restaurant prices went up. So you can see how specific sectors having these problems traveled down specific supply chains to produce the cost increases

that we all started seeing. But here's the thing. All that stuff was happening from twenty twenty on. I did this thread on March third of twenty twenty one. But the thing is that at that point there was not yet inflation. We predicted that there was going to be inflation, and there was a lot of people, like including left wingers, including heterodox economists, who got really angry about this because

for them, inflation fear mongering. You know, this was in the context of the government printing out all the stimmy checks, right, so inflation fear mongering for them is kind of like something that a right winger would do, you know, by saying the government's printing too much money, So there's going to be inflation, you know, quantity theory of money stuff, Milton Friedman stuff, the stuff that they had experienced in the turn to neoliberalism from the seventies to the eighties. Right,

I understand, and that fear. But the thing is this wasn't fear mongering. These shortages for very clear reasons that were clear if you had the supply chain theory of inflation framework, which unfortunately only we did because we hadn't published it yet. Like you know, it was very clear that these shortages were going to cause cost increases in very well linked together, you know, nodes within supply chains that we're going to travel down those supply chains and

basically be economy wide. So I said so because I had a hunch that it was going to be true, and that it would be a big deal if it was true, for you know, validating these discussions that we were having internally. So I said, some predictions. One, there's going to be inflation in the next year or two, potentially lots. Two it will be caused by cost increases due to the chips shortage and COVID induced bottlenecks, and agriculture and manufacturing three, they'll try to blame the stimmy

checks and attempt to implement austerity. Now, at the time of that first tweet, inflation was at two point six percent, which is like within normal bounds, although slightly higher than have been before. By the end of that year, even actually, I think just a few months later, it was at four point seven percent, and in twenty twenty two it would peak at eight point seven three percent, which was like the most inflation that we've seen since the Crisis

of the seventies fifty years ago. Like, so we you know, the first success that we had as the magazine, before we even came out as a magazine, is that we successfully predicted the biggest inflationary crisis since the Crisis of the seventies, and not only predicted it, but predicted its

specific causes. Because as the thread kind of was continually updated over the course of that next year, like you know, people started looking digging in and actually, like a lot of journalism was uncovering that precisely those bottlenecks were leading to cost increases, you know, the and there were other

ones that were kind of added to it. So when the Ukraine War started in twenty twenty two that increased global inflation because Ukraine is the world's single biggest and by a lot, supplier of wheat, which is a key

staple in diets across the planet. So the shortages that were created by the Ukraine War, by Russia's blockades, and also just by bombing and you know, the war disrupting the labor market over there and all these other kinds of things that meant that there was less wheat being exported, which created bottlenecks in those supply chains, which led to the global increase in the price of wheat, which led to the global increase anything that uses wheat, bread, you know,

and other food products. So beer, actually, well I'm not wrong about that, right, Beer uses wheat. I should actually know that from any way. Bread, yeah, I think I think so I had to do a double take there.

So anyway, the point is that this was like a really big deal because like there were a lot of people, including like in the Biden administration, who were denying that inflation was happening even as it was happening, And eventually they kind of shifted to a story where it was like, well, it'll be transitional, because only demand pull inflation is real, right, this is clearly a cost push thing created by these shortages.

But like demand pull is the real form of inflation is when there's like too much money in people's pockets. And that's not what's happening clearly, So we'll be fine. You just have to wait, right, which is not Actually the attitude that you have to take. Inflation is inflation and like you know, the the if the causes or these disruptions and supply chains, you actually, I mean, this is like the really edgy take. You actually have to

spend more money in order to unplug these bottlenecks. You know, It's far from inflation being a product of there being too much money in the economy. You might actually need to do government spending to for example, hire people, you know and take extra steps for precaution for their safety

to unplug bottlenecks created by labor shortages. Or you might have to like you know, rapidly invest you know, on a large scale, almost as if you're in a war, in order to create a new industry to like, you know, to to replace something like containers that that that you would normally import, you know, or something like that. So like like these are these are the kinds of actions that a more muscular approach to the inflation would have

would have been. But instead they basically just waited for the supply chains to fix themselves, even when multinational corporations and their boards of directors were begging the government to actually intervene more, which is insane with economic planning, you know, you would never expect to hear something like that, but it was in the things like the pages of the Financial Times.

