Bacon's Rebellion

Democracy Thrives in Sunlight

Brace Yourselves for Inflationary Impact

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James A. Bacon
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This chart, courtesy of John Butcher, shows how the Consumer Price Index has broken out from the annual 1% to 3% increase range of the previous decade. While inflation is a national story, it has public policy implications for Virginia, especially now that public employee unions can engage in collective bargaining. Federal Reserve Bank officials hope the inflationary surge will subside. But once inflationary expectations get embedded in the economy — most visibly through the mechanism of multi-year union contracts — they can be stubbornly persistent. You can’t blame workers for wanting their pay to keep pace with inflation. But someone will draw the short stick, and that’s likely to be taxpayers. — JAB

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28 responses to “Brace Yourselves for Inflationary Impact”

  1. LarrytheG Avatar
    LarrytheG

    No question that it’s ongoing, but some of it is said to be due to supply chain issues – which in turn is said to be due to COVID which some folks say is a hoax and caused by unwarranted overreactions of government and leftists.

    Yep – here it is ” “Trucker’s (sic) that refuse the Jab have refused to drive into mandate states and cities… this is why the ports, rail, and warehouses are all backed up,” reads text in an Oct. 13 Facebook post. “The ‘shipping crisis’ is a crisis because those ports and rail terminals are in Blue States.”

    https://www.usatoday.com/story/news/factcheck/2021/10/25/fact-check-covid-19-vaccine-mandates-unrelated-supply-chain-delays/6116776001/

    I fully expect this narrative to expand. “It’s the damn govt and leftists fault”!

  2. kls Avatar
    kls

    Additionally, the CA port unions refused to modernize with technology to aid with mechanical off-loading and does not allow part time, independent truckers to move the containers out of the port.

    1. LarrytheG Avatar
      LarrytheG

      so… only the CA ports?

      and what about the computer chips? Another leftist-generated problem, no doubt!

      1. kls Avatar
        kls

        I only read the reports about CA given the issue with LA and Long Beach. I don’t think, however, Savannah or FLA has a log jam like in the Pacific.

        1. ARL Avatar
          ARL

          can you share the citation. the unions are problem in all ports, esp. CA, but i hadn’t heard about the refusal to modernize.

          I’ll just say that the current LA/LB issue is more complex than just the union being the cause, but they are without a doubt a material factor. Chassis availability because there’s no place to put the empties is a huge problem. It’s a bad death spiral at the moment.

          Savannah and other ports, but not all, are definitely backed up.

          1. LarrytheG Avatar
            LarrytheG

            it’s the union’s fault – favorite narrative of conservatives, no matter the facts! 😉

            “refusal to modernize” – hmm… the union caused that..? DANG!

  3. James A. Bacon Avatar
    James A. Bacon

    Inflation is largely a monetary phenomenon (and increasingly a global one). The Federal Reserve Bank has been pumping money into the economy for years. Obama was just fine with it. Trump was just fine with it. Biden is just fine with it. This is not a partisan issue, despite LarrytheG’s effort to turn it into one. For a while, the excess money manifested itself as froth and speculation in financial and real estate markets. Now it’s leaking into the broader economy. Biden’s policies have done nothing to address the supply-side disruptions, but those disruptions are ephemeral. If the Fed doesn’t get a handle on the money supply, an elevated inflation rate will be a long-term reality.

    1. Irene Leech Avatar
      Irene Leech

      Agreed. That’s why I don’t think we can just blame it on unions – which was the message I got from the original post.

      1. James A. Bacon Avatar
        James A. Bacon

        Irene, did not blame inflation on unions. I was exploring the implications of inflation for Virginia public policy, saying that as inflationary expectations get embedded and workers demand compensation to offset that the rising cost of living, public employee unions, now empowered to bargain collectively, will push for higher wages — and who can blame them?

