Inflated Fears?

By Trudy Goldberg

(Author’s Note: Published works are cited. All other references are from personal communications with the experts between November 15th and December 15th ). These experts are either Board members of NJFAN or long associated with the Network.)

Inflation can be a serious problem. Even if wages rise, soaring prices can wipe out these gains. Efforts to control inflation can cause serious problems like the Volcker solution to the Great Inflation of the 1970s which tamed inflation by a precipitous rise in interest rates—at the cost of recession, business failures, and high unemployment. It is important that we understand the source of current price rises, how serious they are, and how government can prevent further increases and avoid solutions that jeopardize recovery from the COVID recession.

How does the rise in prices so far this year compare with recent periods of high inflation? In 1946, the rate of inflation was 14.36%, and the next highest since World War II was 11.35% in 1979. Compare these with the price rise of 6.8% from November 2020 to November 2021. Of course, we don’t know what the coming months and year will bring—whether the trend in prices will be steadily upward, cease or level off. With news of the omicron variant of COVID, there were reports of a drop in oil prices. This new variant could pose a threat to economic recovery, not to mention the human toll of increased contagion and illness.

Is Inflation Wiping Out Wage Gains?  

Drawing on the November employment report of the Department of Labor, economist Dean Baker observed that the real average hourly wage (wage increase in excess of price increases) for production and non-supervisory workers has risen by 2.1 percent over the last two years, and for the lowest-paid workers, the increase has been even larger. “After decades of wage stagnation, for those at the middle and the bottom of the wage ladder,” Baker wrote, “it’s good to see some real progress for at least some low-paid workers.” (1)

Historian of unemployment Frank Stricker comments: “That the real hourly wages of non-supervisory and production workers grew by 2.1% over the last two years is good news. But in recent months real wages have fallen a bit–1% since April of 2021. That they are falling at all is a danger signal. If employees could keep getting hefty increases in their nominal pay and if we could control inflation without laying off millions of workers, then we would really have something to cheer about.”

What Recent History Teaches Us about Current Price Rises

In his New York Times column, “History Says Don’t Panic about Inflation,” Paul Krugman referred to a “thoughtful article” written in July by members of the White House Council of Economic Advisors.(2) These economists examined six periods of heightened inflation since World War II and drew the following conclusion:

No single historical episode is a perfect template for current events. But when looking for historical parallels, it is useful to concentrate on inflationary episodes that contained supply chain disruptions and a spike in consumer demand after a period of temporary suppression. The inflationary period after World War II is likely a better comparison for the current economic situation than the 1970s and suggests that inflation could quickly decline once supply chains are fully online and pent-up demand levels off. (3)

A difference between the cause of inflation in 1946 and 2021, the White House team observed, is that instead of having redirected resources to support a war effort, manufacturing capabilities were temporarily shut down or reduced to avoid COVID contagion. One might add that pent-up demand was over a much longer period in the earlier example—a decade of Depression and five years of war when peacetime production was severely curtailed. Yet, even that period or rising prices was relatively short compared to the decade-long episode in the 1970s.

Supply or Demand Side Inflation?

Some high-profile economists attribute current price rises to the American Rescue Plan (ARC) which they say directed too much money to US households, causing demand to rise much faster than supply.  In this camp, according to Paul Krugman, are chief economic advisers to President Barack Obama Jason Furman and Larry Summers and former chief economist of the International Monetary Fund Olivier Blanchard.(4) Taking issue with this view, Dean Baker points out that “There is no clear relationship between the size of the rescue and recovery packages and current inflation. For example, the size of the packages in France and Japan were considerably larger than the packages put in place in Germany, but both countries have considerably lower inflation.”(5) June Zaccone, Associate Professor Emerita of Economics, Hofstra University, points out that “It would have been impossible to prevent an even worse epidemic without a program that paid workers to stay home—consider the infections in meat-packing plants.” Thus the package was a means of preventing the spread of COVID. Not necessarily disagreeing with those who point a finger at the ARC, Franklin D. Roosevelt, III (Economics Professor Emeritus, Sarah Lawrence College), said, in an interview with the author, “Yes, the ARC can be blamed as excessive, but tell that to all the people who were then in distress.”

