Ramin Mazaheri for the Saker Blog
Among capitalist economists stagflation is the worst possible outcome, excepting a Great Depression.
They even admit they cannot explain it (especially Keynesians), or rather they choose not to – this is why the word has barely been broached during this very depressing coronavirus era. In exactly the same vein, the West’s intellectuals claim they cannot explain the causes of World War I (as I discussed last week here).
There is clearly something in stagflation which, like the banker collusion which orchestrated World War I, strikes at the moral heart of the Western liberal project.
They don’t know what caused the 1970s stagflation, but what’s certain is that the solution – the highest prime interest rates (20% in 1981) in US history, which provoked two recessions and a disaster for the housing market – is not available today in this age of Western ZIRP (Zero Interest Rate Policies) and Quantitative Easing. A total reversal to that type of a contractionary monetary policy would lead to bankers starting World War III; negative interest rates could reach the US as soon as this winter.
The West wants to ignore stagflation because fixing it is so very, very hard. If Weimar Germany represents the most dynamic pole of Western capitalist-imperialist socio-economic breakdown, then stagflation is its equally destructive passive pole. Stagflation was indeed put to music via the punk movement, with its trumpeting of what everyone knows: the Western capitalist dream does not work without imperialist wars, the liberal democratic neo-aristocrats are phony hypocrites, and anarchy in the UK (and the rest of the West) is needed in order to overthrow the status-quo loving “keep calm and carry on-ers”.
Cover your ears – the West is about to get punk again.
“Stagflation” is a portmanteau of “stagnation” and “inflation”: it is the combination of slow economic growth, high unemployment and price inflation. Stagnant wages is a fourth component but it is often left out because the capitalist West doesn’t want to talk about lifting wages at home, in their factories in Haiti, or even on Mars.
Astute readers should be re-reading that sentence and thinking: “Well, since the Great Lockdown started the West certainly now has all four.”
Indeed, but let’s quickly recap:
Slow economic growth – YES: This existed pre-corona in the West’s “Great Recession”: a Lost Decade for the Eurozone, while US economic growth was only in the asset classes of the 1%. As a result of their hysterical overreaction to corona Western GDP growth is going to drop probably around 5%, which is a total catastrophe for a Western system that relies on constant growth and wage-earning instead of central planning and government intervention to prevent economic catastrophe for their lower classes.
We know there will be a corona-related demand shock: the expectation of continued economic chaos will increase the desire to save and not spend. There is also the demand shock caused by their generalised consumer terror – i.e., people who remain too scared of corona to even shop or travel, which will affect businesses from luxury goods to tourism to restaurants to the mall.
High unemployment – YES: This is just as obviously another catastrophic but entirely foreseeable consequence of the Great Lockdown. Estimates range from 25-42% of all lost jobs in the US are never, ever coming back. The Eurozone already had persistently high unemployment since 2008, whereas Germany and the US falsified/degraded their unemployment rate with part-time work/minijobs/gig economy jobs.
Price inflation: YES – Just talk to any small businessman: their first goal upon reopening will be to recoup months of zero revenue – they are desperate to do so because they still had to pay costs like rent, debt servicing, utilities, wages and more during the Great Lockdown. Thus, they will raise prices and cut costs (i.e. fire workers) to not be a part of the mass bankruptcies which will arrive once the West actually gets back to work and sees how bad things are now.
Consider the effects on prices of these new Great Lockdown-inspired obstacles for business such as social distancing: If restaurants, for example, are only allowed to run at half-capacity, they have to either sell twice as much food or raise prices. Talk of supply chains moving back to the US are far-fetched, given that US corporate law requires that stockholders not lose a penny just to aid the nation, but supply chain disruptions will raise prices.
How can the price of the few remaining Western government social services go down when government tax revenue has plummeted?
This is all why nobody is expecting prices to go down in 2020, but many are predicting crashes in asset classes like homes, stocks, bonds, luxury goods, etc.
Low wages: YES – This is never discussed in the West because the outlook is so perpetually depressing in a neoliberal-capitalist system which both refuses wage controls and guts stable civil service jobs in order to hand them to the unstable, profit-oriented private sector in the name of so-called “efficiency”: When the Great Lockdown ends there will be an enormous oversupply in the labor market, thus driving down wages – the Western MSM dares not discuss this inevitability. For those who kept their job: if you thought you didn’t ask for a raise from 2008-2020 because you were too shy, fear of joining the jobless ranks will keep you even quieter in 2020.
So we see that all the components are there – were already there – for Western stagflation.
A solution to stagflation would be either increased wages or increased “People’s QE”. Given that wages represent a long-term drain on the bosses’ profits, we should thus expect the Western 1% to prefer another round of direct, but one-time, government payments to individuals and households – but this would be only a temporary staving off of stagflation. However, the preference of this band-aid solution will be resolutely opposed by anti-socialist neoliberals who view government intervention as the work of Satan, as well as the existence of Austrian/Chicago/“immoral competition is normal”-capitalists who are licking their chops at the prospect of buying up the bankrupted at low prices.
From the outset I warned that the West was fooling themselves into thinking they had the same strengths and capabilities as socialist-inspired nations like China, Iran, Vietnam and others – they employed quarantining, control methods and collective-over-individualist concepts used by Asian nations, but without having similar cultures of government economic intervention nor widespread trust in their governments, and amid their economic Great Recession on top of it all.
