This “inflation” is different

New Stiglitz just dropped.

Cory Doctorow
10 min readDec 14, 2022


Here’s the inflation story you’re expected to believe (advance warning: this story is entirely false): America gave the poors too much money during the lockdown and now the economy is awash in free money, which made those poors so rich that now they’re refusing to work, which means the economy isn’t making anything anymore. With all that extra money and all those missing workers, prices are skyrocketing.

To hear ghouls like Lawrence Summers tell it, there is only one answer to this. We have to immiserate the poors: jack up interest rates, kick off a recession, destroy millions of jobs, until the poors are stripped of their underserved fortunes, and, humbled, they return to their labors:

As noted: this is bullshit. Countries all over the world experienced inflation during and after the lockdowns, irrespective of whether they handed out relief money to keep people from starving to death while their workplaces were shuttered. America has slightly higher inflation than some other OECD countries, but the causes have nothing to do with overly generous relief packages.

“The Causes of and Responses to Today’s Inflation,” a Roosevelt Institute paper by Nobel-winning economist Joseph Stiglitz and macroeconomist Regmi Ira, debunks this false inflation narrative, revealing it as a sham aimed at destroying workers’ lives, offering a far more plausible explanation for inflation:

More than that, though, the authors show how sharp interest rate hikes actually harm the economy, deepening the recession and increasing inflation. They compare monetary policy inflation remedies to medieval bloodletting, where “doctors” did “more of the same when their therapy failed until the patient either had a miraculous recovery (for which the bloodletters took credit) or died (which was more likely).”

Let’s start with the case against bloodletting. Inflation hawks warn us of the wage price spiral, which is when inflation goes up and powerful workers bargain for higher wages, which drives up costs, and thus prices, and thus wages. This is the fairy-tale version of what happened in the 1970s and it’s entirely true except for the fact that it was OPEC’s embargo driving up oil prices that caused inflation, a fact that makes it entirely false, but oh well.

Still, let’s be generous to bed-wetting, seventies-haunted inflation hawks and pretend that we’re worried about a wage-price spiral. Good news! There isn’t one. Wage growth peaked in June at 4.8% and by October it had declined to 4.2%, making real wages 2.3% lower than they were in Oct 2021.

How is it that America’s all-powerful workforce was willing to take a paycut rather than demanding wages that keep pace with inflation? “Weak unions, globalization, and changes in the structure of the economy.”

But there’s another factor at play here: workers don’t think inflation is going to get worse, so they’re not demanding inflationary raises. For all the fearmongering about “inflationary expectations”: “Inflationary expectations have also remained tame, which is consistent with our interpretation of the data.”

Workers also aren’t spending too much. While demand is up slightly, the evidence is that working people “treat
excess savings as wealth and spend it gradually over their lives.” People may have accumulated savings by eating in during the lockdown, but they’re not going out for dinner every night to make up for it, instead, you hold those savings in reserve, as “precautionary balances.” This is why “in total, the economy has largely remained below trend.”

To the extent that people are buying things with their pandemic savings, they’re not buying “non-traded goods” (basically, imports). Buying imports doesn’t produce the “multiplier” effect of domestic purchases. If you buy a loaf of bread from the corner baker for a dollar and they spend that dollar at the tavern across the street and the bartender spends it on a manicure down the road, that dollar generates three dollars in economic activity. But if you spend a dollar on goods from abroad, the dollar leaves the country and any multiplier effect happens there, and doesn’t heat up the US economy.

Wages did go up slightly, but only slightly. The Employment Cost Index is only up 1.6% relative to 2019. Almost all those gains have gone to the 25% worst-paid workers in America. Contrary to the inflation scare story about too much savings, these workers don’t earn enough to have any savings, even post-pandemic.

US spending on non-traded categories (recreation, transport services) is the same or lower than pre-pandemic levels. Food and hotel expenditures are slightly higher (which doesn’t mean were buying more food than we were in 2019, just that it costs more).

So if inflation isn’t caused by greedy workers and free money and too much demand, what is causing it? Here’s a clue: when it comes to domestic goods, the products that have risen most steeply in price are also producing the highest profits for their manufacturers. In other words, they’re charging you more, even if they’re not paying their workers or suppliers more.

