Transcript
Paul Jay
Hi, I’m Paul Jay. Welcome to theAnalysis.news. In a few seconds, I’ll be back with Bob Pollin. We’re going to talk about what real solutions to inflation look like.
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So in previous conversations with Bob Pollin, we’ve discussed inflation. The real forces driving inflation are primarily, not exclusively, but primarily high energy costs and global supply chain issues, partly caused by the pandemic and, to some extent, caused by rivalry with China. There are ongoing issues with semiconductor production. But raising interest rates has nothing to do with any of that. Raising interest rates does not lower energy prices, and it doesn’t deal with the global supply chain.
All it does is two things. It helps create more unemployment, which pressures workers to lower wage demands and perhaps be a little more reluctant to organize into unions or be more militant when they’re in unions. It’s really an attack on workers.
So in this session, we’re going to talk– okay, let’s put all that aside for a moment. Then, what should be done if the objective is actually lowering inflation and not undermining the leverage of the working class? So now joining us is Bob Pollin. Bob is the co-director of the PERI Institute in Amherst, Massachusetts. Thanks for joining us, Bob.
Robert Pollin
Thanks very much for having me on, Paul.
Paul Jay
Alright, so here’s the question I’ve asked before, but here we go. President Biden, in a strange delusional moment, because that’s what it would take, picks up the phone and calls Bob Pollin. He says, “Okay, I heard you. I actually do want to do something about inflation because otherwise, the Democrats have no chance of getting elected in ’24. Everybody’s predicting a deep recession, so what are we supposed to do? Because even me, President Biden, gets if we keep these interest rates so high, we’re going to guarantee a deep recession, and that ain’t going to be good for us Democrats. So what do you say, Bob?”
Robert Pollin
First of all, just let me summarize again what you just said. The main drivers of inflation now are the supply chain breakdowns that occurred during COVID, and those are getting repaired. I’ll come back to that. The high energy prices have actually come down a bit. The third factor is increased profits and markups of corporations who are taking advantage, especially of the supply chain shortages, by marking up their profits and marking up their prices, seeing their profits increase.
Workers’ wages have gone up over the past year by an average of about 5%. But if inflation is, let’s say, 8% or right now a little less than 8%, that means workers’ wages are falling behind inflation. So that means if inflation is 8% and workers’ wages go up 5%, that means workers are 3% worse off than they were. Workers’ wages are not the driver of inflation. The drivers of inflation are supply chain issues, energy prices, and increased markups.
So what do we do about it? Well, actually, I mean, the Biden administration, at least in its rhetoric, has gestured towards all three of those issues. They have proposed much stricter enforcement of anti-trust legislation that’s already on the books. In other words, preventing big corporations from marking up their prices. They haven’t done anything about it, but they have proposed that. Through the infrastructure bill and investments, they have proposed loosening up the supply chains and increasing the capacity of the U.S. infrastructure. That’s been slow-moving, but there. They have proposed an excess profit tax for oil companies. So put those three things together, that’s a reasonably good anti-inflation program.
Now, that’s not what the Fed is doing, as you said, Paul. The Fed is about raising interest rates to lower the level of overall activity. That is, to make it more difficult to borrow money, which is going to reduce expenditure by businesses, and then they’re going to lay off workers. Their plan is to lay off workers, reduce worker bargaining power, and get those wage demands down. But the other thing, if we were to say, “let’s go after monopoly pricing power, let’s go after the oil price markups, let’s weaken the weak links, let’s strengthen the weak links in the supply chain,” that would lower inflation. It may not do it to the same degree. You don’t get as much downward impact on inflation, but it does so without attacking the working class.
Paul Jay
So the reality is the Republicans control the House. I don’t know the real limits of executive orders, but if assuming he can create, call, declare a national emergency of some kind and do some of these things by executive order– let’s start with number one. What does that anti-trust, anti-monopoly pricing power look like? Two, that principle of excess oil profits, why not apply that across the board to all excess profits? For example, I know where I’m living, the groceries chains are making way more profit than pre-pandemic. It looks like all along, the food supply chain margins are up. Why not just tax away all that excess profit and make it pointless to do while combining that with anti-trust?
