This is Democracy – Episode 202: Inflation

This is democracy, a podcast about the people of the United States, a podcast about citizenship, about engaging with politics and the world around you. A podcast about educating yourself on today’s important issues and how to have a voice in what happens next. Welcome to our new episode of this is democracy.

Uh, this is an important episode for us because we are on the cusp of summer. And we’re also on the cusp of what is now an undeniably, uh, inflationary moment in American society and in world society, uh, we’ve become accustomed over the last two decades to, uh, a period of relatively low inflation and stable prices.

And that has all changed in the last few months as anyone who has Purchas. Uh, gasoline for their automobile knows. And, uh, we’re joined today, uh, by a historian, uh, policy commentator, public intellectual and friend, uh, who has done more thinking about inflation in historical and contemporary terms than anyone else.

I know he was thinking about inflation when people thought inflation was a passe subject and has written, uh, important work, uh, as a scholar and public intellectual on the topic, uh, that is as many of, you know, Adam twos. Adam is the Catherine and Shelby Cullum Davis professor of history at Columbia university.

Uh, he is, as I said, a leading economic historian, uh, not just in the United States, but, uh, on at least three or four continents. And he’s the author of numerous prize winning books that I routinely impose upon my students, uh, statistics in the German state, 1900 to 1945 wages of destruction, the making and breaking of the Nazi economy, the deluge, the great war and the remaking of the global order.

Uh, the two most recent books that would be most relevant for today’s discussion crashed how a decade of financial crises changed the world and his, uh, most recent book from 2021, uh, shut down how COVID shook the world’s economy. Many of you I’m sure are familiar with Adam’s writings from the New York times, Washington post the guardian, his, uh, quite famous chart books, uh, that are linked and, uh, commented on, on Twitter all the time.

Uh, Adam, thank you for taking the time to join us today. Pleasure to me. Before we get into our discussion with Adam. Of course we have, uh, our, uh, poem from Mr. Zachary Siri, and, and this was a tough task. Zachary writing a poem on inflation. Certainly this might have of the 203 episodes. This might have been the most difficult, uh, poem for you.

Yes. Okay, go ahead today. You’re at the gas station worthless today. You’re at the gas station worthless. Isn’t it all premium unleaded in your hands. The paper becomes worthless. You are on the moon, smiling, worthless, you awake another dream. You have dreaded today. You’re at the gas station. Worthless, fold it in and out.

Hurt it. It’s useless. Rub the green off your fingers are leaded in your hands. The paper becomes worthless. In a supermarket aisle, worthless, starving. You were marching past bear headed today. You’re at the gas station. Worthless, bend it up and down. Tear it. Remorseless. Don’t stop till it’s in pieces and shreded in your hands.

The paper becomes worthless. From here, you seem frozen in time. Birthless isn’t it all premium unleaded today. You’re at the gas station. Worthless in your hands. The paper becomes worth. I, I love the worthless, uh, refrain there. Zachary, what is your poem about? My poem is about how, what can seem to us, uh, something ordinary, a very basic economic transaction can, can be in the life of an ordinary person, uh, deeply important and, and, and, and emotional on almost a grand.

And, and what about the worthlessness of the cost of gasoline? What are you getting at there? Right. I’m getting at the fact that, that it can be so, so depressing, so it can, it can impact us emotionally, not just economically. Yeah. Yeah. So, so Adam, why are we in this inflationary moment? Why all of a sudden, if gasoline prices in Los Angeles, for example, gone from around two or $3, a gallon to $8 a gallon and, and what seems like a matter of days, why has this happen?

Well, I mean, I think, you know, to, to dub it, an inflationary situation is already to concede as it were that there is a big drama going on here. And another way of looking at it is simply that oil prices have gone up in the way they do. Sometimes they also go down and when that happens, American oil prices go up and petrol prices go up.

Gas prices go up. It’s nowhere near extreme in the United States, as it is in many other parts of the world. Um, but American consumers are hypersensitive on this issue and. And so, you know, that’s the situation we’re in. Um, in that sense, you know, there’s no real drama here. And, and to construct this as an inflationary moment of drama is already, as it were to take a position on where we’re at, basically sure.

You know, us inflation, the last inflation print was 8.6%, which is high relative to what we’ve experienced in recent decades. It’s um, roughly about roughly half of what it was in the, the big phase of inflation in the 1970s. You know, talk of hyper inflation and this kind of thing, which you can EPH occasionally see in finance that is absurdly exaggerated.