Those additional profits also aren’t producing multiplier effects, though: the biggest price-gougers are spending their profits on stock buybacks and dividends, meaning that they’re funneling that money to rich people, who then stash it offshore. A billion dollar stock buyback doesn’t result in a billion loaves of bread being bought at the corner bakery.

The five root causes of today’s US inflation are:

I. energy and food price-spikes;

II. changes in the kinds of goods we want;

III. supply interruptions (mostly for cars);

IV. higher rents (resulting from work-from-home moves);

V. market power (AKA price-gouging).

None of these can be fixed by jacking interest rates or forcing workers into unemployment.

I. Food and energy spikes: The three major causes here are Russia invading Ukraine, omicron, and China’s Zero Covid policy, all of which interrupted the flow of food and energy and the inputs for food and energy production. We made less of this stuff, and so the price went up.

The largest spike in oil pricing came right after the Russian invasion of Ukraine, and was made worse by sanctions. But that was February. By October, oil prices were back to pre-pandemic, 2015-era levels, thanks to adjustments in the global economy, which include a shift to renewables. Every new renewable installation reduces demand for oil and directly impacts global oil pricing.

Meanwhile, there’s an obvious answer to high food prices: “For half a century, US and EU governments have paid their farmers not to produce. If the war continues, presumably that policy could or should end — and again, as that happens, food prices would fall.”

II. Changes in demand. We many not want more stuff than we did in 2019, but we do want different stuff. As supply chains broke down during the lockdown, people substituted one kind of good for another. For example, half the US toilet-paper supply in 2019 was on oversized rolls intended for commercial customers. This is made in different mills, out of different stock, than the toilet paper we use at home.

When lockdown hit, 100% of toilet paper demand shifted to home rolls, triggering shortages (the TP hoarding story was just another pandemic urban legend). Because grocery stores don’t have accounts with distributors for commercial bumwad, it wasn’t easy to simply order from the languishing stores of commercial paper. People substituted kleenex and paper towel, triggering more shortages.

All that drove up prices in multiple categories of good — and there were plenty of other instances like it. But these are temporary increases, driven by inefficiencies in the supply chain, which are gradually resolving.

Another significant shift driven by the pandemic was demand for frontline workers, who saw “a one-off repricing of wages,” which is being clawed back even as we speak.

III. Supply interruptions. All this was exacerbated by brittle, hollowed-out global supply chains. The relentless pursuit of cheap labor and lax regulation by the monopolies that dominate most industries mean that goods are produced in far-flung lands, and financialization means that any “redundant” capital assets were sold off years ago, leaving companies without any slack in their production. When the pandemic hit, many of these systems ground to a halt and took years to restart.

Cars are a prime culprit here. Financialization centralized all microchip production in Taiwan and China, and monopolization centralized all auto production into a handful of global companies. Those global companies all cancelled their chip orders when the lockdowns hit, then, when they placed new orders, they found themselves at the back of the line for the chips from those very few suppliers.

That substantially drove up the price of cars, which is part of the reason that the USA has slightly higher inflation than other wealthy countries: the US economy is exceptionally car-centric. 9% of the US Consumer Price Index is based on automobile prices. In France, it’s 3.6%.

IV. Rent shocks and work from home. When the pandemic hit, a lot of professionals moved to exurbs, small towns and the countryside, hoping to find more space in a work from home world. Meanwhile, commercial properties emptied out, but due to planning limitations, it was virtually impossible to retrofit commercial real estate for residential to meet this demand. If we’re worried about rent inflation, addressing these barriers would do more to lower rent pricing than hiking inflation rates — a measure that causes an immediate and long-lasting halt to housing contruction.

Some rent inflation, meanwhile, is a statistical mirage. When the CPI is calculated, it “imputes (i.e., guesses) what homeowners would pay if they had to rent their homes.” This means that when rents go up in your neighborhood, the CPI assumes you are spending more on rent — even if you have a 30-year fixed-rate mortgage that hasn’t changed.

