Why is inflation so persistently low? Even when the government is on a spending and tax-forgiveness binge, and interest rates have been rock-bottom for a decade? I have been spending some time with a left-inflected economics textbook from the 80's by Samuel Bowles et al., which gives a view of our situation that contrasts significantly from the mainstream free-market, neoliberal economics we have been fed for the last few decades. Perhaps its basic point is that capitalism only works when labor is exploited, yielding a surplus product. No profits = no capitalism. Thus the overarching aim of capitalists is to extract excess value from labor, over what is being paid out.
This extraction process has many dimensions, but a few of the salient ones deal with a odd role of markets in capitalism. Most people working in the capitalist system are not working in markets. They are employees, whose work is not bid on an hourly basis, who do not personally sell what they personally make, in a market. They exist in a command economy, quite divorced from this fantasm called "the free market". If they do not get along with their boss, they are fired. They are evaluated, not by market outcomes, but by subjective opinions of others around them, and are subject to a complex bureaucracy of control by the firm they are employed by. While the firm has market interactions with the outside, on the inside it is hardly different from a communist enterprise, indeed a good deal more heartless. Much of what corporations and the capitalist class lobbies for is not freer markets (heaven forbid!), but more ways to control workers, whether that is by right-to-work, weakening unions, keeping disputes out of open court, colluding with each other to not poach workers, staging "team-building" activities, stealing worker pay, reducing safety net programs, etc. So, contrary to the right-wing ideology of freedom, one of the main tasks of capitalists and their political servants is to reduce the freedom of workers.
The principal sword dangling over the employee is unemployment. That is the ultimate sanction, and is essential to the functioning of the whole system. Unlike other markets for goods, the labor market never clears, or settles on the stable demand/supply point. As the book comments, employers do not need to have a line of unemployed machines standing outside the gates to encourage the machines inside the factory to work harder. But they do need unemployement, both to support the command economy inside the firm, and also to keep the wages paid below the actual value given by labor. This connects additionally to one of the reasons for the business cycle- to raise unemployment and thereby "discipline" worker demands, in addition to moderating input prices and clearing out inefficient firms. It turns out that the full business cycle, including recessions, is as central to capitalism as capital itself. We can not have only good times, if corporations are going to clear profits by exploiting workers.
Which ultimately brings us back to inflation. We had a "great" recession in 2008, which led to very high unemployment and durably reduced output. Workers were very well disciplined, to the point that large numbers left the work force entirely. One consequence of all this discipline and lowered expectation has been that employers could get away with not raising pay. The trend of economic growth/benefits going entirely to the capitalists and rich, and none to workers, has continued at an accelerated pace through the period. A side effect of all this low pay is low inflation. This is in dramatic contrast to the late 1960's and 1970's, when worker power was high, unionization was high, and demands for pay were high. Workers expected not just cost of living raises, but seniority and productivity raises as well. Incidentally, the public sector, which is highly unionized and in a special position with political power over its employers, is a relic of that outdated world, resulting in bloated pay and pensions, which are now unheard of in the trenches of the real economy.
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| Workers have not gained from productivity increases for forty years. |
So things are, from a long-term perspective, unbalanced. And what did voters in their wisdom do about it in 2016? They elected a hypercapitalist, who conned them into thinking that he wanted to do something for workers. Ha! Obviously, the progressive agenda is far more pertinent to workers, seeking to reduce instead of increase capitalist power. Progressives seek to increase worker power in a myriad of ways- regulation, a higher minimum wage, better safety net, more public services, higher wealth and income taxes. The strongest proposals so far aim at the lowest end of the scale- setting a living minimum wage, and also establishing the principle of jobs for all- a job guarantee that would set an even more robust floor for the job market and seriously impair the fear that unemployment inspires. Will capitalism survive? I think so- the Scandinavian countries have far more civilized regimes of public goods and worker protection, and seem to do OK.
But what about the bulk of workers in the middle rungs of the economy? Some additional thinking needs to be done to bolster their prospects in the fight with capitalists. While unions are highly beneficial for their members, their benefits are intrinsically balkanized and can be highly damaging to their industries- think of the car industry. A better way is to institutionalize broadly some of the benefits that unions have pioneered, such as the weekend, regulatory worker protections, and rights of political and economic organization.
One idea that I think would be very useful would be to break the secrecy on salary. One of the principal benefits of union membership is the transparency that it provides to workers- knowlege of what everyone is being paid, as a step to negotiating contracts. One of the greatest powers that corporations have, to steal pay and discriminate against classes of employees, is to keep pay secret, as though it were some kind of sacred trust. But many workplaces have transparent pay structures, such as union shops, boardrooms, and professional sports teams, and the sky has not fallen. What average workers need is government mandated transparency on pay in every workplace, so that everyone can see how they and others are being treated. Few measures would as effectively show injustice, generate fairer treatment, and give workers a more realistic picture of their prospects at a current or a future employer.
Would we get more inflation? Perhaps. But there are many ways to skin that cat, with credit, monetary and fiscal policy, rather than worker suppression. It is time for a little capitalist suppression- to right an economy, and a society, far out of kilter.