That’s, you know, 50% a month. So that’s not where we’re at. What we’re seeing is a spike in a variety of different prices around the world. Um, the world banks analysis says broadly speaking that everywhere around the world, three different forces are in play. Uh, one is the energy price, the dislocation in global energy.

Um, another is a more variety tool in a wider variety of cost, push supply chain type issues. And then a third is demand side pressure and roughly speaking at the global level, it’s one third, one third, one third. In terms of the quantitative significance in the us, the demand side element has a slightly strong, uh, uh, component in, in Europe.

The believe it or not, the energy price, uh, uh, is more significant because gas prices that is natural gas prices there. Have gone through the roof in a way that Americans could barely imagine. And we’re talking about huge escalations in domestic heating costs. So anyway, that’s the, the basic makeup of this.

Um, but it, yeah, it translates into these, you know, CPI, consumer price, index numbers, which are much, much higher than we’ve been used to in, in a while. And it’s been very sudden because as recently as the summer of 2020, , you know, the question really was of low inflation of inflation below the, um, the official limit of 2%.

And so it’s been a, it’s been a, a rapid acceleration to levels we haven’t seen in a while. And that’s really the source, I think, of the, the shock, but you put it in perspective, really? I think, um, there’s no reason to overdramatize this and, and. Forecast suggests that prices will be coming down again. We may be close to the peak if we’re not at the peak, we’re very close to it.

And we would expect prices to start coming down again in the latter half of this year. And certainly next year. A, and, and Adam, how is this related to one of the other phenomenon of our time, which is the, um, shortage of workers, right? The United States unemployment rate is below 4% and it used to be conventional wizard when I took economics courses that, uh, 4% was full employment.

Right. And we’re at 3.6%. I think when I look today, um, is, is that related to this too? Is the, is the, is the labor shortage part of the inflationary pressure as well? It, it, it would be. Uh, real wages were increasing. I mean, so, you know, we have this measure, which is real wages, which is the nominal wage dollar dollar wage in proportion to the price level.

And, and wages can be a driver of inflation. But if, as they currently are, they lag behind inflation and real wages are falling. Then one has to say that wages are adjusting to inflation and not in and of themselves drivers of it. Now that’s a gross statement for the whole country. If you break it down and you’ve got particularly hot labor markets, Um, then one can, well, imagine, I don’t know, in Austin for sake of argument or in New York, that the, the shortage of particular types of workers say in the service sector will lead to an excavation of prices.

But, um, but in general right now, uh, not in the us and not in Europe, which are the two hotspots of inflation amongst the advanced, the economy’ globally. Are we seeing wages as a major driver because in both parts of the world, Real wages are actually falling. Um, so workers are failing to, to, to catch up with, uh, the price increase.

Uh, this might be somewhat speculative, but if, if the inflationary moment we’re in now, uh, if we’re gonna term it, that, uh, is the result of, of larger macroeconomic factors at an international level. Why do you think here in the United States it’s become such a domestic political issue? Uh, it, it almost seems as if, uh, you can trace the Biden administration’s, uh, uh, approval rating, uh, as a sort.

Opposite of as inflation increases in, in the United States. Yeah. And the Biden administration has actually, uh, tried to externalize this right and point the finger at putted and say it’s putted to Russia, which is driving gas prices up, um, and has failed to get that message across. Um, but I mean, I, you know, it’s tempting to say something catty and European, like all American politics is always, always about America.

He never really escapes that bubble. Um, but, um, but that’s not quite true. Right. Cuz in the 1970s it was popular to blame. It was popular to blame Iraq and, uh, inflation on, on OPEC. And they, they tried that this time around too. And, and it just hasn’t, it just hasn’t worked. I mean, in part, I think those are the nature of American politics right now.

There is a substantial percentage of the American population, which is just looking for reasons to hate on the art. Administration and along comes inflation. So they hate all the Biden administration. The latter reason, I mean, to a vast majority of the Republicans are people who are Republican aligned believe or, or at least when asked by opinion, pulse is professed to believe that America is currently in a recession, which is just ludicrous.

Right? I mean, well, well, that’s sorry. That’s rather, I shouldn’t put it like that. Let’s just say that their perception of the economy diverges quite dramatically from that of any economist, um, Because what they’re experiencing as these rising costs of living and, and things are going badly. And so therefore, you know, recession is a bad word about the economy and the Democrats are bad.

