Inflation, Europe's energy crisis, and the Fed with Richard Wolff | The Chris Hedges Report

now you talk about Terror what about for me [Music] I've been terrorized all my days [Music] how much all my days [Music] inflation at nearly eight percent along with soaring interest rates massive personal debt stagnant and in real terms declining wages are crippling the public as inflation raises prices faster than wages there is a continued redistribution of income and wealth upward from employees to employers and more suffering for workers and their families the Federal Reserve has reacted to inflation by quantitative tightening reducing the quantity of money in circulation and raising interest rates the FED sells Securities Chief lead a major financial institutions inducing them to buy by charging attractively low prices for those Securities as The Economist Richard wolf points out these major financial institutions then pass on the higher rates plus a markup for their own profits to their customers individuals and businesses in short the major Financial players profit from fed policy while offloading its costs onto the smaller economic players they service with loans the policy is based on the premise that costlier loans will dissuade borrowers who will then demand fewer goods and services and thereby induce sellers to inflate their prices less the fed's policy provides cash advantages to Major employers especially in financial Enterprises and the rich higher interest costs are a heavier burden and a greater risk the smaller the size of a business or of an individual's wealth joining me to discuss inflation in the precarious state of our economy is Richard Wolff professor of Economics Emeritus University of Massachusetts Amherst and a visiting professor in the graduate program in international Affairs of the new school University he is the host of the weekly program economic update and the author of capitalism hits the fan and capitalism's crisis deepens as well as the founder of democracy at work his latest book is the sickness in the system when capitalism fails to save us from pandemics or itself Rick let's begin with inflation which is of course worse in Europe I think Energy prices energy costs went up by 80 percent in the UK in October uh how did we get here before we talk about the response yes well it's it's in a way the best question to ask partly because it's how the inflation gets going that people mostly interested in it certainly should be part of understanding how to get a grip on it and to slow it or stop it and finally it is ignored as the obvious question by the media which raises all the mass media which raises all the questions why that might be the case so let me answer an inflation is a very simple idea it's a word that refers to a general increase in prices not every price goes up prices of one thing go up more than another thing but if in general the movement of prices is upward and if it's more than the note barely noticeable one percent or one and a half percent well then we call it an inflation and the current rate here in the United States depending on how you count seven and a half to eight to eight and a half percent and as you point out higher in many parts of Europe although it should be pointed out that both China and Japan have much much lower rates of of inflation basically no inflation at all so it is not as the Biden folks like to say a universal problem it isn't next Point why doesn't inflation happen well the answer here is so simple you really have to wonder why it isn't spoken prices go up if the people who have the power to set prices raise them that's it no magic no difficulty tracking through who does it employers do that it's part of what it means to be an employer the job description of the employer includes raising lowering or keeping the same what the price is and what the employee's job description excludes is exactly the same thing in other words a tiny minority of the American people the less than one percent who are employers raise the prices otherwise we don't have an inflation so the first level of critical looking would have to be at the employer class because they not government officials not the employees that are the vast majority let alone those people at home and who are not working it's the the employers who made a decision one after the other to raise prices they're the ones who give us who impose on us and inflation now the third and final point also missed by the mass media it is of course reasonable to ask why did the employers choose to raise prices about 18 months ago and to do so further and faster and for a longer time than had been anticipated by the Federal Reserve who we should remember formed and founded a hundred years or so ago had as its number one objective what is called maintaining price stability clearly they failed because an inflation means that's what we do not have Okay so what do the employers tell us well they could tell us what they learned in business school namely every major decision you make should be guided by its impact on the bottom line to wit profits whether you hire some one whether you expand your business whether you borrow money whether you issue shares of stock whatever you do should be guided by whether it will enhance your profit or ability in which case you should do it or it will depress the profitability in which case you should probably not do it unless there are extenuating circumstances so the honest answer of an employer as to why he or she raises prices would have to be to make more profits the problem is that when employers raise prices it's a tiny minority financially hurting the majority we all have to pay the higher prices that they determine to impose on us that makes the employer prima facie an unhappy object of our shall I say irritation so employers which should surprise no one have come up with a wonderful portfolio of scapegoats things to say when you're trapped in the glare of publicity about raising prices to exculpate yourself so one employer will start telling you fantastic stories about quote-unquote supply chain disruptions uh a ship that got stuck somewhere or maybe how the Chinese are coping with covid-19 or maybe the one I like best I have to do it because other employers like me are doing it and I buy things from them and so I have to pay pay them more so one employer uses the behavior of the other employer to justify the total impact of all employers on the rest of us we shouldn't believe what the employers say given the obvious