        I lived through the 197os inflation era. Economists commonly referred to cost-push inflation, in which inflation rose, workers demanded higher compensation, businesses raised wages and then raised prices to offset the higher wages. That inflationary spiral is likely to return if we don’t put inflation back in its box in a big hurry. But in the long run, we need to remember, inflation is a monetary phenomenon.

    2. LarrytheG Avatar
      LarrytheG

      Well no, most Dems don’t attribute it to Dem policies and most GOP do – so yes it is and yes you see it in articles left and right.

      The truth is that inflation is NOT induced by governments per se and the proof of this is how inflation works in 3rd world countries with much less government than here.

      And WHY should government and Mr. Biden be responsible for dealing with supply-side market issues, and you say this right after you said it’s not a partisan issue! geeze!

      That’s quite a leap for a self-avowed free-market guy!

      It’s not the money-supply guy. It’s when there are shortages of goods…and services and the market responds like markets do when a commodity gets scarce.

      and it has worked this way long before governments and works this way today despite governments!

      1. James A. Bacon Avatar
        James A. Bacon

        You spout economic gibberish.

        1. LarrytheG Avatar
          LarrytheG

          It’s the simple truth and reported in publications like WSJ.

          The Feds are not causing the current labor shortage by their money policies.

          The supply chain problem is not caused by government policies and the striking thing is you say Biden and Govt is responsible for fixing it. What happened to Less Govt and Free Markets?

      2. Matt Adams Avatar
        Matt Adams

        “Inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising.”

        https://www.investopedia.com/terms/i/inflation.asp

  4. Irene Leech Avatar
    Irene Leech

    Do you really think that public employees having union options will make that big of a difference? I can’t imagine that we’ve really got enough union activity already for it to have much impact yet. What other things affect inflation?

    1. LarrytheG Avatar
      LarrytheG

      what’s also interesting is what is going on in the non-unionized labor market – a shortage of labor – and that also leads to higher prices… because employers have to pay more for labor and that increase gets passed on.

      Moral of the story – don’t expect JAB – Mr. “free market” Conservative to admit the truth!

      This is why I say more than a few articles in BR do not really go about it in a fair and objective way but instead a very ideological and partisan way.

      A fair and objective article would acknowledge what even the WSJ is saying these days.

      We have shortages and disruptions across the board – for a variety of reasons that have nothing to do with the FED! That’s the truth!

  5. Irene Leech Avatar
    Irene Leech

    And do we assume that they only way workers get those increases is if they unionize? That’s frightening!

    1. LarrytheG Avatar
      LarrytheG

      How else would they get them if not unionize? just curious what the other options might be……

      1. Matt Hurt Avatar
        Matt Hurt

        It’s happening right now. Look at all of the non-union shops, such as fast food restaurants, which are offering higher wages and sign on bonuses in an attempt to lure anyone with a pulse into their uniform. This is a market response to the labor shortage, and this response has not been required by government nor has it been negotiated through unions.

        1. James A. Bacon Avatar
          James A. Bacon

          Here’s how it works: Supply-side shortages drive up prices for the goods and services that are in short supply. People spend more for those goods and services, leaving them less money to spend on other goods and services. That means less demand, and less price pressure, for the goods and services not in short supply. In the long run, inflation is a monetary phenomenon, which gets worse once inflationary expectations become widespread.

          Why do inflationary expectations matter? Because a key independent variable is the speed at which money circulates through the economy. Inflationary expectations can accelerate that speed. More money circulating faster translates into higher prices.

          1. LarrytheG Avatar
            LarrytheG

            re:
            ” While inflation is a national story, it has public policy implications for Virginia, especially now that public employee unions can engage in collective bargaining.”

            geeze… JAB says ” I did not blame unions….. ” …

            Here’s an article from the WSJ – fair and objective in my mind:

            “Inflation is higher than it has been in a decade, and households and businesses are fretting over their diminished purchasing power. Monetary-policy makers insist price hikes are transitory, but there is pressure on the Federal Reserve to begin tapering. Many expect the Fed will reduce bond purchases by $15 billion a month starting in November.