So that’s how that arithmetic appears to work. It’s generally true right now that perceptions of the economy in the us are not meaningfully independent of parties and alignment. So when Republicans rule the Democrats feel that they’re badly off in economic terms. And then literally on the day of the election in the Michigan consumer surveys, you can see this, the assessment flips, you know, no nothing else has happened, but, but your party either won or lost the election than all of a sudden you feel much worse off economically.

So the, the perception here is massively influenced by partisan. Um, the other, the other more mechanical kind of social physics element of this is that the triumph of the Biden administration. And I don’t think it’s wrong to call it that is to have achieved full employment, but that of course benefits the minority of people who are at serious risk of unemployment.

Um, you know, even in the worst, like the great depression or something like that, 25% of the population unemployed, that’s a, I mean, that’s an epic historic recession. So that tells you three courses of people still have their. um, inflation affects absolutely everyone employed or not. And so that’s, I think one of the reasons why the inflation, uh, surge is such a problem for the Biden administration, that they can, they can talk as much as they like about the fact that hardly anyone’s unemployed anymore, but most people will shrug and say, well, I wasn’t at any risk of being unemployed anyway, so this doesn’t do me any good.

Um, but what does hurt me is the fact that yeah, gas costs more or, or food costs more, or that my, uh, now my mortgage rate’s gonna go up, which is going to be as it were. This is the knock on effect. Mm-hmm well, why is it Adam? And I think this is a potential parallel between the United States and Germany.

Two countries you’ve studied closely. Why is it that there is this, um, psychosis that occurs around inflation? Uh, we can think of the United States in the late 1970s and how this, in a sense, hijacked, uh, president Carter’s, uh, sets of policies. And, and of course the German example you’ve written about it extensively.

And you’re not the only one of course uh, why is this? Is this a function? These particular democracies or how do we understand this historically? Well, I think it’s difficult to be cool about inflation because it does affect absolutely everything. Um, and it affects something rather fundamental about societies, right?

Which is, which is money. And, um, money is up there with law or language as a sort of general medium through which we organize life social. And if you are not anchored on the gold standard, which is something that we gave up in a world historic break in August, 1971, one of you know, one of, one of the world historic breaks attributable to Richard Nixon is not the only one.

Um, at, on that moment. Onward, all currencies in, in the world are, are dis anchored. They’re no longer anchored in metallic, um, standards. They’re no longer anchored on gold. They have no, they have no fixed foundation. And so we live in this kind of world of relativism for the last half century in which there’s no real good answer to the question of why is money worth it is worth what it is other than to say, well, it is, and everyone accepts it as whatever it’s worth currently.

And by that, you mean. Not that you can go translated into gold or get it converted to something real that, that kind of fiction or that, that reality that underpins the gold standard. But that really what it’s worth is what you and everyone else knows it exchanges for at Starbucks or at Walmart, or, you know, wherever you go to exchange cash or things, and for that fragile or pervasive.

But, and, and to that extent, rooted socially rooted phenomenon to lose its stability. Um, is really disconcerting. I mean, imagine if words progressively day by day shifted their meaning, like, you know, today apple means apple, but tomorrow it’s apple now spelled with, you know, just one P and then the day after they’ll take the L out.

And then the day after that they remove the E you see what I mean? Like imagine if the entire structure of communication was destabilized in this incremental. It would be very, very disconcerting. And we would immediately say, no, stop this slide. You know, this is a slippery slope. Soon. We won’t be able to communicate with each other at all.

My God, like everything would lose its meaning. That would be, and that’s essentially what’s happening with, within an inflation, certainly a serious inflation. I mean the one we are facing right now to reemphasize is not that kind of inflation, but it’s bad. Um, and, and one thing that we’ll follow from that is to continue the language, you know, analogy is in a sense, people will stop arguing, right?

Cause they can’t agree on what things are worth. And, you know, you’ve written a book which is full of all these words, which don’t mean what they used to mean. And so then, you know, you have to sort of find a way of Reval that, and, and, and that’s another reason not to like inflation. It’s not just that it destabilizes values, but it unleashes conflict over what has value in, what does.

building on your, your insightful analogy about language and money as a kind of language. Um, in a sense, uh, in order to maintain the value and integrity of money, especially post Brett and woods central banks have played an important role. And this is the role of course, that the Budes bank had played a long time.