V. Market power. Almost every sector of the US economy is dominated by monopolies, whose CEOs keep going on investor calls and admitting that they’re using the scare stories about inflation to jack up prices and realized record profits:

This is part of a long-run trend to higher profit margins. From 1960–80, markups averaged 26%. By 2021, it was 72%. Nearly all those markup increases (81%) can be attributed to market concentration (e.g. monopolization). In 2022, profit margins are at their highest peak “in more than 70 years.” All these factors play into each other. Monopolies don’t just price-gouge, they also hollow out their sectors and make them brittle and vulnerable to shocks.

But if we are worried about a contracting workforce, there are more humane — and more rational — remedies than using interest-hikes to put the country into recession and force workers into unemployment. Instead, we could build the US capacity to produce goods and services by making it easier for workers to enter the workforce:

For example, the US ranks near the bottom of rich countries when it comes to female workforce participation. This is no mystery: America’s refusal to provide childcare, combined with low wages and poor conditions for female-dominated occupations, means that many women can’t afford to work. If America doesn’t have enough workers, it can lure this reserve army of laborers into the workplace with childcare subsidies and minimum wages.

By contrast, forcing the country into recession with interest-rate hikes will remove workers from the workforce, and the last hired (women, racialized people) are the first fired, and the last to be re-hired. Forcing the country into recession won’t build America’s capacity to produce the things its people demand — it will permanently reduce that capacity.

Nothing the Fed does will “contain the increases in prices coming from international markets, lack of investment in supply chains, COVID-19 disruptions, climate change, the war in Ukraine, or the exercise of market power.” But they can make it worse! When inflation is being caused by failures in supply, jacking up interest rates reduces investments that can alleviate shortages.

Increasing interest rates also won’t reduce rents: landlords pass these costs on to their tenants, and high interest rates reduce investment in new housing that tenants might move to in order to escape those costs.

To fix supply-side inflation, you have to fix the supply. You can expand renewables investment (as the Inflation Reduction Act does). You can bust monopolies (as the IRA does). You can re-shore key goods (as the CHIPS Act does). You can get workers working with better wages and child-care.

You can also punish price-gouging companies with windfall taxes that claw back their monopoly profits:

Back in 2008, we decided that fiscal answers (bailing out borrowers) were off the table, so we did monetary policy (bailing out banks) instead. This “saved the economy” but at the cost of massive increases in inequality and the collapse of trust in our institutions.

Monetary policy isn’t going to serve us better here. Even advocates for monetary policy admit that there’s a looong lag between action and result — up to 18 months. That means that “monetary tightening has its full effect just when it is not needed.” And, like the medieval bloodletter, the central bankers whose interest rate hikes don’t work as quickly as they want are apt to do more of the same, pushing so hard that they bring the economy to its knees.

Some interest rate hikes are necessary. Zero-percent interest (or negative interest) fuelled all kinds of irresponsible speculation and financialization. Bringing interest rates up a little will put paid to this. But if we keep raising interest rates, we’ll dampen inflation “by killing the economy.”

So what should we do? The authors make a pretty good case for doing nothing: “all the recent indicators point to inflation moderating on its own. There is now increasing evidence that supply side problems are at last being resolved. Key prices like energy and food show strong mean reversion — they’re returning to more normal levels — and that will be disinflationary.”

However, the authors don’t really think that doing nothing is on the table. The best we can hope for, they say, is that the Fed won’t get stuck in loop where the interest rates will continue rising until morale improves.

Mosiac36 (modified)

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Cory Doctorow ( is a science fiction author, activist, and blogger. He has a podcast, a newsletter, a Twitter feed, a Mastodon feed, and a Tumblr feed. He was born in Canada, became a British citizen and now lives in Burbank, California. His latest nonfiction book is Chokepoint Capitalism (with Rebecca Giblin), a book about artistic labor market and excessive buyer power. His latest novel for adults is Attack Surface. His latest short story collection is Radicalized. His latest picture book is Poesy the Monster Slayer. His latest YA novel is Pirate Cinema. His latest graphic novel is In Real Life. His forthcoming books include Red Team Blues, a noir thriller about cryptocurrency, corruption and money-laundering (Tor, 2023); and The Lost Cause, a utopian post-GND novel about truth and reconciliation with white nationalist militias (Tor, 2023).