Inflation was first felt in spring 2020 when the meat shortage scare started. Beef prices jumped with the rationale being covid hit processing plants and orders to slaughter hogs. Now consumers and businesses see inflation in all goods and inputs they use. Covid is a large excuse to inflate the massive debts the system has accumulated over the decades.
The US economy is a debt based economy with several stages of expansion. Business debt and consumer credit (via credit cards) exploded in the ‘80s and ‘90s. Mortgages aiding consumption expanded in the ‘00s. Higher education debt that maintained consumption habits exploded in the ‘00s and ‘10s. Wages were stagnant for many. To cover this debt, debasing the dollar has been the plan. A problem has been how to get dollars into wage earners hands to mitigate the effect.
Recent job market reports cite low end wages rising as employers scramble to fill positions. There has been massive direct aid to citizens as well. If it feels like preparation for UBI, it is. Parents receive direct deposits from the US Treasury on a monthly basis right now. Some states have childcare assistance programs. It doesn’t cover everything but it lays the groundwork for government dependence and direct aid.
Covid lockdowns, which are an entirely government forced issue, are now causing logistical problems. We cannot move enough product. Supply is constricted. Shipping costs have exploded. The major input of our global economy, energy, is rising due to the money printing in America. This is ‘70s style inflation as input costs exploded throughout that decade. Polyester came into style as cotton skyrocketed, not for the fashion fad.
An unmentioned problem with our inflation cycle is that many firms must raise prices because covid lockdowns decrease units sold. Firms carry higher debt loads today because of the LBO frenzy of the ‘80s. Many firms used to carry little to no debt. What firms learned in the ‘80s was that this only made them targets for leveraged buy outs and hostile takeovers. Because they all carry debt, that debt must be serviced. Executives forever appeasing shareholders’ quest for large short term gains now do debt funded stock buybacks. It is a vicious cycle and trickles down to explain why sirloin is $16.95 a pound.
This inflation cycle is not transitory. Fast food workers at $15/hour will flow to prices and remain sticky. Because it is not just direct, actual effects, there is a psychological factor at play. Businesses immune to cost input inflation can raise prices since all consumers expect inflation everywhere. Their employees will expect pay bumps as our low end service workers see pay raises. Can the pay hikes keep track with the cost of necessities and reduce real debt loads?
The great stagflation of the ‘70s set up the neoliberal era that began with Reagan. We do not know what economic future awaits us after this covid induced inflation, but we can be assured that whatever comes next will be much different than the framework hammered out in the ‘80s. Saying economic is incorrect as economics was originally called political economy. Governments mandating vaccines to purge transportation, warehouse and medical employees in the middle of a supply chain crisis and pandemic points to this being a political restructuring that few are ready for.