And, uh, the European central bank plays, uh, for much of Europe now. And of course the role the federal reserve has played in the United States, going back to its founding in the early 20th century. And most recently, uh, in with the veneration of federal reserve managers like Allen Greenspan and others.

Why have these institutions failed recently to manage this, um, moment of inflationary pressure better? Because, um, I think they took a calculated risk to be honest. Um, the priority of, of policy coming out of the COVID shock of 2020 was first of all, to prevent a meltdown, a financial crisis, which was the top priority in the spring of 2020, and then to provide a capacious and supportive monetary policy backdrop for the efforts of fiscal policy of government spending welfare.

And other measures, um, to restart both the American and the European economies and ensure that we didn’t suffer a long COVID in the, the labor market. And, um, that was always. Somewhat risky proposition because it meant basically keeping the taps open for long. Um, and then they got unlucky with a series of supply side shocks, the, the energy shock and the, the various, uh, supply chain bottlenecks that we were talking about a minute ago and were slow.

You might say to realize just how high this was going to go, but it’s, it was very quick, right? So the inflation talk didn’t really start in earnest until the summer of 2021. And they made the judgment call that they wanted to keep their foot on the gas for a few more quarters and, um, have pivoted really since the well, since December, but I think that’s the, that’s the trade off.

Um, and it could, you know, it’s certainly true that in recent decades, central banks have not had to worry about inflation. In fact, if they’ve worried about, and I think it’s disinflation falling prices, right? Deflation, even when, when prices literally can. Go negative. We have negative inflation. And as recently as the summer of 2021, it’s really hard to credit now in retrospect, but, but both the fed and the ECB changed their inflation targeting rules.

So as to allow more cognitive policy, so the fed went to an average inflation targeting rule, which meant that if. Inflation goes above a certain goes below a certain level for a period of time. The fed is, uh, is mandated to go above, uh, that inflation rate of 2% for a period of time to offset. So it’s to achieve on average, 2% inflation and the ECB tinkered with its rules.

Which previously had said inflation below 2% to say inflation of 2%. So not to her below, but to, to literally try and target two, both of which were inflation biased. So they, they were, they were pushing it a more expensive direction that’s and that at the time was thought to be a perfect, no rather wonkish, but nevertheless, quite sensible adjustment.

And within months we were in a very different reality. So that’s, that’s, I think the, the backstory here, um, a period in which they just didn’t have to worry about inflation very much to the point of actually thinking they needed to change their rules, followed by some very severe supply side shocks, but to reemphasize, I mean, you know, most forecasting says.

We’re at peak or very close to peak. And by, you know, this time, next year, we would expect inflation to have come down very dramatically. Especially since now we are, of course, seeing a quite vigorous response from the fed. right. So, so your sense then, uh, putting this in a wider historical frame and thinking not just about the, the, the, the quick rise in prices, but comparing this to what would be a more historical inflation rate, which would be much higher and seeing this as not at anywhere near that, that crisis level, your advice then is not to overreact now.

Um, just. We probably should not have overreacted to the deflationary pressures of about a year, a year and a half. Well, no, I mean, even more biased than that, I think we did exactly the right thing in relation to the deflationary pressures of a year and a year and a half ago. I, I, I don’t, I don’t, I don’t second guess any of those calls.

Um, but, um, I certainly think we shouldn’t overreact to the pressure now, um, in the us, I think there’s more rigor room because the us labor market is so strong, relatively speaking. That there’s a little bit more room, um, for action. But, um, in Europe, in particular, I’m, I’m really quite worried about the recessionary impact of the war.

I mean, after all, you know, Europe is, is the neighbor of a major shooting war. And as of this week, it’s quite clear that Russia is going to use the gas weapon. And so Europe could be gas rationing by, by the second half of the year. And that’s not the environment in which you want to be raising interest rates.

Right. So. Um, certainly in Europe, I think there really is a concern and this isn’t even before we get into the Italian sovereign debt and all of the whole Eurozone in bro, but, but, um, in Europe, I think there really is a risk of, of, um, tipping this over and globally as well. We shouldn’t underestimate the deflationary recessionary pressure that comes from China, cuz China’s not done with COVID and there is a serious issue there.