Robert Pollin
Well, yes. Anti-trust is already on the books, so it’s really a matter of enforcement. It doesn’t entail new legislation, whereas an excess profit tax would require new legislation, and of course, it would never pass the Republican-controlled House. There are other tools.
For example, one of the things that are worsening inflation is the speculation on the commodities futures market. So speculation on future prices of food and future prices of oil is pushing up the current present-day prices in the market. Again, already on the books; regulating the commodities futures market to dampen speculative pressure.
Let me make one other point before we move on. Inflation is already coming down, Paul. So if we just looked at the evidence for the last three months, inflation is– last month, it was 5% annualized. The previous two months before that, inflation was zero. That’s largely because of the energy prices. But also, the supply chain issues are taking care of themselves to some extent. I mean, one of the big things six months ago that was a big driver of inflation was, of all things, used car prices. Used car prices were way up because of the shortage of computer chips that go into new cars. So with a shortage of new cars, the demand for used cars increased, but used car prices are down to zero. So some of this stuff is transitory.
Paul Jay
Hold on. When you say used car prices are down to zero, you mean the inflation part.
Robert Pollin
The price increases maybe not be exactly zero, but they were very high, and now they’re, let’s say, negligible; the price increases.
Also, another thing that I want to mention is something that I’ve just been doing a little work on. If we look at the relationship between inflation rates and growth rates, the growth of the economy, there’s no evidence whatsoever that economies do better or rich economies do better, or any economies do better when you push inflation down in the range that the Fed wants to push it, that is the 2%. That’s the target of 2%. If you run an economy at, let’s say, 2% inflation, you are actually, on average, doing worse in terms of economic growth than if you run the economy at, say, 4% inflation. So the task of getting inflation down should not be to get it down necessarily to 2%, but rather, okay, we can shave off a couple of percentage points and get it down to 4%. That makes a big difference. And the tools that Biden has in terms of anti-trust, in terms of stopping speculation, in terms of loosening the supply chains, that can get us down, given the fact that inflation is already actually coming down.
Paul Jay
So why aren’t they? Basically, you’re saying that within the context of existing legislation, they could have over the last even two years, when in fact, they controlled both houses, but even now, they actually could have done far more. They don’t seem to be– they seem to talk a bit about it, but they don’t really do it.
Robert Pollin
Well, I think it’s a combination of things. Let’s say over the past 30 years, this idea has emerged and gotten enshrined that inflation in the U.S. and in all the high-income countries and, in fact, the middle-income countries, inflation needs to be at a minimal level, let’s say 2%. You organize economic activity and economic policy with the goal of hitting a 2% inflation target. In some countries, maybe it’s 2.5% or 3%, but that’s the range. Secondly, the way you do that is through the Federal Reserve or the equivalent central banks raising interest rates to slow down any inflationary pressures. That is a way through which, again, we attack the working class, we reduce the wage demands of workers. That’s been the policy framework, the hegemonic, the dominant policy framework that is central to neoliberalism, and it’s been there.
Now, to get out of there is a big pull. I mean, among other things, not just right-wing Republican economists, but some of the most prestigious Democratic Party economists, like Larry Summers, former Treasury Secretary and Harvard professor; they have been insistent that the only way to control inflation is effectively attacking the working class. So Biden has a big job to try to overcome all that. There are people within the administration that have been making these other arguments. They haven’t prevailed.
Paul Jay
Now, Summer’s argument was that government spending and stimulus packages were going to be a driver of inflation. I’ve played this clip a couple of times in some other interviews, but I’ll play it again because I think it’s so overtly stated. Chris Christie was on the Stephanopoulos show, and he said, “I’m going to rely on Larry Summers.” He said, “government spending is going to create massive inflation.”
Chris Christie
Larry Summers, Clinton’s Treasury Secretary, told the Biden administration two years ago, you go ahead with the spending you’re talking about, and you are going to create enormous inflation.
Paul Jay
Now there’s a report from the San Francisco Federal Reserve that actually said quite specifically that the stimulus spending might have contributed 3%, a maximum of 3%, to inflation. This is inflation that reached eight. But if it hadn’t been for the stimulus spending, there would have been a deeper recession, which would have been, in their words, “far more difficult to manage.” I would guess the effects of the stimulus spending that directly put money into people’s pockets and increased demand to some extent that’s more or less over anyway because nobody is getting it. That money’s done. When you look at how the Democrats defended their economic policy in the last election campaign, they never defended that. They kind of conceded the argument that government spending causes inflation. So everybody’s kind of back into this austerity language again.