prices and stuff. But that gets into another interesting thing, is which is that So Yeah, I think we should get into a bit of this sort of like the I don't know how you describe it, the mainstream adoption of like a version of y'all's theory that eventually started happening, that eventually started to push like some of this stuff, which, yeah, I guess we should introduce another person who I don't know the relationship between exactly what of your stuff she

read is sort of unclear. But one of the things that happens in this sort of period is this German economist name Isabella Weber, who wrote a like fine like the mostly Reasonable book about I like try the economists behind the like the reform period in the eighties and China like started pushing well, actually, this is some thing where I'm sort of unclear at the timeline. I started pushing the greedflation thing, although she had a different name

for it. Yeah, I was wanting were talking about that sort of whole thing because that was really interesting, sort of like turn in the whole inflationary discourse inflation.

because like, supply chings are so much more nimble now than they were in like the seventies and eighties, and like liquidy sources are so much more plentiful that they have so many Like I'm probably giving them too much credit. Actually, I think they literally just were like, yeah.

hasn't happened. Yeah, and like when it obviously in late twenty twenty two to through the middle of twenty twenty three, when there was obvious evidence that that wasn't the case, then they like really didn't, like they went like hard to starboard and said, like, Okay, the inflation that we see, it's because of corporate greed and it just reduces to that now. Yeah, and so it's like a purely opportunistic

thing between of like the largest corporations. And then you know, maybe later people saw that and did monkey see monkey do, but it's it's because of them.

an example of the good stuff. For example, she actually uh one of her one of the underrated aspects of a paper that kind of pushes what is popularly known as the greed inflation thing. The better part of that paper is that it actually creates a map of the current to today's supply chains in the US, like you know, and and identifies the keynodes you know. And she's a method called input output input output tables, which Steve and I have written about and we're gonna write about it

more on the magazine. This is like the main tool that you can use to do real economic planning.

If prices go up here, everything downstream of them will go up, and those the and and that basically hits most sectors of the economy, like and knowing what those nodes are is like super important because then you can figure out how to protect them, you know, like that's that's actually like one of the key things that you know, one wishes that that that that governments were doing, it would be one of the few useful things that they could do in a situation like this, right, But unfortunately

there's another aspect of her work which is more and this also comes from heterodox theory, but it's just not good theory in my opinion. And it's this whole deal with like, okay, inflation, with prices going up. So why are the prices going up? Well, a lot of them are going up because corporate management sees that everybody's talking about inflation. Now, maybe their costs. They're not in one of these sectors where upstream their suppliers are raising prices.

They're actually getting the same prices for their ingredients as always. But because everybody's talking about inflation, they're expecting prices to go up, right, so why not just raise prices, you know, like like the and and so like. That basically ended up that that that basically ended up being a theory of like, well, a lot of the price rises that are going up is because of corporate greed, and corporations

are always greedy. But a situation where people are talking about inflation means that they can that they can basically uh uh do a price get away with a price rise that they wouldn't be able to get away with normally. Now, there might be situations like this. I'm not even denying

that that's the case. Like there are clearly, you know, based on a couple of journalistic exposes, some companies whose costs have not really gone up, but they're raising the prices opportunistically so that they can do higher payoffs for the shareholders and upper management. However, as a primary ex explanation for why the inflation happened, as an argument for the main cause of the inflation, and therefore for what the main solution should be, just slapping on price controls

and saying no, you can't do this. I don't think that that's tenable, because there are clearly biophysical stressors in at least the places that are experiencing them, that are traveling down supplytions where if you slap price controls down, that's not going to get you more chips that at least not by itself, and in itself, price control should be part of the picture, but that's not, especially in situations where there is corporate greed sort of driven price rises.

But that's just not an explanation for everything. And some of Weber's followers, not necessarily her, but some of the people who are like promoting this perspective are doing so again partly in order to avoid conversation, in my opinion, about these kinds of biophysical bottlenecks and how they might be they might be undone, and it's a huge issue.