But you hear that analysis about as often as you have heard about stagflation.
The West will continue to avoid stagflation discussions by continuing to distort the data
The West won’t discuss what it can’t explain or what threatens their cultural chauvinism, whether that is World War I, or stagflation, or how Trump doing the exact same thing Obama did is somehow only evil when Trump does it.
Slow economic growth – the excuse of Western liberal exceptionalism: “2021 economic growth rates can only go up from 2020, thus the definition of stagflation is not met.” This is a purely technical and pedantic reply – there will be both stagnation and inflation, but by taking as narrow and as uncritical a view as possible of what stagflation truly is, then Western journalists can say “claiming stagflation is wrong”. But this response can’t endlessly hold up any more than the “confidence fairy” justification for Eurozone austerity did.
High unemployment – the excuse of Western liberal exceptionalism: This will be the toughest to hide, so they will likely do something similar to what Emmanuel Macron did: stop reporting the embarrassing unemployment data every month and only give it quarterly. Perhaps they will do what the US and Germany do – pretend as if “underemployment” does not exist (even though it is the defining feature of their young adult class for over a decade) and act as if working one hour per week makes one “employed”.
Price inflation – the excuse of Western liberal exceptionalism: Their inflation gauges already exclude the biggest expenses for the average person: food & energy (too volatile to include, they say), housing, health care and education costs. Ask a German politician and they will tell you that they are watching inflation like a hawk and that it is certainly staying in their “acceptable 2% range”. But ask a normal worker – who keeps paying more for the metro, beef, fruit, housing and all those other crucial things which inflation gauges exclude – and you’ll understand why “decreased purchasing power” has been the number one French voter concern for the 11 years I’ve lived here.
Low wages – the excuse of Western liberal exceptionalism: History is clear: It took a pandemic for Americans to finally get a barely liveable wage of $15/hour… but only via government welfare and only until July 31. What many Republicans have already ruled out is extending these benefits – which are better than the low wages their lower classes get – because that would increase unemployment and thus only worsen stagflation. Permanently increasing wages should not be expected, as that would represent a sea-change in Western economics in favor of the bottom 90%, and that hasn’t been seen in 40 years.
Increased wages would, however, increase demand for goods and thus raise revenue and demand, and thus increase employment. It would also theoretically causes prices to rise, but the more worrying near-term reason for the price rises are the hysterical restrictions imposed by new social distancing rules and corona fears which have been overblown to bits across the West.
The West can write off 2020 as a recession or a depression, but stagflation will occur after that
Among the West’s Mainstream Media the general editorial line is denialism: “How can there ever be a catastrophe in the West when There Is No Alternative?” Among the West’s fringe/alternative websites the general editorial line is, “Armageddon/a Brave New World starts tomorrow due to the Mainstream Media’s cover-ups of catastrophe!”
However, the post-Great Lockdown truth is likely a very un-Confucian middle path: 1970s-style stagnation, which is Chinese water torture for the bottom 90%, certainly, but not revolution. They say that revolutions can never be predicted and certainly nothing at all can truly be predicted until their Great Lockdown ends – but if the West’s 1% and their toadies successfully resist the call for change from capitalism-imperialism, then stagflation is the West’s future.
The Western 1% profited from the stagflation era, of course: it proved to be a perfect antidote to their political involvement of the 1960s – creating mass precariousness is a very easy way to shut workers and citizens up. The 1970s were a “long national nightmare” for the US and their Western allies – how could their 1%-controlled Mainstream Media demand a Great Lockdown so very strenuously if they honestly warned that a return of that degraded era would be the result?
The causes of the West’s stagflation era (the “Nixon shock”, going off the gold standard, colluding with the House of Saud to create the Petrodollar system, the lack of imperialist war to keep factories from Detroit to Gary, Indiana, humming, the desire to break the record-level power of organised labor, the increased capitalist fanaticism resulting from the continued refusal of peaceful coexistence with socialist-inspired nations which oppose capitalism-imperialism) and its solutions (the breaking of the housing market in order to gut the primary asset of the bottom 90%, a vast anti-union campaign, purposeful governmental ineptitude in order to provoke the rabid anti-government component of neoliberalism, the hyper-financialisation of the economy, the demand for neoliberal “free markets” in order to send good manufacturing jobs out and weaken labor further, the promotion in the US of Reaganesque jingoism in order to give lower class Whites a feeling of pride to replace their socioeconomic degradation) will require much more analysis in the coming months and years because that lousy past is the capitalist-imperialist West’s post-corona future.
See why they don’t want to talk about stagflation?
Corona contrarianism? How about some corona common sense? Here is my list of articles published regarding the corona crisis.
A day’s diary from a US CEO during the Corona crisis (satire) March 23, 2020
If Germany rejects Corona bonds they must quit the Eurozone – March 30, 2020
Pity post-corona Millennials… if they don’t openly push socialism – April 14, 2020
Coronavirus – Macron’s savior. A ‘united Europe’ – France’s murderer – April 22, 2020
The end of globalisation won’t be televised, despite the hopes of the Western 99% (2/2) – April 27, 2020
Ramin Mazaheri is the chief correspondent in Paris for Press TV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Iran, Cuba, Egypt, Tunisia, South Korea and elsewhere. He is the author of the books ‘I’ll Ruin Everything You Are: Ending Western Propaganda on Red China’ and the upcoming ‘Socialism’s Ignored Success: Iranian Islamic Socialism’.