Serious. Potential risk of, of, um, if not contraction exactly. Then a really quite dramatic slowdown in Chinese growth. Not saying that will happen, but it’s out there as a possibility. And if that were. Be the case. It will feed food to a, not just a, a, a deceleration inflation, but actually full commodity prices.

And in certain sectors, which are super China sensitive, like iron O we’re already seeing that iron O prices are way off their peaks. Um, so because iron O goes into steel and steel goes into Chinese construction and Chinese construction is slowed down dramatically cuz of the real estate bus there. So a balance of pressures here, the us is in a sense, the simplest.

Sure. The fed moves interest rates up. Not really gonna be much arguing with that, but I think in, in Europe, it’s a, it’s a finer judgment. So, so what should they do? What should, um, Bundis consulate Schultz, uh, as the leader of, of a country that shares at least as much of a concern about inflation, historically as the United States, that’s, uh, still quite dependent upon Russian gas and oil, as you said.

Uh, but also committed to, uh, reversing Russian aggression in Ukraine and elsewhere. Uh, what, what can the historian offer his advice? Well, I mean, the temptation is to do things like to actually try and control prices, uh, or as president Biden has been suggesting that, you know, lower taxes on the commodities that people feel particularly sensitive about.

Generally speaking, I think both of those are less than attractive options. Um, notably the tax reductions for. For petrol. I mean, that’s, that’s really totally counterproductive cuz it encourages the consumption of something that scares you. That’s not what you want to do. The, the reason to be concerned about inflation, I think is, um, the distributive impact on low income households.

And so I think economics 1 0 1 would dictate. That you provide income subsidies to low income households, um, to shelter them against all of these price increases. I mean, to put it bluntly, if gas at these kind of prices is a problem for you. It’s not because gas is at that price. It’s because you are poor.

You don’t have enough household income or you are stretched, right? The balance between your budget. You just have no surplus, you know, slack. So that’s the problem to address, not the, not the price. Uh, let the. Rip essentially, cuz it sends the right signals. It will send the signal to increase energy production in various ways.

Doesn’t have to be fossil fuel, but, and it, you know, as fossil fuel prices go up, it increases the demand also for renewables or substitutes and it curbs demand. Why not? Why not? Why not just follow the. Sort of basic logic of microeconomics. And then if you have, as we absolutely should have serious concern for those at the bottom of the income pyramid in the United States, as in Europe, well then it subsidize their incomes.

Um, and that’s, that’s the way to, that’s the way I think, to efficiently handle this. Um, and you can do that through tax credits, or you can do that through check. Right. I mean, that, that makes perfect sense, right. That those who are feeling the pain, um, because they’re in low income situations, provide them with a subsidy that I, in essence, evens out the price increase.

So they don’t feel that, uh, when they, when they’re purchasing food and, and you could even target that at particular commodities at, at food, for example. Yeah. I mean, the. The downside of it is that it involves a kind of means testing, discriminatory logic, right? Um, that, that basically you have to identify households that are poor.

And that’s also one of the unattractive features of say the food stamps program is like, you know, it, it it’s discriminatory. Um, but on the other hand, it’s efficient and it’s not distorting of signals. Um, and, um, and that’s, that’s a huge benefit price controls, which are, which were hotly discussed a few months.

Um, and have historical, um, precedent after all in the 1970s again, Nixon. Sure. Um, all the way through the 1970s administrations, it was the Reagan administration, which finally de control, um, petrol in the us they’re potent in the sense that they immediately act on the thing you’re worried about, which is inflation, but they are also seriously distorting.

And furthermore, they a. Interest groups around them, right? So once you fix the price, then those who benefit from that, obviously have a huge investment in trying to maintain that price, that price peg, and you will get distorting. Um, counteractions by people who, you know, are forced to sell whatever commodities in short supply at that price, which is by definition, less than they could get to the market was three.

And so those lines that you know is famous in the United States in 73 and 79 are I think, I mean, it’s, it’s broadly speaking understood, not the result, really of an absolute shortage of oil in, you know, available to the us. It’s just that it was not in anyone’s interest to supply it at the controlled prices.

And so, unsurprisingly, you know, supply was short if, if. If there’d been a pricing mechanism, then prices would’ve gone up. People would’ve been squeezed. You would’ve had hardship, but you would not have had queuing. You know, those are the two basic ways of allocating scarce resources, queuing, or, or prices.