self-serving interest they have in removing themselves from the glare of publicity sadly the media in our country present company accepted of course but the media in our country overwhelmingly service the employer class by giving enormous attention to all the excuses they provide minimal investigative scrutiny and almost never pointing out to the American people that what you're grumbling about at that Supermarket or the department store is the decision made by a tiny unaccountable minority looking to make more profit although the employers will argue with some justification that energy prices have risen and there have been disruptions to the supply chain uh although not as extensive as they claim yes absolutely there has to be always a grain of Truth otherwise the the exaggeration you're making will be taken uh as a simple lie so yes try to Anchor it uh to something it would be more uh believable if we were in Europe because for the Europeans they are paying a very heavy price financially for the war in Ukraine uh we are not I mean very important we are leading the charge to impose the sanctions on Russia after Russia invaded Ukraine we import we the U.S imposed with our allies in Europe allies who are increasingly uh withdrawing from this Arrangement but nonetheless they have gone along with it to impose sanctions on the exports of oil and gas from Russia what they didn't seem to understand was that the Russians might very well be able to cope with these which they have and to come up with some counter-sactions of their own which they also have and the counter-sanctions together with the sanctions have driven up the price of oil and gas above all for Western Europe which had come to rely on the gas from there particularly the PowerHouse economy at the core of Europe which is Germany so yes you're right Energy prices there have double tripled uh more horrible news of that kind is coming next month in December when all kinds of further steps are going to go into effect and so yeah in that in the in Europe for sure their inflation is affected by corporations raising prices but with the added boost the ad is uh promotion if you like of the rising energy costs and which are making friends frankly the Europeans particularly the French but also others increasingly disc disaffected by the whole Ukraine situation and that is going to become a major headache and headline uh in 2023 well the industrial sector in countries like Germany are suffering tremendously from this tremendously and if if you put them together and for me this is the biggest story that is emerging if you put together the discriminatory impact on Europe of the sanctions program and its impact on energy on the one hand and the Biden Administration following the Trump Administration to quote bring jobs here to the United States what many Americans don't seem to understand is that you may talk a lot about China but the company is bringing production to the United States because we subsidize them now on a scale we never did before the latest uh microchip industry subsidies even more so you bring production here it's coming increasingly from Germany from France from Italy from Europe you are and this is a language they're speaking in Europe now you are de-industrializing Europe they are horrified they are angry in in Paris there's a school been there for 25 years but is becoming very important now it's called the ecole De Guerre economic in English the school for economic Warfare and their argument is the British Empire can no longer be the American agent in Europe that role is now trying to be taken by Germany leaving everybody else out and the fracturing inside of Europe it's held below the surface of publicity but if you pay attention it's everywhere and getting stronger literally by the day well and will be exacerbated of course over the winter all sorts of restrictions on power usage shower even showers this kind of stuff the World Health Organization has given out I believe it was today or yesterday has given out a uh a horrible picture of what ukrainians are going to suffer because the electricity system has been a victim of the war to this point and they rely on electricity for a lot of what their heating system is it gets quite cold there uh etc etc you're talking about a proliferation of really urgent uh crisis situations so let's talk about the FED uh and the response of the FED which in short has inflicted even more pain on the American public I am struck there and here I just put on my hat as an economist I'm struck by two things number one the inflation has been going together with nice improvements in profitability across many many sectors not all but many sectors of the United States it gives a lot of evidentiary support to the notion that the inflation was done because it was the best profit enhancing move after the pandemic had kind of uh eased off a little bit with us ETC number one but I'm struck by the fact that no one is talking about what used to be a big topic namely something we call stag inflation and let me remind everyone what that is that's when the Federal Reserve raises interest rates ostensibly to slow or stop at inflation but fails to do so so that we end up with Rising interest rates cutting down people's ability to spend because they can't afford to borrow at those rates but that the prices don't come down own so we have a mixture of inflation and stagnation in the sense of productivity and employment and we even have a term because that has happened so often stagflation a new word in our lexicon well you would think for people who have had some experience which the FED people by virtue of their age alone have had that they would talk about that and give us some reason any reason to believe that we aren't at risk of having stagflation namely higher interest rates with no amelioration of the inflation problem there are plenty of of a Specialists looking at this who believe precisely that's where we're headed so it's not as though I'm the only one who remembers this term that we all learned in economics of graduate school but he's an even bigger issue raising interest rates never was and is not now the only way that the Federal Reserve or the U.S government has reacted to inflationary situations in 1971 a conservative President Nixon imposed a wage price freeze to stop an inflation it worked beautifully so well that its initial duration three months was extended because it had done the job without raising interest rates by this alternative I am not saying that the alternative