Economists Paul Krugman and James Galbraith maintain that the problem is not inflated demand. Galbraith holds that there is no shortage of goods to meet consumer demands and that the real problem is a bottleneck in the movement of goods to market. “Ships bearing the supply – 30 million tons of it – are sitting right now outside US ports, with more on the way (his emphasis).”(6) In analyzing the shipping tie-ups that contribute to shortages, despite the availability of goods, Galbraith takes on the free market “jibe” that the problem in global supply chains is the inefficiency of central planning. The point about “efficiency,” he writes, gets closer to reality, except that the problem is not too little efficiency, but too much. A period of idleness interrupted the very tightly and efficiently run supply chains, and it will take time to regain efficient operations.

Professor Zaccone observes that a shortage of truckers is a major contributor to the delivery problem. Many truck drivers have quit because of long hours and difficult working conditions, a problem that predated the epidemic. A New York Times article, “The Biggest Kink in America’s Supply Chain, Not Enough Truckers,” called attention to the arduous working conditions of truck drivers and cited a report by the American Trucking Association that the industry is short 80,000 drivers.”(7) Professor Roosevelt points to another supply-chain hold-up–the hesitancy of dock workers to go back to work. “But who can blame them for being afraid of going back into close contact with other workers who may not have been vaccinated?”

Krugman, in rejecting the excessive demand explanation for rising prices, points out that overall demand in the United States “doesn’t look all that high.”(8) Real gross domestic production which is equal to real spending on U.S. produced goods and services, is still about 2 percent below expected economic capacity if the pandemic hadn’t occurred. The demand, he writes, has been “skewed,” with consumers buying fewer services but more goods than previously with the resultant strain on the supply chain.

High Energy Costs and Inflation

Galbraith, putting the i-word in quotation marks, writes that “Most of ‘inflation’ so far has been in energy (driven partly by a rebound from the pandemic slump) and in used cars and trucks….”(9) Compared to the overall rise in prices of 6.8%, gasoline of all types rose 58.1%; fuel, 59.3%; utility (piped) gas service, 25.1%; and used cars and trucks, 31.4%. (U.S. Department of Labor figures.) The demand for used vehicles or previously produced goods, Galbraith points out, is the result of the semiconductor shortage that affects automakers. This, he holds, is not a matter of excess demand but rather that “during the pandemic, chipmakers predicted a bigger shift in the composition of demand: toward household gizmos and away from cars—than actually occurred. Now they have too much of one kind of chip and not enough of another.”

Randall Wray, Senior Scholar at the Levy Economics Institute of Bard College, points to causes such as the ARC and shipping tie-ups related to increased concentration among shipping magnates but most strongly emphasizes the inflationary impact of the very high rise in oil prices—stemming from OPEC’s refusal to expand the supply. Wray compares the current situation—not to the post-war inflation—but to the role of the OPEC cartel in the 1970s. Wray proposed the intervention to combat high energy prices that President Biden subsequently took: releasing some of the nation’s emergency oil reserves into the market. Interestingly, some other economists did not propose this intervention–despite recognition of the disproportionate contribution of energy costs to price rises. At the same time, Wray adds, “We must boost spending on alternative energy as fast as we can and transition out of oil. That means no more leasing, no more drilling. Alternative energy is already cheaper—we just need to buy some time to get it in place.”

In announcing the decision to release 50 million barrels of oil from the Strategic Petroleum Reserve President Biden held that this “will not solve the problem of gas prices overnight.” “It will take time,” the President said, “but before long you should see the price of gas drop where you fill up your tank.”(10) In announcing a policy that could lead to more consumption of fossil fuels, the President also referred to controlling climate change: “And in the longer term, we will reduce our reliance on oil as we shift to clean energy.”

Missing from the Inflation Dialogue

In a very insightful article, “Six Things They’re Not Telling You about Inflation,” Julia Rock and Alex Sirota call attention to contributions to inflation omitted by mainstream media and even progressive economists: “… soaring salaries of corporate executives?”  and “…medicine, health insurance, and housing prices that have been skyrocketing for years?” Stories about expensive essential goods, they point out, “don’t mention the record profits of the companies selling them.”(11) Randall Wray is one progressive economist who, in our interview, had also noted this contribution to inflation: that the corporate elite were taking advantage of the situation and increasing their gains. And how about the military budget which Congress just raised over the bloated expenditures proposed by the President

