Where Does Inflation Really Come From?
A brief look at our current cost of living crisis and its historic connotations
I wonder what's at the heart of the current cost of living crisis and what it is that drives inflation?
Let’s have a look…
“Shell will increase its dividend and buy back more shares after high prices for oil and gas helped it deliver bumper full-year earnings after a strong fourth quarter. The UK-headquartered oil group’s adjusted earnings for 2021 — the profit measure most closely tracked by analysts — rose to $19.3bn, from $4.8bn a year earlier when the pandemic hit oil demand.”
Given that profits for energy big-wigs are higher than they were in 2014 when crude oil last traded at over $100 a barrel, I think we can safely knock the idea of "pent-up pandemic demand" being the cause on the head.
Put it this way; it hasn't suddenly become more expensive to extract gas and oil, the value of the labour to do so hasn't changed, and nor has the machinery or processes needed to extract it. In fact, nothing has changed whatsoever
So what gives? Is inflation just a result of market magic?
It's rank profiteering, plain and simple. Inflation, on the whole, tends to be profit-led, not cost-push. The idea of "pent-up pandemic demand", or demand in any case, is nothing but a pretext used to justify profiteering. In fact, in the article linked above, they don't even try and justify it! It’s openly and brazenly stated that "...high prices for oil and gas helped it deliver bumper full-year earnings". Politicians will say literally anything to try and obscure this, including lying about the weather.
Who ends up paying for this? We do. Because it keeps the shareholders happy.
And then when we workers start asking for higher wages to compensate for the cost of living increase, inflation will be blamed on us by the powers that be, just like it was in the 1970s. Rather oddly, the cause for inflation in the 70s is exactly the same:
”There were a series of energy crises between 1967 and 1979 caused by problems in the Middle East but the most significant started in 1973 when Arab oil producers imposed an embargo.
The decision to boycott America and punish the west in response to support for Israel in the Yom Kippur war against Egypt led the price of crude to rise from $3 per barrel to $12 by 1974.”
Rank profiteering and price gouging once again. The motive might be different but the outcome is the same, inflation skyrocketed by 27%. But most significantly, the cause of inflation was obscured from the general public for political reasons. This era is heavily mythologised within the political-media sphere as a warning against greedy trade union barons and overly-zealous workers demanding more than they needed. All the trade unions and workers were doing was agitating for better wages to keep up with the spiralling cost of living, but it wasn’t them that caused the problem in the first place. After all, consumers and workers don’t control market prices.
The net result of this clash of profiteering and workers demanding better wages was Thatcher and her cabinet of tremendous ghouls. Once in power, she quickly curtailed workers rights, defanged trade unions, and set about privatising our public utilities. This led to an era of social immiseration for the workers, rising child poverty, and fat wads of cash for the profiteers who were now free to do whatever they wanted, and with state backing.
Once again, we find ourselves on the cusp of an inflationary crisis caused by profiteering from a globally indispensable commodity, oil, and once again we’re amid a political crisis. This time we’re being warned not to demand better wages by the bankers because it might prolong the inflationary crisis; a pretext for justifying extended periods of inflation in the future. It’s an absolutely crazy proposition considering real-term incomes after-tax are predicted to fall by over 2% this year alone.
Andrew Bailey, the governor of the Bank of England, who draws a paltry £575,000 salary, said that while it would be "painful" for workers to accept that prices would rise faster than their wages, he added that some "moderation of wage rises" was needed to prevent inflation from becoming entrenched.
"In the sense of saying, we do need to see a moderation of wage rises, now that's painful. I don't want to in any sense sugar that, it is painful. But we need to see that in order to get through this problem more quickly," he added.
Painful! Ofgem recently confirmed that the average cost of heating a home will rise from GBP1,277 a year to GBP1,971 – a 54% increase.
Today it’s less “Eat Out to Help Out” and more “Eat Nowt to Heat House”.
Without being able to demand sufficient wage increases, many will be left to decide between heating and eating. Without sufficient control over the commanding heights of the economy, many of the big capitalists, like Shell, will be left to profiteer unabated.
Isn’t it funny how Mr Bailey has nothing to say about profit restraint?
His comments, if anything, are revealing. Tacitly he admits that the class nature of capitalism is a deep problem. Profits and wages are conflicting things - raising one means the other, in real terms, falls. It’s a zero-sum game acted out in perpetuity.
Over the last 5 years, the Big Six energy firms have distributed more than 82% of profits as dividends rather than invest in a better service and a sustainable future. Their effective tax rate in the same period was just 13%. Before the recent price hike, they’d made over £1bn in profits.
With all this, coupled with the lessons of the past, one has to wonder what horrors await us in the void beyond our present.
Electing a competent government remains our greatest challenge and yet it appears our only way out. We’ve had nothing but a succession of utter bastards since 1979. The latest is probably the worst, so expectations remain, of course, low. He cloaks himself in the garb of the great statesmen of yesteryear, those who’d bought about great social-democratic change during the post-war consensus, those who bought about the NHS, built housing, and gave workers the rights to negotiate for better wages and prices. He echoes the rhetoric of Thatcher in “levelling up” and his actions, by the same token, are just as meaningful.
He fancies himself Winstonian but appears a crude facsimile at best, with the all political proficiency of a spoilt spud.
History certainly does appear to repeat itself.
As a certain philosopher once remarked; all great world-historic facts and personages appear, so to speak, twice.
The first time as a grand tragedy, the second time as a rotten farce.
