Inflation: Reframing the narrative

Inflation and monetary policy graphic

By Sam Gindin

April 5, 2022 — Links International Journal of Socialist Renewal reposted from Socialist Project — Fighting inflation is on the public agenda today in a way not seen since the 1970s. The orthodox response – having central banks raise interest rates to slow the economy, and ultimately, prices – is already in play. Yet current price increases aren’t the result of the traditional phantoms haunting central banks of overheated economies and the excessive power of unions. What we’re facing today is an inflation of a particular kind – the knock-on effects of a unique non-economic shock.

Covid forced states to do something never done before in consciously placing major parts of the economy on hold (even during WWII productive activity was reoriented, not stopped). As the pandemic faded and the economy was set on returning to ‘normal’, a series of international bottlenecks emerged. Resetting an internationalized economy that was in deep-freeze confronted a distressingly uneven revival of global supply chains and transportation networks, causing severe downstream shortages. Notably, this included the computer chips now ubiquitous in our economies and loading/uploading line-ups at ports that delayed crucial oil and grain shipments for months.

In a capitalist economy, such shortages aren’t allocated according to social priorities but left to markets and a chaotic search for commodities. As consumers or businesses bid to obtain scarce goods and services, prices rise. If these price increases spread through the economy, as is now occurring, we get a generalized increase in prices – inflation.

Higher interest rates can’t solve this crisis

In this context, raising interest rates makes little to no sense: they have nothing to do with fixing the supply problems. What higher interest rates are most likely to bring on is both a stagnant economy and continued inflation – stagflation. Moreover, since the shortages are generally understood to be temporary and expected to self-correct in a year or two, the appropriate response isn’t to add to the transitional pain, but rather to take steps to alleviate the most extreme social impacts of price increases.

The disconnect between temporary structural bottlenecks and higher interest rates has led to other rationales to justify the otherwise incomprehensible turn to tighter monetary conditions. One such justification is to emphasize large government deficits. These allegedly reflect excessive government spending that adds inflationary fuel to the fire set off by the supply shocks. These deficits – 15% of GDP in Canada and 12% in the US – are indeed high. Even before Russia invaded Ukraine, you’d have to go back some eight decades to find deficits of a comparable size.

Yet this too explains little. The record deficits reflect the impact of the pandemic, not any changes in the ambitions of governments. There’s been no shift toward a reinvigorated welfare state nor a sudden generosity to workers in the public sector. Neither have there been commitments to properly address decaying public infrastructures, nor to introduce, at long last, comprehensive measures to address the pandemic of all pandemics: the environmental crisis. (In the US, the continuing impact of the 2017 Trump tax cuts on deficits, only partially undone by Biden, go unmentioned.)

With a good part of the economy inactive during the pandemic, tax revenues fell while expenditures for essential medical supplies and income supports exploded. As the pandemic eased and the economy was reopened, the fiscal deficit began to move to previous norms. The Canadian government projects next year’s (2022-2023) fiscal deficit will be back to slightly over 2% of GDP, and the US fiscal deficit is expected to fall by half this year and drop to 4.5% next year. (US ‘defense’ expenditures account for about 2% of GDP more than that of Canada). Turns out that these deficits, like the supply shocks, are temporary. Again, why then all the angst about inflation?

There has been some acknowledgement that it is not the momentary annual fiscal deficits that are of concern but rather the rising national debt – i.e., the accumulated annual deficits and especially the dramatic deficits during the pandemic. That net federal debt now stands at over 100% of GDP in the US but is still only at about half that level in Canada. The legitimate concern here is that the costs of the pandemic must, one way or another, be paid for.

But framing it as an ‘inflation’ problem is distinct from framing it as a distributional problem, i.e., who can and should bear the burden of these costs. In Canada, which has the lowest debt to GDP ratio among the G7 (the leading capitalist countries), it’s worth asking how much of a priority it is to concentrate on reducing the debt further. In the US, the status of the dollar has meant it has had little trouble raising the international funds to carry this debt. In addressing the supply shortages, the Wall Street Journal got to the underlying issue that the focus on inflation obscured: “the struggle is on over who will bear the burden of higher costs” (March 23, 2022). The same could be said about concerns with the deficit/debt.

This underlying issue in the war on inflation is tellingly evident in the most decisive concern of central bankers: anticipatory inflation. Central banks are overwhelmingly concerned with preserving the financial system because of its centrality to the functioning of a capitalist economy and readily concede that it isn’t current inflation per se that is the main concern. It is, rather, the threat that the current price hikes may signal a dangerous future inflation. If economic actors – and above all, unions and the working class – try to protect themselves from inflation, we will be back, they fear, to the dilemmas of the 1970s.

As wages chase inflation and corporations pass on their increased costs to customers, a vicious circle of more inflation and higher worker demands might result. Inflation, at first a temporary inconvenience, may then get built into the economy as an uncontrolled, permanent feature. (And if competition limits the ability of corporations to completely pass on their added costs, there may also be a profit squeeze, a consequent fall in investment, and a recession of uncertain size.)

Either way, the problem as defined in this scenario isn’t what’s happening to workers’ income and the historic shift in national income away from workers. It is rather – and perversely – that these frustrated workers might suddenly convert unions’ long-standing weaknesses into successful inroads toward getting workers their piece of the pie or more. Fighting inflation is therefore exposed as not revolving around fixing some technical problem in the economy but about a class conflict over distributional priorities. The higher interest rates, the slowing of the economy, and the increase in unemployment that follows can best be understood as steps to pre-empt workers’ ability to challenge the status-quo distribution of income and wealth.