Robert Pollin
So let’s just say everything you said is accurate. Government spending did contribute to inflation. I agree with that. It’s not the sole cause. It did contribute, but it contributed positively because, in the absence of the massive government stimulus programs, we would have had deflation and depression, which would have been far, far worse. So if we had no government stimulus program– I mean, when COVID hit in March, with the lockdowns in March 2020, unemployment went from 3.5% to 14.5% within a month, and we would have stayed there, and that would have been a great depression. We would have seen the collapse of the financial system, we would have seen mass unemployment, and people’s livelihoods destroyed. So we should be applauding.
There were problems with the stimulus program. I would have designed it differently. But on balance, it was a savior. It was a great contribution to human well-being relative to what would have happened in its absence. So yes, it did contribute to inflation, but it created a floor, and then from that floor of economic activity, then you had businesses marking up prices, so monopolistic pricing, you had the oil companies marking up prices, and you did have the supply chain shortages. Yes, we wouldn’t have had any supply chain shortages if we would have had a great depression. So the supply chain change shortages we should also see as an outgrowth of basically an effective policy to overcome this global pandemic lockdown.
Paul Jay
Well, when listening to the pundits on Wall Street, most of them are saying we’re heading back into a deep recession and probably within two years, right in time for the 2024 elections. Yet the Fed is still raising interest rates.
Robert Pollin
So I read the chatter from the business press. A lot of people on Wall Street are now saying it’s time to slow down these interest rate increases to back off. There is a little bit of noise coming out of some of the Fed governors that, well, maybe we’ve gone far enough. That could become persuasive over the next month or two. Especially, given again, if we just said, “let’s look at inflation over the last three months or four months, not year to year. Let’s look at what’s happened most recently within the year, not a full twelve months.” Well, basically, inflation is way, way down. The problem is at least–
Paul Jay
Hang on, when you say inflation is way, way down, people are going to say, “what the hell is he talking about?” Because when I go to the grocery store, everything is way, way up.
Robert Pollin
Well, if we believe government statistics, and I think they’re pretty good on inflation, yes, some food prices are still rising. They rose last month. But energy prices haven’t come down. You go to a gas station and buy gasoline, and it’s $3.30 a gallon. Four months ago, it was $5 a gallon. So that is a huge decline in energy prices. We’re not all the way down to where we were pre-COVID, which was $2.20, but that’s the direction in which it’s heading.
Paul Jay
So the financial elite, which more or less dictate Biden’s economic policy and mostly Republican economic policy when they’re in power anyway, although sometimes there are wild cards. They’re playing a sort of a game, and maybe that’s not quite the right word. How far do they allow the high-interest rates to create more unemployment and diminish consumer demand? Because so much of American purchasing is done on credit cards. So the higher the interest rates, the less people can buy on their credit cards. Versus, how concerned are they that this is going to drive what’s already looking like a recessionary period deeper? And then there are the political considerations of the Democratic Party.
Robert Pollin
So first of all, on your point on interest rates, you’ve made a very good point that I haven’t emphasized yet. Raising the interest rate, in and of itself, contributes to inflation in the first instance. Why? Because you’re making it more expensive to borrow money. So first of all, if people are borrowing money, less businesses are borrowing money, and they’re going to want to pass on those costs just like they pass on their workers, their labor costs, and that, in turn, contributes to inflation.
Now the theory is, okay, that effect is going to be temporary, and sooner or later, businesses are just not going to borrow, which means they’re going to have less money, which means they’re going to reduce their activity and lay off workers. That’s the basic theory.
Now Wall Street, if I’m reading the Wall Street news coming out of there, I think they are conflicted because they don’t want a recession. They don’t want the value of their assets to collapse. On the other hand, yes, yes, they do. They would love to see workers stop getting wage increases, and even though the wage increases are below the inflation rate so that the average living standard is being cut, any wage increases, it has not happened basically for almost 50 years in the United States.
