## The many causes and effects of inflation

Concerns over a generalized “inflation” loom in the recovery. Yet the prices that most heavily factor into the cost of living for US workers—housing, health, and education—have already been rising for decades. The question we should be asking is whether the extension of the welfare state is the cure for, rather than the cause of, these trends.

Until 1980, the annual rate of change of the Consumer Price Index (CPI), the weighted measure of the cost of a basket of core consumer goods, increased at an accelerating pace in every business-cycle expansion, reaching double digits during the 1940s and 1970s. Inflation—its causes and consequences—was at the heart of economic debates throughout this period, when the discipline of macroeconomics took its current form. While we understand individual industry price changes in terms of supply, demand, and market power, our conceptual tools for understanding inflation remain weak.

## Living in Hyman Minsky's world

“An effective way to write the history of the last thirty years of the twentieth century,” economist Albert Hirschman wrote in 1985, “may well be to focus on the distinctive reactions of various countries to the identical issue of worldwide inflation.” Writing just as the global “great inflation” of the 1970s was abating, Hirschman could not have understood how right he was. As Claudia Sahm has recently written in the New York Times, the fear of the great inflation of the 1970s still dominates the thinking of the Federal Reserve, even as its recent messages indicate some acceptance of higher inflation.

Economists lack a good understanding of what causes inflation—and its inverse, deflation. In introductory macroeconomics curricula, Milton Friedman’s mantra “inflation is always a monetary phenomenon” remains central. By this, Friedman meant that excessive price growth happens when a state loosens the supply of money, thus over-expanding the monetary base. However, recent research

## An interview with Mark Blyth

Mark Blyth is William R. Rhodes Professor of International Political Economy at Brown University and a Faculty Fellow at Brown’s Watson Institute for International Studies. His research examines how the interests of states and economic actors shape ideological consensus and institutional development at the global scale. He is the author and editor of many books, including Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (2002), The Future of the Euro (2015), and Austerity: The History of a Dangerous Idea (2013).

His latest book is Angrynomics, in which he and co-author Eric Lonergan argue that the rising tide of anger dominating global politics has its roots in decades of macroeconomic policymaking. Earlier in the pandemic, I spoke with Blyth about the economics of the Covid-19 crisis, the various approaches that governments and central banks across the globe have followed in order to tame it, and what an alternative program for the global economy might look like.

## DEFINING CLASS

Standard postwar theories of class composition in the global north emphasized occupational differences between employers, blue collar, and white collar workers. But deindustrialization, and the army of underpaid service workers it generated, has increasingly muddied these categories.

In a 2018 article, MORITZ KUHN, MORITZ SCHULARICK, and ULRIKE STEINS redraw these distinctions for the era of asset ownership. Using household-level archival data from the Survey of Consumer Finances, they argue that portfolio composition and asset prices, rather than income or occupation, are the defining features of class in the contemporary economic landscape.

From the paper:

"A channel that has attracted little scrutiny so far has played a central role in the evolution of wealth inequality in postwar America: asset price changes induce shifts in the wealth distribution because the composition and leverage of household portfolios differ systematically along the wealth distribution. While the portfolios of rich households are dominated by corporate and noncorporate equity, the portfolio of a typical middle-class household is highly concentrated in residential real estate and, at the same time, highly leveraged. These portfolio differences are persistent over time.

An important upshot is that the top and the middle of the distribution are affected differentially by changes in equity and house prices. Housing booms lead to substantial wealth gains for leveraged middle-class households and tend to decrease wealth inequality, all else equal. Stock market booms primarily boost the wealth of households at the top of the wealth distribution as their portfolios are dominated by listed and unlisted business equity. Portfolio heterogeneity thus gives rise to a race between the housing market and the stock market in shaping the wealth distribution. A second consequence of pronounced portfolio heterogeneity is that asset price movements can introduce a wedge within the evolution of the income and wealth distribution. For instance, rising asset prices can mitigate the effects that low income growth and declining savings rates have on wealth accumulation."

