The first interest-rate hike of the year was issued by the Federal Reserve last week in order to slow the American economy and hopefully lower the prices that American consumers are paying. Raising interest rates knocked the economy into a recession and spiked the unemployment rate as high as 11%, which drove down prices. Some experts don't think raising rates will address the inflationary crisis.
The rising prices that have plagued Americans for the last six months are not your grandfather's inflation, according to the latest episode of thePitchfork Economics. The spiking prices for gas, groceries, and housing supplies we have seen have nothing to do with what we experienced in the 1970s.
Inflation is a real problem that is making life difficult for about half of all Americans and 70% of all poor Americans. The causes of inflation today are not related to the inflation of the 70s and 80s, so it is doubtful that the Fed's solutions from the past will work today. The world's manufacturing, storage, and delivery capacity was thrown into a state of chaos by the Pandemic, and it takes time and money to repair the damage.
Rakeen Mabud, the chief economist at the Groundwork Collaborative, joinedPitchfork Economics to identify the second inflationary pressure on top of the pandemic: corporate greed.
Mabud, who coauthored a piece called "How We Broke the Supply Chain" in The American Prospect, said that greed can be seen on multiple levels.
Mabud argues that the supply chain was weakened over the last three decades through a corporate philosophy called the "just-in-time" method, a cost-saving methodology that eliminates storage costs and material overruns by driving up efficiency in the global. The raw materials and products are shipped all over the world in a slender cobweb connecting poorer countries that deregulate environmental protections and suppress wages down to pennies on the dollar with wealthier nations that consume the goods.
Mabud said that market concentration has made just-in-time shipping even more fragile. She said that this method has led to an incredibly brittle system that is unable to survive shocks, and that this brittle supply chain broke down when hit with a storm halfway across the world.
Once a product has been assembled from often- delayed raw materials and one of the shipping alliances picks it up, the product needs to travel from one of America's major ports to somewhere in the world.
Over the last year, it has become more and more apparent that the trucks come in that way. The National Employment Law Project estimated in a report that 80% of port truckers are misclassified as independent contractors due to the erosion of labor rights.
The essential workers who are getting goods from those ships to another point in the supply chain are not able to use the bathroom.
The same relentless corporate devotion to shareholder primacy that inspired this agenda of deregulation, wage suppression, and irresponsibly harsh efficiency has also inspired the last big factor in our current inflation crisis.
Corporations are using inflation as an excuse to raise prices even higher than their costs are rising, despite the fact that executives at major American corporations are boasting about the record-high profits reaped from skyrocketing prices last month. Because of the high market concentration in America, few corporations can raise prices without fear of serious competition. Consumers have no choice but to pay higher prices.
The entire diaper market in the US is covered by two big companies. If you are a parent with a child, it doesn't matter if the diapers are $20 a box or $40 a box, you will need to buy them.
The Fed's interest hikes won't address Mabud's concerns about corporate greed. Our leaders need to address our permissiveness towards bigness in order to get runaway prices under control.
Mabud said that we have allowed these companies to become huge and exert more power than is healthy for a sustainable, equitable, resilient economy.
The single most important step to driving down prices for American consumers is to break up monopolies, duopolies, and profiteering alliances. We will always be one regional crisis away from total global calamity when every step in the supply chain is engaged in a race to the bottom that prizes efficiency over durability and high short-term profits over long-term economic strength.
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