{"id":317833,"date":"2021-09-19T14:44:56","date_gmt":"2021-09-19T14:44:56","guid":{"rendered":"https:\/\/jacobinmag.com\/2021\/09\/socialist-primer-monetary-policy-inflation-federal-reserve-volcker-shock-class-tim-barker-interview\/"},"modified":"2021-09-19T14:52:15","modified_gmt":"2021-09-19T14:52:15","slug":"a-socialist-primer-on-monetary-policy-and-inflation","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2021\/09\/19\/a-socialist-primer-on-monetary-policy-and-inflation\/","title":{"rendered":"A Socialist Primer on Monetary Policy and Inflation"},"content":{"rendered":"\n \n\n\n\n

Utter the words \u201cmonetary policy\u201d and many of us fall asleep. But that policy is crucial to how capitalists exert power. Instead of leaving it to the \u201cexperts,\u201d socialists and the labor movement should demand a democratic say in what monetary policy looks like.<\/h3>\n\n\n
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\n The solutions to inflation need not be anti-worker. (Vladimir Solomianyi \/ Unsplash)\n <\/figcaption> \n<\/figure>\n\n\n\n\n \n

Republicans and out-of-style economists warn that the Biden administration is leading the economy into runaway inflation. The Biden administration and Federal Reserve, by contrast, point to the major disruptions caused by the pandemic, arguing that the inflation we’ve seen is caused by sector-specific supply-chain bottlenecks. Upon learning of this discussion, most of us quietly choose to close the tab or change the channel \u2014 all this stuff seems way over our heads.<\/p>\n

It doesn\u2019t have to be that way, Tim Barker argues. Leftists can talk about inflation and monetary policy in a comprehensible way \u2014\u00a0precisely to challenge the kind of commonsense wisdom expressed in the contemporary mainstream debate on inflation, as Barker does in a recent piece<\/a> in Phenomenal World<\/em>.<\/p>\n

In this piece, Barker argues that both sides of this debate share the same staunchly anti-worker premises. These premises in action can be traced back to 1979, when Carter-nominated Federal Reserve chair Paul Volcker implemented what is now known as the “Volcker Shock<\/a>,” sending interest rates through the roof, inducing a recession, and crushing worker power in the US. The Volcker Shock was one of the first acts in the transition to the neoliberal era.<\/p>\n

Barker claims that inflation is more complex than wages\u00a0\u2014 and the solutions to inflation need not be anti-worker. He argues that the Left has to fight for a different interpretation of inflation and build enough working-class power so that when the time comes, we have the analysis and the strength to push for spending and planning instead of retrenchment and austerity.<\/p>\n

Tim Barker is an historian of modern capitalism and an editor for Dissent<\/em> and Phenomenal World<\/em>. On a recent episode<\/a> of the Dig<\/em>, Dan Denvir sat down with Barker to discuss his recent article, the history of inflation politics in its class war context, and what it means for capitalism, workers and the Left.<\/p>\n\n \n\n \n \n \n

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Daniel Denvir<\/dt>\n \n

What is inflation? Why does inflation happen?<\/p>\n<\/dd>\n \n

Tim Barker<\/dt>\n \n

At the most basic level, inflation is a rise in the prices of things. Specifically, it’s a rise in the general price level, not the rise in a specific price. You might imagine that one day there’s a big Zoomer, hipster revival of interest in the band Pavement, and then the cost of Pavement LPs goes through the roof. That would be a rise in prices, not a rise in inflation. Inflation would be like seeing a rise in prices of a general basket of goods, ranging from the gas you put in the car to the food you buy at the supermarket and the steel that a manufacturer buys as an input into other manufactured products.<\/p>\n

What causes it? The classic textbook definition that you’ll find in an Econ 101 class is that inflation is a case of too much money chasing not enough goods. You can think about money as a claim on real goods and services \u2014 you get it and it entitles you to claim these real things with use-values that are produced in the economy. But if you were to issue too much money without adequately expanding the stuff there is to buy with it in the economy, you would see a rise in prices, because people would be bidding against each other for a limited stock of goods with more and more money.<\/p>\n

Like a lot of textbook economics, this leaves a lot of basic questions unanswered: What’s determining the money supply? What’s determining the stock of goods and services? What is determining the pricing policies that the people who sell these things are using to decide what they’re going to charge for them?<\/p>\n

In a way, the definition of too much money for not enough goods is a good starting point, but it leaves a lot that still needs to be explained. To understand those questions, you need to take a more institutional approach than you see in textbook economics. First of all, you need to look at the conditions of production of things that are being bought and sold.<\/p>\n

A classic example is that in the 1970s, a powerful driver of inflation was the cost of oil. Oil is an input into almost everything \u2014 to get anything onto a shelf, you need to use some kind of energy \u2014 so a rise in the price of oil can lead to generalized inflation.<\/p>\n

But what affects the price of oil? The answer to this question has to do with the political relationships between oil-producing countries, many of which are in the Global South; between the major oil companies, many of which are multinational but headquartered in the Global North; and between governments \u2014 like the Saudi government and the US government. You’ll need to understand what’s going on at oil refineries, and the position that the Oil, Chemical, and Atomic Workers International Union is taking in their collective bargaining.<\/p>\n

To get behind a seemingly obvious thing like the rise in the price of oil, you need to look at these relationships of power between different social groups.<\/p>\n<\/dd>\n \n \n

Daniel Denvir<\/dt>\n \n

What is a central bank, and what is the Federal Reserve in the United States? What do central banks do to shape the economy and to control inflation?<\/p>\n<\/dd>\n \n

Tim Barker<\/dt>\n \n

The best way to think about a central bank is as a bank of banks. It stands at the top of the banking system and controls some of the levers that affect the kind of lending and borrowing that other banks further downstream will do.<\/p>\n

In the US, the central bank is the Federal Reserve. It’s only existed since the 1910s. Before that, the banking system wasn’t controlled in this way. Since the 1910s and the Progressive Era, we’ve had the Fed.<\/p>\n

The central bank controls the general availability of money and credit throughout the economy. At all levels of the economy and at all levels of the financial system, at any given time, there will be a demand for money, credit, and liquidity to grease the wheels for all kinds of economic activity. I want to buy a house, so I borrow money to do that. I want to expand my steelmaking plant, so I get a business loan to do that. There’s a big range of possibilities and terms on which I can get access to that money and credit. The terms of access to money and credit are set or heavily influenced by the central bank.<\/p>\n

This bank has a couple of levers for doing that. Some of the most important are setting interest rates. The Federal Reserve sets the Federal Funds Rate, which is an interest rate at which banks can borrow from each other. You can imagine how the Fed controls the access of downstream banks to money and credit, and then the banks in their business and consumer lending will pass on credit at terms influenced by the terms set by the central bank.<\/p>\n