has no problems it's not a Panacea but to exclude it from conversation to exclude it from the agenda so that the Federal Reserve not only doesn't consider it but doesn't even they deign to give us a reason why is it is remarkable and should be alarming here's a second example same point in the early 1940s then president uh Progressive Democrat at least retrospectively a Franklin Roosevelt is confronted by his economic advisors who included my one of my professors John Kenneth Galbraith he's confronted by them and told look you're moving resources to fight a war those resources used to be used to make consumer goods and all kinds of appliances and we're not using them for that anymore and therefore we're going to have very quickly here we go a sudden shortage of consumer goods the demand for them isn't going away the American people want to have a cup of coffee they want to put sugar in it they want to have meat with their meals etc etc and they're not going to have the supply if we allow the market to deal with this situation the sorted shortage will give us an inflation people with money will bid up the price of scarce consumer goods so that the middle income and lower income people will be frozen out of the market and that at a time when you're trying to fight a World War you think puts you in danger would be crazy you'd be dividing your people with bitterness and envy when we when you need the exact opposite solidarity and unity and what did Roosevelt do he took Galbraith and the other's advice seriously and he said okay for the following important scarce consumer items meat sugar flour gasoline for your car uh coffee and a whole bunch of others you won't use money anymore it will will not be sold to the highest billion the only way a storekeeper can legitimately sell any of those items is if you have a ration card the government printed racial books there were little stamps you tore out of the book and to get a quart of milk you had to give the store keeper that stamp if you only gave them money and they gave you the milk they would be liable to arrest that was illegal they had to use the stamps and the government some of you may smile distributed these books these ration cards Croatian stamps according to the notion of what did you need if you had a lot of young children you got stamps for milk if you were an elderly couple you didn't get stamps for milk if you were rural you got more stems for gasoline the motorized to move your truck if you were Urban and had mass transit you wouldn't get them Etc logical things rationing is an alternative wage price freezes are an alternative that we as a nation have a Federal Reserve charged with dealing with price instability that's their fault since they're the ones supposed to keep it stable that they would have a conversation whose real purpose is to make all of us not question which tool is being used according to who gets hurt and who gets benefited by it but rather we're only left the debate should it be three quarters of a percent one half a percent my goodness this is an exercise in censorship of the most damaging kind because it immediately translates into damage to the standard of living of the American people so let's talk about why the FED did what it did and the consequences well you know I'm not on the board of the Federal Reserve I cannot speak to the motivations of the individuals there I have no direct knowledge of it but as an outside Observer be very hard not to conclude that when corporations give you an example I'm going to take the automobile General Motors Ford and so on the automobile companies during the pandemic and now this last 18 months have been making record profits on a scale they've never seen before at the same time that they are producing and selling many fewer cars at a much higher price so the inflation jacking up the price selling fewer cars has been very profitable for them why in the world should they be in any hurry to get rid of this inflate oh they can talk about it it's a terrible thing we should do something and then they go off and play golf and have four martinis because there's no there's no pressure on them in fact this inflation has been working real well uh for them so my suspicion is that's why the inflation is lasting as long as it does and finally as you yourself suggested Chris at the beginning when you raise the price of goods and services like you raise the interest rate on borrowing money that's a problem for middle and lower income people it's a problem Comforts medium and small businesses but for the big businesses that we know have a dominant voice in our government not only federally but at the state levels this is not a major problem they're the ones who can best afford the prices and the interest rates it's all the rest of us the majority who are put in a difficult another way of saying it is the official rate of inflation right now is 7.7 percent last time I looked and the official rate of increase of wages is in the neighborhood of four and a half to five percent well Bingo you don't need all that much more prices are going up markedly higher and faster than wages and that's a good thing for profits because it always was how much more can a public which is a wash in debt what student debt is 1.6 trillion dollars I don't know what household debt is mortgage rates are skyrocketing uh so you already have uh a populist that is under economic duress uh what what are going to be the consequences are we going to see more defaults what are what what's going to happen now well I don't know the specifics I can't predict I know I know none of us can but I use a historical parallel which for personal reasons but also I think reasonably is appropriate and my example is Germany in the latter half of the 19th century Germany was an up-and-coming economy in the world like the United States commentaries were everywhere that as the British Empire uh shrank and and lost its power in the world the two contenders for kind of replacing it with the United States on the one hand and Germany on the other a little later some people thought maybe Japan but what world wars one and two did is to destroy that competition and leave the field for the United States which is indeed how history played out but look at Germany Germany thought they were going to become the next Empire they believed in the Deutsche with the German way of saying it's empire but then in very short time they were hit with economic calamities like what are hitting the American working class now number