Portside

What’s going on with inflation? It’s a question that everyone is asking, and one that is particularly important for anyone entering bargaining this year.

We can’t predict what is to come, but the evidence from the past year hasn’t been good for workers. The Consumer Price Index rose by more than 8 percent, its fastest pace in 40 years. Essential expenses like housing, food, and gas have climbed especially fast.

Despite all the talk of labor shortages and a tight job market, wages have not kept pace with the cost of living. Since April 2021, inflation-adjusted hourly earnings have fallen by more than 2 percent. Any stimulus savings that people had accrued have largely dried up by now, and there is currently no plan for federal relief for working people facing the affordability crisis posed by historic inflation rates.

ENORMOUS PROFITS

Profits, on the other hand, have boomed. According to the Bureau of Economic Analysis, pre-tax corporate profits rose 25 percent in 2021, the largest annual increase in 45 years. Another recent study of 22 corporations including Amazon, McDonald’s, and Disney showed that their shareholders reaped $1.5 trillion in wealth during the first two years of the pandemic—almost triple their earnings in the two years prior.

Oil and gas companies, for their part, have made a fortune since the war in Ukraine began. The largest producers collected nearly $100 billion in profits in the first quarter of 2022 alone, some 127 percent more than last year.

These enormous profits help explain much of the increase in prices since the beginning of the pandemic. This is not to say that price gouging by big business caused the inflation in the first place. Pandemic disruptions in supply chains, as well as energy and food markets shocked by the Russian invasion of Ukraine, are at the root of the problem.

But corporate pricing decisions have certainly taken advantage of the inflationary environment, and probably made it worse. In any case, the bottom line when it comes to bargaining is that employers can afford to pay.

RECESSION COMING?

What is less clear is how long this profit bonanza is going to last. Walmart, Target, and other retailers reported lower-than-expected profits for the first quarter of 2022. This is largely due to the ongoing inflation; the rising cost of food, fuel, and housing has forced households to cut back on expenditures like TVs and patio furniture.

Of course, we don’t need to feel bad for Walmart and Target. But given that consumer spending is a key driver of economic activity, this could be a warning sign of an impending downturn.

And there is an even bigger reason to be concerned about the health of the economy over the next year or so: the Federal Reserve. As the central bank of the United States, its official mandate is to help the economy achieve stable prices (that is, low inflation) and maximum employment. When push comes to shove, however, central bankers tend to be more concerned about inflation than unemployment—and those two goals often run at cross purposes.

A quick look at the mechanics makes this clear. The Federal Reserve tries to accomplish its objectives by using monetary policy, or adjustment of interest rates—lowering interest rates to give the economy a boost, raising interest rates to slow it down.

Why would they want to slow the economy down? Their reasoning is that inflation is the byproduct of economic overheating, or “too much demand chasing too few goods.” From this perspective, high inflation calls for high interest rates, which in theory will bring “demand” back to where it should be.

Beneath all the technical terms and concepts, what this means is quite simple: the Federal Reserve fights inflation by engineering recessions and intentionally raising unemployment. Monetary policy, when used this way, is a blunt weapon of class war.

GET IT WHILE YOU CAN

Early this year, Federal Reserve Chair Jerome Powell announced plans to begin doing just that—raising interest rates and ending other Covid emergency monetary measures. Since then, Powell and other central bankers have only become more hawkish, increasing the pace and size of scheduled interest rate hikes.

In addition to being an objectively anti-worker policy, this approach is also plain wrong-headed: current inflation is the result of pandemic shut-downs and war in Ukraine, not the result of an overheated economy. Monetary policy will not do anything about the supply chain problems, food and energy market volatility, or corporate pricing decisions that are driving prices upward.

What this new monetary policy may do is produce a recession. This is where inflation and the Federal Reserve’s response becomes most relevant to those entering bargaining in the coming months.

Corporate America has just had one of its best runs on record. And thanks to federal aid, state and city governments are in a better financial position than any time in recent memory. But because of the Federal Reserve, conditions may not remain favorable for long. So there is every reason to take advantage of this opportunity to lock in the most that you possibly can before things take a turn for the worse.

THE FED’S CLASS WARFARE

It is also worth taking a moment to step back and consider inflation for what it is: an issue of class politics. Why is the Federal Reserve’s monetary policy the only tool on offer for controlling inflation? Why does the burden of inflation control fall on workers, and not on corporate shareholders?

What if we limited corporate profits and controlled the prices of key goods rather than suppressing wages—would businesses stop investing? Let’s say they did. If so, couldn’t the government step in and provide more goods and services publicly?

There are no correct technical answers to these questions. They can only be resolved politically, through struggle over the kind of society we hope to call into being.

Samir Sonti teaches at the City University of New York School of Labor and Urban Studies.

A version of this article appeared in Labor Notes #520, July 2022. Don't miss an issue, subscribe today.