One thing to kind of like conclude is that, like, you know, this, this whole thing that we've been saying about the supply chain as disruptions to the supply chain as the cause of a progenitor and price increased by people in the affected sectors, which in turn, through their connections to a bunch of customers, leads to price rises across at least sectors of the economy. That whole story

allowed us to kind of see all this. A lot of the inflation that's happened in the world since twenty twenty, we saw it coming, and we saw specific causes coming. And now no less a capitalist institution than the imf right has kind of been forced reluctantly, I would say, in some ways to admit that, as Christine Legard said recently, you know, energy played a significant role, then food kicked in,

and energy is now fading, you know. The now they still make it about wages, right, I mean, that's that's the thing that ends up happening in a crisis like this, is that they do want to blame wage increases. But it is quite clear that even the authorities have needed to kind of admit that these specific, measurable biophysical crises have been the source, the main source of the inflation.

And then a great deal of the of the battle has been over who's going to kind of like who who's going to have to narrow their ambitions for their goals as a result of it, capital or labor. And this is where I think VAPOR is on firmer ground, not as an explanation for the inflation. But afterwards, the after inflation is already kicked in, who ends up having to quote unquote foot the bill, right is there's now

like less money coming in in these companies. So do you give it to workers so that they can, you know, since their money buys them less, you know, compared to rising costs of living, you give them a little bit more so that they can like kind of like balance

it out. Or do you give it to management? You know. Now, obviously if it's management making the decision about what to do with the company surplus, because we live in a capitalist economy, that's a dictatorship with the big owners, guess what they're gonna say, you know, And now you have a therefore a class struggle, the distributional conflict that some of the kind of traditional cost push theorists always talk about between capital and labor over what to do with

these rising markups in firms. Now they would say that's why the inflation happened. I think I would say, and I think Steve would be in agreement with this, that it's what happens after inflation, an inflationary crisis kicks in, and then there's a battle between capital and labor over who gets screwed as a result. I think that that's kind of the way that we should think about a lot of the labor struggles that have taken place since.

they are administering at the same time. So there's a mixture, i would say bias towards the former group, those who have to do what they have to do in order to socially provision themselves. But there's a mixture of them, and so you have to look at like that, who are the price leaders and are they opportunistically raising prices

and are people copying that? Yes? Sometimes, But as far as like the progenitor price increase that we keep talking about it, you know, in our pieces like that very often like and this is born out in the surveys, like when they were asked like for their reasoning as

to why they raise prices. It was typically like for the for reasons like that are quote unquote socially acceptable at least to say, And for the most part, they were just defending their margins, like they they were at risk of going under, right, Yeah, and so you have to you have to weigh there's a dynamic, there's an interplay between those that group and then the opportunistic group. And so it really doesn't like reduce neatly into the

greedflation sort of like bestardization of vapors. Otherwise, really excellent piece that goes through some like interesting ended output analysis.

we're not. We're trying to understand the actual causes for things, and we think that can actually help you because, for example, if a company, let's say that you're in a company that is part of this wave of unionizations where you know, let's say you're a Starbucks worker and people want to

start up a Starbucks union. Maybe one of the ways that management is trying to kind of like screw over your union is to tell people who are on the fence, well, like, the reason why there's so much inflation is because of these unions, like we have to all stick together, and you know, the company's got your best interests at heart, so you like, don't join this union that's going to be pushing for for wages that are ultimately just going

to get not by inflation. Like, let let management figure out what'll what's best, because otherwise you'll just end up screwing up the whole economy. And which is not unheard of. You know, it might be something that they'll fall back

on in negotiations and their anti union propaganda. If you know that the actual cause of the inflation has to do with disrupted supply chains and that really the question is who's going to be screwed over and who's not Within the company, you can go back and say, hey,

wages are always chasing. Cost of living increases. The cost of living increases happened before the big unionization wave kicked off, and we can tell that it's specific causes in logistics, and its specific causes in chips, and specific causes in agriculture that are causing the price of this, that and the other thing. You can even map out your company's supply chain and maybe point out certain cost increases that caused it, and you can say, okay, so we're going

to have to raise our prices. But where's that money going to go. Not all of us should go to management, Some of us should go to us. So this is what a materialist understanding of how the actual causes of the thing worked out can help you in organizing your workplace and in pushing back against the kinds of things that your boss might try to tell you. So that's that's what I would say to somebody who's like, well, well,

you're just defending corporations. No, I'm absolutely not. But I don't think that we can actually have power, we can actually kind of like take direct actions that really matter because they're actually going to make life better for us and our friends and our loved ones. Like, I don't think that we can actually do that unless we understand how the world works and sometimes the world works in a way that doesn't necessarily look like we would most

expect it to or most wish it to. But nevertheless, you have to kind of see how it works so that you can then figure out what's the best intervention that I can make into it, given where I'm at, the institutions that I work through, the coalitions that I can put together, and that kind of thing.