one they lost the War World War One suffering terribly not only the defeat but the horrible conditions right after the war of starvation of economic collapse and so on part of the way that their government tried to get out of it was by printing money on a massive scale the problem with that is it produced notice the similarity a terrible inflation in 1923 and four the German currency called the Deutsche Mark went from about uh four or five to a dollar to six or seven trillion to a dollar it's an inflation in which prices for weeks at a time doubled every couple of hours for everything discombobulating the society 12 Ways to Sunday but also completely wiping out the Frugal German families savings that they had built up over generations and in a matter of two months three generations of savings were enough money to buy a quarter pound of butter uh and that's 23 24. they barely worked their way out of that and slam they get hit by the Great Depression that starts in 1929. World War One great inflate worst inflation terrible Global depression it was too much for the German working class it broke their back spiritually materially politically what other ways you wanted to mention it and they became a people uh nearly crazy with trying to understand how their world could have come to an end and they went and they supported a very strange little man wasn't even Germany was Austrian he wasn't blonde and blue-eyed he had a little black mustache made him look ridiculous but they went for him because he promised to make Germany great again the great German rice would be returned by this little Austrian uh Soldier the amazing thing is this highly developed culture the culture that brought us Hegel and Marx and Beethoven and Brahms and and Wittgenstein and all the other great thinkers of the last three or four centuries or many of them became a society that has been in a pariah example of social breakdown I think we are treating our working class having redistributed wealth away for them for the last 30 years having slammed them with a terrible set of crashes in this new millennium the 2000.com and the 2008 subprime mortgage now they hit them with another crash in 2020 and the worst pandemic in a century and in inflation and Rising interest rates yeah you are subjecting our working class to levels of pressure that have had devastating social consequences and I must say at least a good number of us can see in the return of white supremacy in the whole Trump phenomena in the division of the country into blocks that cannot communicate we see many of the signals that ought to mind folks of what happened in Germany because as a great American writer once suggested by the title of his book it can happen here and we're building the conditions for seeing exactly that and yet the response aren't they lifting the moratorium on student loan payments many of the programs the supplemental income all of that's been dropped that's what I mean they seem to be if I can use this language they're on a tear that the people who run this country seem to think there are no limits you just keep pushing if you're a a billionaire become a multi-billionaire if you know everybody should be a kind of a uh a one-trick pony focused on making more money more money more money as if the social consequences the other side of you making more money isn't fair doesn't have to worry anyone isn't a constraint yeah when you behave like that when finally you reach the limit it overwhelms you because you too weren't prepared for it and therefore you too will make awful decisions in the wake of it well we should be clear and Weimar I think was Bruning they made it extremely difficult to get unemployment insurance and I think after in 30 31 you were talking about 40 percent of the insured German Workforce was unemployed that's right and the country was split in ways that ought to remind folk half the country voted what we would nowadays call center right and the other half of the country voted for the two left-wing parties very easy to measure there wasn't a socialist party and the Communist party and by 1932 they were about the same these two they were the left half of the population and the right half the working class that went to the right because of the tradition of of the church in Germany and of German culture they were full of people who really liked the Socialist message because of the country was falling apart one of the reasons Hitler had to put the weird name on his party that it was the National Socialist Workers Party to call your party that when you're at the far end of the right wing you're an ex-soldier you've gathered together veterans and all the rest one of the reasons Hitler had to do that was he trying to appeal to A working class that he and the business Community knew were only very few steps away from a wholesale shift either to the Communists or the Socialist Germany was falling apart and in its the extremity having failed to see the signs that I think we're failing to see now well they finally made a decision uh to go with Hitler because he was the only thing left other than the left and the disaster of that for Germany is still being played out we don't have a strong left though we don't have a counterweight to this proto-fascism embodied in figures like Trump and DeSantis and Pompeo and others we don't it's been the amazing I don't know it depends on your point of view achievement uh peculiarity of the United States but I wouldn't put too much Reliance if I were in the leadership of this country which clearly I'm not uh I wouldn't put too much Reliance on that uh the 1920s uh good friend of mine Adam whole show has a new book about American midnight yeah I read it and interviewed him yeah it's good yeah it was a remarkable uh a remarkable book that shows what we have today to ask that out for the four years about 1917 1921 but what he and I have discussed is at the end of that period of right wing extreme censorship anti-blabor uh white supremacy lynching all of that comes the 1930s the crash and then the country moves sharply to the left so the question is how did that work out that way in Germany and then what are the carryover implications maybe for the comparable situation emerging here great that was Economist Richard Wolff his new book is the sickness is the system and capitalism fails to save us from pandemics or itself I want to thank the real News Network its production team Cameron grenadino Adam Coley and Kayla Rivera you can find me at chrisedges.substack.com damn it [Music]