The average worker’s wage today is basically what it was 50 years ago in 1972, even though productivity, the amount a worker produces in a day, has gone up two and a half fold. So if the average worker is making $25 an hour today and was making $25 an hour in 1972, if the average worker had gotten raises commensurate with productivity, they’d be making over $60. The average worker would make over $60 an hour today. What that demonstrates is the massive rise in inequality that has occurred under neoliberalism, and keeping workers’ wage demands down has been central to that project. Wall Street wants that project to continue. They just don’t want there to be a recession.
Paul Jay
Well, it’s not all under their control, and there are many conflicting interests here, not the least of which is the fossil fuel companies who will fight to the death not to have an excess profit tax. All of them are going to fight to the death not to have stronger anti-trust legislation. The whole system is incredibly chaotic and conflicted. Let’s put this all in the context of the real crisis here, which is the climate crisis. You can’t look at anything in terms of economic policy, frankly, any policy, but you can’t look at economic policy without looking at it in the context that we are heading into essentially a catastrophic situation, probably sooner than later.
Every time you look at the IPCC reports, the window for avoiding 1.5 degrees narrows, and everybody that really follows this thing, that we’re not going to hit– we’re going to go past 1.5, we’re on our way to 2. So you put that into the context that there needs to be some kind of more assertive policy. Use the words if you want because it’s essentially a type of central planning in some form or another, which we already have. I mean, I think you’ve made the point before. The Pentagon is a form of central planning. So it’s not like these guys don’t use central planning. They just use central planning to make rich people richer.
I know it’s a little ‘pie in the sky’, but at any rate, if you had progressive or control of both Houses and you had a president, what do they got to be doing now? Both on this sort of side of the rights of workers, the issue of inflation in the context of a climate policy that’s actually going to be effective. So I just asked you to rule the world.
Robert Pollin
Well, thank you for that appointment. I don’t know if I’m up to the task. My candidate for ruling the world would be my co-author Noam Chomsky, and maybe I could be one of his minor assistants. But sure–
Paul Jay
Take a stab.
Robert Pollin
I’ll take a stab at it. By the way, I have suggested that to Noam. He hasn’t taken me up on it. I think he realizes that it’s not within my powers to appoint him. If we’re going to put the climate crisis on top of everything else, which is where it belongs, number one, the high oil prices for fossil fuel companies, we should see that as a positive, ironically. The bad news with respect to the high fossil fuel prices is it’s attacking people’s living standards.
So what’s the solution there? Well, we can start with the excess profit tax on fossil fuel companies, so they’re not making any extra money, and then we return the revenue from that tax to people so that they are not hurt by the high fossil fuel prices. Rather it creates an incentive for people to look to either raise energy efficiency or buy cheaper energy meaning renewable energy. So promoting the renewable energy sector and raising energy efficiency standards which, in turn, as you and I have talked about now for over a decade a good engine of job creation. So it expands job opportunities, and it gets us off of fossil fuels. So that would be my starter in terms of that.
By the way, if we’re thinking about saying, “well, with respect to the climate crisis, fossil fuel companies shouldn’t be making excess profits.” Well, actually, follow the logic, they shouldn’t be making any profits. They’re making profits off of destroying the world. So logically, we should nationalize the fossil fuel companies and take away the power they have, including the power that we just observed over the past two weeks to run [inaudible 00:26:10] and destroy any hope of something positive happening in these COP meetings. In the last COP 27 meeting, the fossil fuel companies actually were able to prevent any mention whatsoever of cutting back on fossil fuel consumption.
Paul Jay
Now there’s been some serious conversations, I think, and there are some jurisdictions, there’s even some legislation to phase out the combustion engine and just pick a date and say no more cars, no more vehicles. After such and such date, there will be no more combustion engines. Where are we at on that? And is that a good proposal?
Robert Pollin
I think it’s a great proposal. I think proposals that impose hard regulations are really the best way to make progress here. It’s clear we’re not going to make progress at the level of these international meetings because every country has veto power, so of course, the fossil fuel-dependent economies are going to veto anything. So what really has to happen is on the side of demand. What we can impose at the level of states, at the levels of some countries, at the level of municipalities, at the level of big institutions like my own university, as an example, is just saying, “we’re not going to consume. We’re going to go 100% electric with renewable energy.” Then it doesn’t matter what the fossil fuel companies do or say because we don’t want their product. So yeah, a state can set regulations and say, “the utility companies in our state have to be run 100% on renewable energy by 2035,” and then that’s it. Then there’s no more buying coal, no more buying natural gas, and all the vehicles are going to be electric vehicles. You can’t run a gas station with fossil fuels anymore, with gasoline.