bottle like supply chain breakdowns is like you know, they'd get the supply chain bottle next. They just didn't have

way through them. And like people fucking that up, Like there was a like there was a decent argument that like that's part of what caused the Great Leap forward was people not fucking understanding that like not quite understanding how to like deal with their supply chain stuff and seeing this kind of like inflation like issue kicking in and being like fuck it were to do something that's completely nuts, and you know, that went like about as badly as like any attempt anyone has ever tried to do,

like to fix any problem has ever gone. And the larger the number of people who actually understand how this stuff works, even in sort of like you know, even even on a kind of like not enormously grandeur level, the more likely you are to have someone who's in and it has the ability to make a decision where this stuff matters and you know it and like yeah, you could be like, oh, well, like the odds that we'rever gonna be in a place where this matters is

like directly you're gonna be the one making decisions pretty low.

I don't know how. It's hard to actually gauge the influence of discourse on policy makers, especially when they're as opaque as like the chairman of the Federal Reserve, but it is worth noting that we didn't get a like Vulcar style fifteen percent like interest rate increase, And I think there's a there's a non zero argument the fact that there were other alternative explanations to inflation like around and that enough people were pushing them, like is a

reason why we didn't get one of these, like a Vulcar style thing, which would have pushed employment to like unemployment to like twenty five percent, destroy the entire global economy.

And that, you know, like we could count that as a fucking w because as as bad as things are right now, like the world, the world where Jerome Powell pulls the trigger and hits the like hey, I'm now a monitorist, like I'm gonna I'm gonna decrease the money supply button and Jack's the interest wrapped like fifty percent, Like that world is so much worse than this one. It is it is difficult to imagine.

that we're talking about. But but you know, like, at the end of the day, I think that what's important, what's most important about what we've discussed is this for me, like having this model which we developed, you know obviously like steve've developed it out of as an expansion of the logic of Fred Lee's work. And fred Lee was

not actually particularly original. He just synthesized a whole bunch of stuff that existed previously, like these pricing studies by Gardner Means in the thirties and pricing studies over the next hundred years from all sorts of different people, you know, into his post Kanteene price theory and stuff like that,

the cost plus markup stuff. But like like having a theory that's developed by looking at the world and building your abstractions up out of things that you can see, particularly in a field like economics that's so complex that you have to kind of start with like observable relations between actual institutions that exist in the world that empowered us, you know, that allowed us who really were just like four weirdos started a magazine right like for anarchistish weirdos,

But that allowed us to see earlier than like most people, including a lot of like credential professionals, what was going to happen in the future, at least the near future, like you know, the next like like like two to five years from that vantage point, which was like twenty twenty one. That is really incredible, And I'm not saying that to brag, like, although it is certainly something that

I that I take a sick pleasure in. It's also informative because think about all the things about which we don't have that concrete material picture. The question of how we're going to get fossil fuels out of agricultural production without causing famines, right, the question of what do you do now that we have the Internet, Like how do

you govern that? Because it's clearly not working under these giant vertically integrated media oligopolis with the platforms, But it's also not going to work if we put it under the government, So what the hell do we do about it?

You know? It's it's like like there's all these key questions that we just don't have even like working models of like of like what the world is even like right now much less like you know, what could plausibly be done with it right to make it a better place And obviously, Like, you know, some of this sounds like stuff that the government should do, but a lot

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

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

So we did launch the magazine, we did put out Steve's essay, but then a really remarkable thing happened, which is that we started getting like all magazines do people who came in into the slush pile who were inspired by Steve's work, and we're like, this makes the most sense of anything that I've heard, and I want to build on it too. So we started publishing other essays that we're kind of building on the research program that

Steve kind of got us started on. And although our sort of influence was difficult to calculate in terms of, like, you know, how much we influence the discussion, you know, in these early stages before the magazine was even up and running. Afterwards, after we kind of publish the people that I'm talking about, some of those pieces have actually definitely influenced the conversation in really exciting ways, and I think that we can talk about some of that next time.

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