• "Of course, income from work remains vitally important for many people as a way to access subsistence goods, but by itself it is less and less able to serve as the basis of what most people would consider a middle-class lifestyle." In the LARB, an excerpt from Lisa Adkins, Melinda Cooper, and Martijn Konings' forthcoming book, The Asset Economy. Link.
• "I discuss three clusters of class analyses, each associated with a different strand of sociological theory. The first identifies classes with the material life conditions of individuals; the second focuses on the ways in which social positions afford some people control over economic resources; the third considers how economic positions accord some people power over the lives of others." Erik Olin Wright in 2009. Link.
• "Wright’s class scheme is based on the premise of a free market system and private production organizations under advanced capitalism; however, the mode of production in transitional China is a complex hybrid." Xin Liu on "Class structure and income inequality in transitional China." Link. And Alejandro Portes and Kelly Hoffman analyze changing social structures across Latin America. Link. And a brand new Göran Therborn article on the "Dreams and Nightmares of the World's Middle Classes." Link.

## PUBLIC HEALTH FEDERALISM

Catastrophic deficiencies in the federal response to the Covid-19 pandemic have led to renewed discussion over federalism and its discontents. The divergence among state responses to the crisis in the absence of federal guidance has produced analyses of Trump’s unique, “narrow” sense of federalism, pronouncements of “a new era of federalism,” and hopes for a solidarity-minded “civic federalism.”

In a 1997 article, health law professor JAMES G. HODGE JR. analyzes the impact of state-centric “new federalism” jurisprudence on the government’s ability to realize public health goals. Hodge places new federalism in the context of decades of increasing intrusion by the federal government on states’ power over public health policy:

"The impact of new federalism on the field of public health law is seen in the history of public health regulation. The metamorphosis of public health regulation from purely local to predominantly national means resulted from increased federal presence in the field corresponding to a deemphasis on traditional federalism. It is an inescapable conclusion that an increased federal presence shifted public health goals. National public health priorities dominate local ones. New federalism restrains the federal intrusion on state public health powers by requiring Congress to operate within the constraints of the political process. As a result, state police powers exercised in the interest of public health are strengthened emphatically by the political process confining federal authority to enter the field."

Full paper available here.

• In an article published this April, Hodge reassesses federal vs. state public health powers in light of disparate responses to the pandemic: "Americans are left wondering, 'which level of government is actually in charge here?' In the face of a pandemic like Covid-19, the answer under principles of federalism is increasingly clear: neither." Link.
• "American federalism—with its fissures and fractures—haunts the state of emergency." A March post from Phillip Rocco. Link. (See also Rocco's recent post on fiscal federalism in Notes on the Crises.) Along similar lines: Rocco, Daniel Béland, and Alex Waddan on the fiscal barriers to pandemic response. Link. And Nicole Huberfeld, Sarah H. Gordon, and David K. Jones argues that the pandemic has magnified the state-level inequities fostered by federalism. Link.
• For another view on the relationship between federalism and public health: A 2014 paper by Adam Varvel on the West Nile outbreak of 1999. Link. See also: A post-SARS policy brief on the impact of federalism on international health regulations. Link.

## Property rights and extraction in the mineral frontier

“The Mining Law of 1872,” reported California Democrat Alan Lowenthal in May 2019, "is one of the most obsolete laws still on the books.” At a hearing before the House Subcommittee on Energy and Mineral Resources, Lowenthal was rehearsing a longstanding critique of antiquation against hard rock mineral legislation—a law to privatize federal mineral lands that has remained in place since the nineteenth century.

For decades, this statute has come under scrutiny, with Congressional hearings on its merits held under every President since George H. W. Bush. Two objections are raised consistently. The first is that, in contrast to developers in other extractive industries, hard rock mining corporations may purchase Western mineral lands from the federal government for the minuscule price of \$5.00 per acre, and are charged no royalties on the resources they extract. This nearly 150-year-old arrangement remains a major gift to multinational corporations: in 1994, the US Interior Department sold about 1,949 acres in Nevada to the Barrick Resources Corporation. The land contained 30 million ounces of gold, which was valued at \$380 per ounce. Sold for just under \\$10,000, the land was worth billions. A small royalty commensurate to those of other extractive enterprises would by now have generated hundreds of millions of dollars for the public.

## BREAK POINT

### Complications in globalized food supply

Scholars of the global food system unravel a vast web linking trade policy, public health, economic development, labor issues, supply chain logistics, and so on. The pandemic has already prompted states to break with the implicit rules underpinning global food governance, and changes in supply and prices have the potential to trigger a long term food-born crisis.