That’s the way through which I think we can make progress. If that breaks through, it doesn’t have to break through in every state. It can break through in some states. It can break through in New York. It can break through in California. It can break through in Illinois. Once it does that, then the handwriting is on the wall. Then, you know, the producers of renewables see their market expanding. The fossil fuel companies, the shareholders say this is a losing proposition. So that’s the way I think that we need to focus in terms of getting out of the current total morass in terms of these global negotiations.
Paul Jay
I don’t think the auto manufacturers would even mind it all that much. They know it’s coming, and as long as it’s applied to all of them, not one has a competitive advantage over the other. If they all had to get off the combustion engine, they probably wouldn’t push back all that much. They’ll just compete and fight for market share based on–
Robert Pollin
It’s happening anyway. I just did a study a few months ago for South Korea, and they are a major auto manufacturer, but they’re saying they are going to totally phase out combustion engine vehicles by 2035. They’re planning it.
Paul Jay
And hasn’t Europe, hasn’t the EU passed some law based on that?
Robert Pollin
Yes, they have, and so has California. Once you start to get momentum around that, then right, it doesn’t matter. You own stock in a fossil fuel company; that’s stupid because fossil fuels aren’t going to be used for powering cars and for powering utility companies. So, you know, move on. There are opportunities in building a green economy.
Paul Jay
So, people that are organizing on these issues or want to and are thinking about how they’re going to vote, certainly at least at the state level and in some of the big states where there’s a lot of progressive public opinion, there could be a real focus on this. Let me ask, is by 2035 soon enough?
Robert Pollin
Well, probably not. Given where we are, every year that we don’t make progress on cutting emissions, that means the next year, we have to come up with even bigger cuts. So 2035 might have been, I mean, just reading stuff from the IPCC, getting down to 50% emission reduction by 2030 and getting to zero by 2050; that was what they laid out. We may have to be more aggressive every year that we don’t make enough progress. Let’s say 2035 is the year in which we ban the use of internal combustion engine cars, and we ban the use of fossil fuel-powered utilities for electricity; that’s certainly a lot better than what’s on the table right now. Do I know if it’s adequate relative to the magnitude of the climate crisis? No, because I’m not a climate scientist.
Paul Jay
The Biden administration, can they do any of this through executive order, or does it all has to be done at the state level?
Robert Pollin
Well, they can do– the anti-trust stuff is on–
Paul Jay
Can they ban the combustion engine under any existing legislation and or executive order?
Robert Pollin
I don’t know, Paul. But I know that they can do it for government purchases. The government can, which is big, big government, including the military, can say that we’re going to go all-electric vehicles, all-electric heat pumps, no more fossil fuel utility purchases. They can do all of that, and so can state governments. UMass, Amherst, my institution, has said that we’re going 100% zero emissions by 2032. Let’s say every large university made the same commitment; that would be very impactful.
Paul Jay
Well, Biden is the commander-in-chief. He could simply order the military to get off fossil fuel. I mean, he could do lots of things, but that would mean he wasn’t the Biden we know.
Robert Pollin
It’s much safer to have their own supply chain for whatever nefarious imperialistic project. It’s much safer to have a supply chain based on renewable energy and solar panels, as opposed to having to cart in fossil fuels constantly to maintain their operations.
Paul Jay
Already the Navy has modeled how many of their naval ports around the world are going to be disappearing with the rise in sea levels. They talk about it, but I don’t know what they’re doing about it.
Alright, well, we’re going to do another segment on COP 27, and we’re going to dig into this. Ellsberg has this term he uses when he’s talking about nuclear war and nuclear weapons policy in the United States. He calls it “institutional madness.” Well, you can apply the same thing to climate. We’ve just seen it at COP 27. So look out for the next segment. This was Bob Pollin on theAnalysis. Thanks for joining me, Bob.
Robert Pollin
Thank you, Paul. Good to be on.
Paul Jay
Thanks again. Bye.
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