Inflation Control

Current “inflation” is partly related to some long-term problems in the U.S. economy such as the trucker shortage that were exacerbated by the shutdown. But inflation was not a problem before the Pandemic struck. Attention to those problems is nonetheless important, along with less reliance on off-shoring. “Solutions for the Shortage of Truck Drivers” is the title of a New York Times Letters Section–a response to a November 10th article: “Lack of Truckers Is Choking U.S. Supply Chain.” Among the suggestions are reducing sweatshop conditions imposed by the trucking industry; changing the arduous model for long-haul trucking; increasing the number of women truck drivers by reducing sexual harassment; and more reliance on trains.”(12) Some of the supply-side problems need time for recovery. In announcing the release of oil reserves, the President said the effects would not show up immediately at the pump, but Professor Wray observes that crude oil prices have already peaked and are coming down. Infrastructure repair and upgrading, he adds, is another intervention that will increase efficiency but will take time. In any case, as Professor Zaccone emphasizes, “Usually, it makes more sense to address supply problems directly, as happened with releasing oil from the national reserve. Such targeted interventions to address supply-side problems are much preferable to monetary policy—tightening credit and increasing interest rates—when overall excessive demand is not the problem.”

Federal Reserve Chairman Jerome Powell has signaled monetary interventions on the part of the Fed that would raise interest rates three times in 2022. While not the Volker-type shock treatment, the move is poorly targeted– to reduce consumer demand when the problem is on the supply side. We must avoid policies that could create a recession with all its harmful sequelae—especially unemployment.

COVID Control Is Essential

Control of the virus is critical to taming current price rises and preventing another COVID recession that would increase hesitancy to return to work on the part of workers who stay home to avoid contagion or tend children shut out of school. It goes without saying that we must prevent needless illness and death. Professor Roosevelt is only half joking with this prescription: “…draft the unvaccinated into the Army, vaccinate them via the chain of command, then discharge them after they have had at least two shots!” “Crushing the virus,” he explains, “is like fighting a war and people are dying (as you know, more than 800,000 so far).”

COVID prevention must be all out. It looks like the Biden Administration is stepping up its anti-viral war—recommending boosters for everyone 18 and over and making frequent testing more affordable and accessible: “We are going to fight COVID-19 not with shutdowns or lockdowns – but with more widespread vaccinations, boosters, testing and more.”(13) “More” should include more attention and resources to increase ventilation, particularly in schools and other places where people congregate.

A global pandemic requires global intervention. No country will be COVID free without sufficient intervention in every country. The Biden Administration is increasing its efforts—pledging to send more than 200 million vaccines abroad in 100 days. According to Jeffrey Zients, the White House coronavirus response coordinator, “If we want to protect the American people and our economy, we must defeat the virus everywhere. That means we must ensure the rest of the world gets vaccinated.”(14) Whether stepped-up global intervention will be sufficient remains to be seen.


1. Dean Baker, “The High-Paid Media Types Are Unhappy Workers Are Demanding Fair Wages,” Center on Economic and Policy Research, Washington, DC, November 25, 2021.
2. Paul Krugman, “History Says Don’t Panic about Inflation, New York Times, November 11, 2021.
3. Cecilia Rouse, Jeffrey Zhang, and Ernie Tedeschi, “Historical Parallels to Today’s Inflationary Episode,” The White House blog, July 6, 2121.
4. Paul Krugman, “Wonking Out: Going Beyond the Headlines, New York Times,  December 6, 2021.
5. Dean Baker, “Getting High on Inflation,”Center on Economic and Policy Research, Washington, DC, November 11, 2021.
6. James K. Galbraith, “The Choking of  the Global Minotaur,” Project Syndicate, November 11, 2021.
7. Madeline Ngo and Ana Swanson,  The Biggest Kink in America’s Supply Chain: Not Enough Truckers,” New York Times, November 6, 2021.
8. Krugman, “Wonking Out.”
9. Galbraith, “The Choking of the Global Minotaur.”
10. Kate Sullivan, Betsy Klein, and Devan Cole, “Biden announces release of oil reserves, but says gas prices will not drop overnight, CNN, updated November 23, 2021.
11. Julia Rock and David Sirota, “Six Things They’re Not Telling You about Inflation,” The Daily Poster, 12/6/2021, https://www.dailyposter.com/six-things-theyre-not-telling-you-about-inflation/
12. “Solutions for the Shortage of Truck Drivers” is the title of a New York Times Letters Section, November 20, 2021, a response to a November 10 article, “Lack of Truckers is Choking U.S. Supply Chain,” New York Times, November 10, 2021.
13. President Biden: My winter plan fights COVID with testing and vaccines and without lockdowns (yahoo.com), December 3, 2021.
14. Arlette Saenz  “Biden Administration shipping 9 million vaccine doses to Africa and another 2 million worldwide, CNN. December 4, 2021.

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