It wouldn't be the first of its kind. Less known than the 1973 oil crisis, but perhaps equally important, is the 1972 food price shock which fundamentally altered the structure of global markets. In a fantastically detailed 1995 article, HARRIET FRIEDMANN recounts the origins of the post-war "surplus food regime," and its disintegration in the early 70s.

From the article:

"As the dominant economic power after World War II, the United States insisted on international rules consistent with its own national farm support programs. New Deal farm programs of the 1930s were retained despite widespread awareness that they generated chronic surpluses. U.S. commitment to mercantile agricultural trade practices led to the sacrifice of multilateral institutions which were central to the larger U.S. agenda for liberal trade: the World Food Board Proposal, which provided for global supply management and food aid through the Food and Agriculture Organization, was rejected by the U.S. in 1947; the Havana Treaty creating an International Trade Organization was never formally submitted to Congress because it contradicted mercantile clauses in U.S. domestic farm laws; even the GATT excluded agriculture from its ban on import controls and export subsidies. Postwar rules did not liberalize national agricultural policy, but created a new pattern of intensely national regulation.

After two decades, the replication of surpluses led to competitive dumping and potential trade wars, particularly between the European Economic Community and the United States. But the real catalyst of the 1973-74 food crisis was the massive Soviet-American grain deals of 1972 and 1973, which permanently broke the dam separating the capitalist and socialist blocs which had contained the 'surplus food regime.'"

• "The sharp rise in prices of agricultural commodities in 1972-73 traces to five principal causes: a decline in world production of grains; rapid growth in the demand for meats in all developed countries; U.S. farm policies that discouraged expansion of soybean production; administrative lags and errors regarding export subsidies; and devaluation of the dollar." Another look at the 1972-73 Food Price Spiral, by John A. Schnittker. Link. For greater context: Alan Blinder catalogues the food price spiral alongside energy and decontrol as the sources of '70s inflation. Link.
• An FAO report on global food price inflation from 2006-2008. Link. And another FAO report on the causes and prevention of food waste. Link.
• "This article explores how the far-reaching plans of a World Food Board, advocated by the UN Food and Agriculture Organization under John Boyd Orr, were abandoned and supplanted by a new approach that focused on technical aid and the distribution of surpluses." Ruth Jachertz and Alexander Nützenadel on the multiple "visions of a global food system" developed between 1930-60. Link.
• Forthcoming from the University of Washington Press, Thomas Fleischman's Communist Pigs analyzes the trajectory of East German agricultural policy through the lens of the country's pork industry. Link.

## On growth models, supply chains, and dollar hegemony

Mark Blyth is William R. Rhodes Professor of International Political Economy at Brown University and a Faculty Fellow at Brown’s Watson Institute for International Studies. His research examines how the interests of state level economic actors shape ideological consensus and institutional development at a global scale. His most recent book, Austerity: The History of a Dangerous Idea argues that throughout the 20th century, public spending cuts have been an irrational, ineffective, and inequitable response to debt crises born of a dysfunctional banking system. His 2002 book, Great Transformations, considers the role of economic ideas in paving the way for the embedded liberalism of the 1930s, and its disintegration in the 1970s. His co-authored and edited publications consider how powerful finance sectors shape policymaking, complicate existing narratives on EU economic policies, and ground the study of international political economy in a rigorous macroeconomic framework. Blyth's academic and popular writings are available on his website, and you can follow him here. Below, his selection for Phenomenal Works.

## How Do States Pay for Wars?

### An interview with Rosella Cappella Zielinski

Academic study of war in the social sciences is as old as historiography itself, and political economists have considered the economic logic of war and peace for centuries. Yet social scientists have left several questions on the financing of conflict unaddressed. In her 2017 book How States Pay for Wars, Professor Rosella Cappella Zielinski maps out a theory of war finance.

As a sub-discipline, war finance has long existed on the periphery of academic debates in International Relations. Cappella Zielinski’s book is a novel contribution to a growing field, providing the first systematic review and analysis of how states are able to float the cost war. Her overarching theory of war finance is expansive, flexible, and useful for understanding the far-reaching implications of wars past and present. Cappella Zielinski’s research sheds light on the “tools of the trade” for raising money, the balancing act between domestic political concerns and politicians’ war finance decisions, and the unexpected consequences war finance has on income inequality.

Below we discuss what first sparked her interest in war finance, the history of the sub-discipline, and the puzzles that remain to be solved.