Inflation is a symptom of a much deeper problem, one that is coming to a head.
The 1998 political dramedy Primary Colors features the small but pivotal role of Lorenzo Delgado, played by John Vargas. Delgado is the former secret gay lover of a politician. He’s dying of 90s aids.
Vargas’s performance is haunting and the dialogue is of unusual quality:
It’s strange. My body temperature is always off one way or the other. Too hot or too cold. It’s never just right. Sometimes the tiniest breeze can set me off shivering. There’s nothing I can do about it. I can’t turn it off. I just gotta let it ride.
The scene, which I haven’t seen in years, maybe decades, has been playing over in my mind recently, as I hear there’s low unemployment and apparently a labour shortage. But wages have only just outpaced inflation over the last two years, and have not just fallen behind but reversed their gains and been falling since April. Some might argue that this is due to casuals missing work because they are sick, but payroll jobs (which would have sick leave) are also down (or at least flat) since April. Men’s payroll jobs are down, both since their April peak, and year on year.
It’s no bonanza for workers.
I suspect that what the low headline unemployment numbers we’re seeing at the moment actually represent is not so much an increased appetite (in terms of willingness to pay) for labour from employers, but a grand moment of surrender, in which people all around the world, especially of the millennial generation, battered down by house prices and Covid and everything else, decided to give up on real careers, and take whatever shitty job they could find. This means settling for low and stagnant wages, even as the cost of living rises. With success like this, who needs failure?
But employers aren’t having a good time either.
So are we hot? Or are we cold?
Neither. We are dying of 90s aids.
The big picture is this:
Businesses need labour. But businesses can’t afford labour. At least not at the wages that would allow those workers, collectively, to purchase the goods and services that these businesses, collectively, are selling. For decades this has been the case, and credit has been filling the gap — as Geoff Crocker has documented in his book Basic Income and Sovereign Money.
To keep the spending flowing, and the interest payments covered, the rate of lending had to constantly accelerate. Old debt’s were (as Steve Keen’s work shows) replaced by new, bigger debts — big enough that on an economy wide scale they could absorb the old debts and sustain new spending. That meant that interest rates had to keep falling, and they did. Until they couldn’t. Now the gears are jamming.
The people in charge have no idea what they are doing, or we wouldn’t have gotten here. It’s going to be carnage. The financialisation of our economy has made us all hypersensitive to the actions of central banks, who cannot move an inch in either direction without triggering a disastrous cascade of reactions across the economy.
So here’s my prediction:
The central banks of the world will kill inflation, but in doing so they will trigger a full blown deflationary spiral. After that it’s anybody’s guess. At that stage we’re talking about how the wreckage will scatter after the plane crashes.
This is not a normal credit cycle. This is not 2008. This is bigger.
Change has always been inevitable. Now it’s here. Anyone talking now about a short and shallow recession is going to look very stupid. Anyone betting on a quick recovery is going to be sorely disappointed.
A return to the normal is the only thing we know won’t happen.