Saturday, January 15, 2022


Saturday, January 08, 2022

Causes Of Inflation

Social norms exist about what wages can be expected from various types of jobs. And norms also exist for what the rate of profits or markups will be. Inflation arises when these norms conflict and institutions exist to fight about these norms.

There is no single rate of profits or a single wage for all jobs. In some jobs, you can expect to have a standard work week, weekends off, benefits, some asurance that your job will exist next week, and so. And in other jobs you cannot expect such. Here I am alluding to the theory of dual labor markets.

By the way, whether a job is in the formal or informal sector is not a matter of 'skill'. "The suggestion that any job is 'low skill' is a myth perpetuated by wealthy interests to justify inhumane working conditions, little/no healthcare, and low wages". A lot of struggle led to some jobs being considered 'skilled', and a reactionary counter-struggle resists such. Gender and race goes into this, of course. I doubt programmers were well-payed when a computer was a 'girl'. For example, I've read Richard Feynman's memoirs about how the 'computers' at Los Alamos implemented a time-sharing operating system (not his terminology). Do taxi drivers and Uber drivers face the same expectations? Bartenders at high-end restraurants in trendy parts of town and elsewhere?

How those with power understand what is going on matters. Suppose a certain set of hegemonic beliefs includes the incorrect idea that labor 'markets' tend to clear, maybe if only they could be made more 'flexible' and obstacles, such as labor unions, minimum wages, and so on are removed. And those running a country's central bank think their primary job is to fight inflation by raising interest rates whenever real wages show a slight increase. If the economy is run 'cold' for decades, much bad can result.

Consider a country where the workforce is highly unionized and collective bargaining is widely accepted, including with backing in law. Suppose contracts are staggered. Different sectors negoiate at different times. Suppose, by contrast, that the employers and employees are all expected to come together at one time. Inflation will be different in these two setups.

Another set of conventions involves families and households. Is co-habitation, without marriage, common? If you work in the formal sector, can you put your partner and non-biological children on your benefits? How many are expected, in the typical household - whatever that is - to work full or part time? What do you need for commuting? What kind of non-wage support can you expect? Have these norms varied recently? Have you tried following different conventions lately, and did you prefer it? The answer to these questions might have something to do with fluctuations in the labor force participation rate. With low unionization, a different set of institutions will resist attempts at the casualization of the work force.

Another set of expectations involves firms, their suppliers, and their customers. What proportion of restaurants and grocery stores do those who process agricultural products expect to be among those providing final demands? What level of capacity do firms expect to operate at? Does a different mode of operations change this? For example, I suspect a number of firms have realized they could double their office staff, if they had the demand and need, perhaps with an increase of support from their Information Technology support staff. If those running firms have highly uncertain or incorrect expectations, bottlenecks in some sectors can be expected to result.

I probably would not have written the above two paragraphs - maybe the whole post - without the prompting of current events. I look backwards to Joan Robinson's explanation (prediction) of stagflation and other literature.

Selected References
  • James K. Galbraith. 1998. Created Unequal: The Crisis in American Pay. Free Press.
  • Stephen A. Marglin. 1984. Growth, Distribution, and Prices, Harvard University Press.
  • Joan Robinson. 1962. "A Model of Accumulation" (In Essays in The Theory of Economic Growth, Macmillan).
  • Graham White. 2001. The Poverty of Conventional Economic Wisdom and the Search for Alternative Economic and Social Policies. The Drawing Board: An Australian Review of Public Affairs 2(2): 67-68.