So if you see a queue as econom, as an economist, you ask why wasn’t there a price adjustment. Right right now. That makes perfect sense. That, that I, I guess the question though, Adam, and this is the, at the center of your work, uh, these are political decisions as well as economic decisions. And it seems the logic of a fiscal subsidy to counteract the inflationary costs for poorer families.

I is politically non-vi and almost every democratic society I can think of now. Right. And in fact, many, many I think are, are, are blam. Some of Biden administration’s subsidies for the crisis accurately or not? Well, in the, in Europe, it has to be said, subsidies of that type are viable and have been used quite extensively.

Um, and I don’t see why one couldn’t make them work in the us by various types of, uh, tax credit, which are effectively that, that kind of mechanism, right. You set some sort of a threshold in households whose tax bill falls beyond a certain below a certain level receives some sort of tax credit system. I don’t think one should rule them out as in impossible.

Um, But it’s obviously more attractive to offer a big benefit to everyone. right. That’s, that’s undoubtedly an easier political sell. Right. Right. And, and, and the other challenge I think, is, as you say, um, figuring out where, where you set these thresholds. So, so who, who should receive the subsidies and who’t right.

I mean, this is always, this is always the, the challenge and there’s also a big relativity issue, which is, um, You know, it’s all very well to say, well, fix this in terms of income, but, but many households with quite considerable incomes whose budgets, however, are tightly stretched because they’ve got large costs for education or whatever will feel this pain very acutely.

Right. So if you’re having to operate three cars in a family and, and are driving kids hit, or, and the right this will hurt. Um, so you are also making judgment calls of that type. Like where exactly do you draw the. Um, and who’s paying counts. Um, obviously I think at some level we can make a distinction between people whose income is just, just take the poverty line and just do some kind of multiple of that, for instance, um, that would certainly work.

um, mm-hmm but yes, it does. It absolutely involves judgment calls. All of these things involve judgment calls, right? If you use price controls, it’s a judgment call too. One of the ways of understanding the politics of something, you know, what we now call neoliberalism of the seventies and eighties is precisely to pull back politics from making these kind of judgment calls.

Because when, when politics is involved, that deeply in the mechanics of the market mechanism, it’s, uh, It’s it’s it’s uh, it’s, it’s tough, right? It’s tough to avoid responsibility for crises. Um, and you lose your wiggle room because interest groups swarm then around those, around those commitments. Right.

And of course this, this is the, the posture that the federal reserve takes and that the Bundis bonk and the European central bank tank, which is to say that they’re they’re they’re technocrats, right. They claim that they’re making judgements based on an objective or somewhat objective reading of the data.

But of course there is enormous political pressure on the actors, in these, in these settings. It is what I mean, the, the basic move was to hand the inflation problem off to them. First of all, yes. I mean, what politics says, well, Hey, this is for you and it’s a nasty problem. We’re giving you, but we will make you unelected.

So that’s the trade off, right? You’ve got one simple mission. Keep this inflation thing by around about 2%, not asked to do anything else. I mean, of course in the Fed’s case, they do have a jewel mandate, so they have to balance. But, um, undoubtedly, yes. I mean up to and including, you know, speculation about.

You know, really manifest the political things like should the fed condition its policy. So as to minimize the chance of a Trump election or reelection, right, like, right. This was openly discussed in 2019. Amongst liberals associated with the fed. Sure, sure. Like, um, you know, could, could could, if, if, I mean, and you can see the logic and it’s a technocratic logic, if you can identify literally through quantified econometric studies that the incumbent in the white house is currently the largest source of uncertainty in the global economy, you could do this like qu you can do econometric studies that show.

From his pronouncements and their effect on markets. And if that is spreading uncertainty to the economy and that then in turn makes it more difficult to manage the trade off between unemployment inflation. Can it be conforming with the Fed’s mandate to conduct a policy that makes it more likely that that income is returned?

Right? I mean, it’s a, it’s a, it’s a completely technocratic argument. And, you know, from the left wing, of course, one is. One is used to this kind of logic, right? It’s, it’s just a matter of common sense to conservative central bankers that obviously they should not conduct policy, which enables left-wing governments to get reelected easily, but it’s rather a more, rather less common for, for this kind of logic to be spelled out in relation to a, a Republican president.