Channel: The Real News Network

Views: 507,942

Keywords: Inflation, Federal Reserve, Capitalism, Richard Wolff, The Chris Hedges Report, The Real News Network, TRNN

Id: I43uC1mfHKc

Length: 34min 0sec (2040 seconds)

Published: Fri Dec 02 2022

Reddit Comments

[u/StatementBot]

The following submission statement was provided by /u/FunnyMathematician77:

---

SS: The desperation of the poor and working class will drive them to support a fascist regime, according to Richard Wolfe. What we are seeing today in the United States is similar to the period of hyper-inflation in Germany after WW I. Professor Wolfe also explains why raising interest rates is not the only solution to inflation, and discusses the possible threat of Stagflation.

This is related to collapse in the US as we are already seeing the symptoms in the form of proto-fascism and white Christian nationalism. As competing groups struggle for power the consequences will be bad, if history can teach us anything.

---

Please reply to OP's comment here: https://old.reddit.com/r/collapse/comments/zat22l/inflation_europes_energy_crisis_and_the_fed_with/iynewt9/

[u/FunnyMathematician77]

SS: The desperation of the poor and working class will drive them to support a fascist regime, according to Richard Wolfe. What we are seeing today in the United States is similar to the period of hyper-inflation in Germany after WW I. Professor Wolfe also explains why raising interest rates is not the only solution to inflation, and discusses the possible threat of Stagflation.

This is related to collapse in the US as we are already seeing the symptoms in the form of proto-fascism and white Christian nationalism. As competing groups struggle for power the consequences will be bad, if history can teach us anything.

[u/BB123-]

Excellent interview

[u/Veblenian_Technocrat]

Inflation is mostly the result of the rising oil price: https://www.economicshelp.org/wp-content/uploads/2022/01/oil-prices-inflation-2002-2022-web.png.webp