            Monetary-policy normalization is a good thing, and we should be eager for the Fed to revert to pre-Covid operations. But tapering isn’t a panacea for surging prices, because widespread supply-chain problems, which are out of the central bank’s control, are contributing to price increases.

            Normally, inflation is caused by loose money. When the Fed buys assets, the money supply rises, putting upward pressure on prices. But a growing Fed balance sheet isn’t enough to cause inflation. For prices to rise, the money supply must grow faster than money demand. When this happens, money becomes less valuable and the price level rises.

            But in extraordinary circumstances, nonmonetary factors can cause inflation. The maxim that inflation results from too much money chasing too few goods means there are two possible sources: too much purchasing power or too few things to purchase. Right now, the latter is the concern. Major transportation problems and a dearth of crucial inputs like semiconductors have wrenched the economy’s gears. This makes production and distribution harder. The result is obvious: Goods have gotten more expensive.

            The right response depends on policy makers’ identifying the real cause of inflation. Fed tapering is appropriate if easy money is the cause. But that isn’t clear. While the money supply skyrocketed last spring, the velocity of money—the average rate of dollar turnover—fell precipitously. This means money supply and money demand rose at the same time. In addition, October’s underwhelming jobs report suggests the labor market isn’t in good shape, more evidence for supply problems.”

            https://www.wsj.com/articles/fed-tapering-wont-beat-inflation-money-supply-assets-monetary-policy-11635449974?st=c60hbx0wejkgsyx&reflink=article_email_share

            no mention of unions…. or of Biden doing something about the supply chains.

  6. James Wyatt Whitehead Avatar
    James Wyatt Whitehead

    There is another side effect. Working class Virginians are really doing the jobs of 2 people at the price of one. I see that everyday.

    1. LarrytheG Avatar
      LarrytheG

      Does that mean they’re actually getting paid half what they should?

      so… is that something caused by govt or govt money policies?

      Can we still argue that if the govt institutes minimum wages it will harm the economy and cause job losses?

      or what?

      Maybe JAB can address this… and explain it…. 😉

      1. kls Avatar
        kls

        I can’t wait for the White House to lay out the cost of Thanksgiving…….. remember the $0.16 we saved for that 4th bar-b-bq!!!!!!!!!

        1. LarrytheG Avatar
          LarrytheG

          ??? – what?

          1. kls Avatar
            kls

            really? you don’t remember Jen ‘Let’s circle back’ to the misinformation and ignorance of Bug Out Biden — ‘he didn’t really mean [fill in the blank]…..touting how Americans were going to save 16 cents on their 4th of July bar-b-q under this great administration….. you’re lack of knowledge of the facts is….. well…..

          2. LarrytheG Avatar
            LarrytheG

            yup, totally ignorant on this – must be a right-wing canard or something, no?

            educate me or is this some sort of right-wing thing?

      2. James Wyatt Whitehead Avatar
        James Wyatt Whitehead

        Mr. Larry we are pushing out high volume of products from my mother’s lighting business. Normally 4 to 5 men running the warehouse. Right now it is a 67 year lady and me the retired school teacher. The two of us are doing the work of at least 4 men. Turns out if you work harder those extra workers are not necessary. So they are getting paid to sit at home. Meanwhile, I’m just working harder but no real gain.

        1. LarrytheG Avatar
          LarrytheG

          So, James, is this in addition to the Bowman job or is this THE Bowman job?

          So this is because the folks who normally work at the warehouse are getting unemployment benefits and can choose not to work?

          I see in FLS this morning where a popular Pizza shop is closing, in part, because he says he can’t find help.

          I understand though, they are having this problem in states that no longer pay unemployment so maybe it will take until all that unemployment money is “flushed” out of the system?

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