Well, and, and I think that’s, that’s the question I really wanted to close on because I think it brings us full circle. Uh, so much of your work Adam is, is about how, um, these moments of economic crisis and they have a variety of causes. So we shouldn’t, we shouldn’t pigeonhole the analysis here. There’s but your work is about how these economic crises contribute to political extremism of one kind or.

Uh, which in most of your work leads to war and, and really bad things, mass death in many cases, uh, genocide. Um, and, and, and so I, I think that’s the shadow that hangs over these issues. It’s not just Trump, right? It’s in, in a world today where democracies are in a precarious position in many of. The centers of historical democratic development, um, to, to what extent are we witnessing, whether it’s a real inflationary crisis or just a perceived one, to what extent are we teetering on the edge of another source of extremist, um, activism as a consequence of this and, and what should we do about it?

How should we think about these economic decisions in light of that history? Yeah, this is a, a key question obviously. And, um, it, it also, I think allows us to introduce one of the key points to make from a historical point of view, which is the, you know, the, the way in which the current moment does and does not remind people of the 1970s, cuz in certain respects you could say, you know, the parallels are strong, right?

There’s a, there’s a war as there was in 73. There’s an energy price shock as the was in 73. There’s indeed. There’s an energy. Boycot from Russia on gas as the was in 73. So is this not a similar moment and, um, the fundamental difference and it goes directly to this issue also of populism. Um, Is is how interest, how economic interests are articulated with politics in the two epox separated by half a century.

And the, and the crucial thing about the 1970s story. And this is also tied up with the idea of the wage price spiral. Is that in the seventies, the struggle over. Who won and who lost, who adjusted and who didn’t to the inflation was essentially a story of collective action. The, the key actors were trade unions in other words, and employers associations on the other side.

And so the seventies or a period, the last great period, really of class struggle in the advanced economies of the west in the broadest sense, including Japan as well. Um, they’re the last great period of substantial labor militants. So you’re running through to the mid 1980s in, in. And in that moment, the socially economic stress is translated by means of collective organizations, which are not party, party political, but are of course aligned with party politics in various ways, um, into.

An explicit bargaining over who gets what and how you divide up the cake. Right? And so it’s a, it’s a model which was formed in the 20th century, goes back to the turn of the century, early 19 hundreds, last great heyday of what was then called CISM in which those sorts of collective interests bargain directly over this problem.

And, and what’s so fascinating about the current moment is that we do have these analogies in many ways, but what’s entirely missing is that intermediary layer of social organization through which. Interests of the individual and then shocks and the experience by the individual translated into collective causes and then bargained out collectively, uh, and society it’s a little bit like the Putnam bowling alone type thesis, right?

That once upon a time society had this soft tissue of various types of organization, uh, and those many of those were afraid since the 1970s. And this is true in the labor market as well. And so that I think is part of the story here, or the question is not just what does, how do societies react when they are faced with.

The distributional conflict, but how do they react when they are faced with distributional conflict, without the articulation of organizations like this, to translate them into bigger claims and societal claims in a, in a general way. What, what happens when individuals really in an atomized way confront these kind of pressures, which is our current moment now.

In some ways it can be empowering. Like, so what we’ve seen in the American labor market is that the wage of lower page workers has gone up more. Right? And there are incipient signs of a wave of collective organization in the us in, at Amazon, at Starbucks famously, you know, been trumpeted everywhere as the, as the new Dawn of collective organization.

But the reality is that in fact, organized labor is virtually powerless, uh, in the current moment. and I think that’s what really then opens the door. I think in my mind, at least to these other ways in which resentment and, and frustration can be expressed. I mean, in, in the French case is the one that’s really most striking.

Yes. Cause we’ve just seen a great breakthrough for Marine lap. Penn’s latest incarnation in the French parliamentary elections, not the presidential that she lost, but in the parliamentary elections, which will decide whether background can actually govern. And if you look at who her voters are. They are the people who once would’ve been literally communist party voting, trade unionists, or socialist party voting trade unionists, working class, French people, and where they’ve ended up is in her camp.

So this is a much more clear example than the blue collar Trumpian kind of story in the us of this kind of, of this kind of logic, um, where the structures of collective action have gone away. And so individuals confronting this crisis, this cost of living. This crisis in an unmediated way, if you’d like find themselves drawn into this new promise of national integrational politics that someone like per Lappen offers.

So that that’s, I think one of the great challenges in the current moment, um, which is why proactive government policy would be so welcome if it could, as it were cushion this, but otherwise I think one has to ask oneself, how does that, how does that answer come? Where does that answer come? Right. And that’s, that’s actually what was going to be now.

Truly my last question for you, Adam, is what would you say in light of, I think that that really powerful contextualization you’ve given of this now, what, what would you say to, um, the leaders of the G seven, who I think are talking about this in precisely these terms, they, they share these concerns. What, what should they be doing?

What levers should they be thinking about right now? Well, I think they, they need to activate, um, fiscal policy in the way that we’re talking about. Yeah. I mean the, and, and they need to act activate it very intelligently though. Right? Cause the, cuz the, this could open the door to another round of austerity, which is really not what we need.

I mean, it is true that we maybe need to dampen down aggregate demand for which you need to tighten fiscal policy, but that has to be done with acute sensitivity to the distributional issue. So ideally what you would do be doing is skewing as it were. Restrictive policies towards the top end of the income distribution while simultaneously raising the nominal income of those at the bottom of the pile.

And if that’s the maneuver that really needs to be pulled off. And when I say that for this, I think we can co seriously agree. There are no political majorities. So this is a. Really difficult to do, but that, that in an ideal world is what you would be trying to do. You would literally be trying to raise the tax level at the top and of various points.

This spring Democrats in Congress have proposed precisely this kind of measure, right? You have some sort of excess profit tax operating at the top end to claw back some of the profits. And then you, you redistribute some of that. To, to the bottom to ensure that their nominal incomes are stabilized. And that would be, that would be the most effective way of doing this.

I mean, defacto, what we’re seeing in the us right now is a fiscal contraction. It’s quite powerful. Actually. It’s not discussed anywhere near enough because as the stimulus programs run out, That creates a kind of mini fiscal cliff. Um, and that’s actually one of the other reasons why I don’t think this inflation is, you know, I think it’s going to peak relatively soon and then come down quite quickly.

Cuz the, the fiscal side right now is exercising a very considerable drag on the us economy. On top of the tightening, from the fed. Ideally you would do that tightening in an equitable. Right. Right. So Zachary, you’ve listened to this and I know, uh, this is an issue you follow closely and talk quite a bit about with, with other, um, young emerging individuals in our society.

Um, do, do you see, uh, mobilization around, around young people for the kinds of, uh, fiscal. Uh, activities that, that Adam suggests I think so I think that, that there is agreement that, that something different is needed. I think part of the problem is that, um, That, that unfortunately, uh, the messaging is not there right there.

Isn’t the sort of, um, political will. Um, but there isn’t, there, there, isn’t the sort of outreach to convince the average American that what is needed, um, is a sort of redistribution, uh, policy. And I think part of the problem is that that, that, that we’re not willing to. We’re not even willing to think in those terms.

Um, or are we educate, are we prepared? Are I honestly don’t think so. I think that, especially at, at, at, at a very like a secondary school level, there is too much of an emphasis on like classic neoliberal economics to really take. uh, that kind of policy as seriously as, as we should. Right? Right. Well, I think, uh, as always what Adam has given us here is a tour to force and, and also a tour de Al uh, of some of the key issues.

And he’s, he’s helped us to think through the intersection between the fiscal choices, we make the choices we make with how we spend our money and, uh, the context of the pressures that we face and how we should think. The rising prices in our societies, uh, why that’s occurring. But most of all, how we. Act in ways that help those who are hurt the most, uh, rather than simply trying to, um, stop, stop the, the rising prices in ways that actually might be more harmful than, than a more effective set of fiscal policies here.

And I think one of the lessons from scholarship is that actually the. The problem is not usually the inflation per se. It’s all of the social and economic consequences that come from it that can be dealt with or cannot be dealt with depending on policy choices. Um, as always, I think Adam, your work reminds me of how much of a better job we as historians, as well as non historians have to do in, uh, writing about economics in ways that are, are useful as, as your work is.

So, so thank you for joining us today. Uh, Adam, it’s been a. And Zachary, thank you for your insights and your poem. And thank you. Most of all, to our loyal listeners for joining us for this week of this is democracy.

This podcast is produced by the liberal arts, its development studio and the college of liberal arts at the university of Texas at Austin. The music in this episode was written and recorded by hero Kini. Stay tuned for a new episode every week you can find this is democracy on apple podcasts, Spotify, and Stitcher.

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