It is, in short, critical to address how this crisis in the functioning of the economy is framed. Framing it in terms of ‘inflation’ justifies wage restraint and cutting social expenditure and obscures the distributional question. Whether or not workers are the cause of the problem is irrelevant; as was consistently the case through the decades of neoliberalism, it is workers who must pay for saving the economy. On the other hand, framing the crisis in distributional terms takes us, as we’ll see further on, onto a different policy and political terrain.

Is focusing on inflation a trap?

Reframing the narrative does not mean that we should, as some sections of the left have argued, set the issue of inflation aside. Reinforcing inflation as a key economic concern, the argument goes, only legitimates the call for wage restraint and austerity. Better, it follows, to keep focusing on militant wage demands, expanding unionization, and lobbying for social programs.

The problem, of course, is that there is little reason to expect workers to magically reverse their long-standing bargaining and political weaknesses. For a left with any intention of engaging workers, ignoring the daily collapse in workers’ purchasing power would be disastrous. In Ontario, for example, public sector workers have been facing a 1% annual wage cap and should obviously demand to see it removed. But even if successful, then what? The chances of offsetting 5.7% inflation are hardly encouraging.

As for those living at or close to the legislated minimum wage, in January 2021, the Conservative government in Ontario reversed itself and raised, to great fanfare, the minimum wage from $14.25 to $15.00. The increase in consumer prices from then to February of this year has already taken some $0.82 away, leaving them behind where they were before the increase. The impact of inflation will generally hit the lowest paid workers and those dependent on social programs the hardest because the inflation is concentrated on necessities – food, shelter, gas prices, utilities – and because the impact is especially harsh where social welfare programs aren’t indexed.

Yet the point is not just that workers in general will suffer but also that inflation aggravates divisions internal to the working class. A minority of workers may be able to protect themselves, but the majority who can’t may come to resent those who can. They may even blame those winning significant increases for contributing to the inflation that robs them of necessities. The solidarity so desperately needed to effectively respond to the degradations of working-class lives becomes all the harder to build.

The point is that crises are always contested moments of dangers and opportunities. Avoiding a direct confrontation with inflation is not the answer even if there are traps in taking it on. The festering of workers’ frustrations can, as we’ve seen, move them to the right rather than to the left. The challenge is to find, in this moment, the openings that allow for an alternative narrative that deepens popular understandings of capitalism, encourages the kinds of struggles that can radicalize workers, and contributes to building the working class into a social force independent of and able to challenge capital.

Fighting inflation on its own terms

If some sections of the left would rather not address the means to solving inflation, others look to policies that can address it in a progressive way. One such direction focuses on alleviating the impact on the most vulnerable: raising minimum standards for wages and social programs and then indexing them. And in the case of private pensions – where coverage has fallen and inflation-protection faded – shifting the emphasis to socially adequate indexed state pensions for all. These are positive, if limited, steps that can be taken.

A more radical attack on the setting of prices has recently gained favour in left circles: price controls and anti-trust policies. If monopolies are either raising their prices or passing on the price increases to make others pay, why not go after them directly? As welcome as isolating and blaming private capital is, disregarding the larger context – capitalism as a system – brings contradictions in these well-meaning proposals.

An immediate problem with price controls is that they have always come with wage controls, since labour is ultimately the largest cost input in the economy. This has several implications. For one, controlling both wages and prices will tend to preserve the status-quo income shares in society. This is an obvious drawback given the radical increases in income inequality over the years. For another, it is easier to control wages than prices, since employers can directly mediate their control. Prices, on the other hand, would demand a large army of monitors with investigative and rollback powers. The current state has neither the capacity nor inclination for any such intervention in private industry, and workers are in no position to create their own social monitoring force.

And even if prices were frozen at present levels, this would generate new and no less serious problems. Since price adjustments are so fundamental to the workings of capitalism – determining what to produce, where to allocate labour, what sectors to invest in – the absence of an alternative mechanism to carry out such functions would leave us with a dysfunctional, chaotic economy that would revive pressures for returning to unfettered price determination.

General price controls have not worked in peacetime, but selective price controls can be more manageable. The case is not difficult to make. For all the talk about the shortage of supplies limiting the production of cars, General Motors was able in this crisis to charge more for each vehicle sold and concentrate the available chips on the most profitable vehicles: gas-guzzling pick-ups. The result was that GM profits last year were the highest ever. Drug companies flourished financially while society suffered. Oil companies needed to only sit and watch the price per barrel explode and increase their profits (which, of course, they didn’t invest in environmentally-friendly energy sources but passed on to their shareholders). Some degree of control over oil prices, related utility bills, car prices, rents, and housing prices is theoretically feasible. But the lesson of past attempts is that if corporations are still in control of production and investment choices, these objectives can be compromised in a myriad of ways. We will return to this below.

As for anti-trust legislation as a cure for inflation, this is unconvincing, and attempting it can, in many cases, make things worse for working people. To begin with, corporate concentration is not new, and for some four decades now, it did not lead to high inflation. Since the early 1980s, inflation in Canada has averaged under 2% and in the US a little over 2%. Inflation stayed relatively low because of a combination of productivity growth, low-cost consumer goods from abroad for workers, low-cost imported equipment and parts for business, the global intensification of competition, and the defeats of the labour movement (the last a consequence of both external attacks and labour’s own organizational and strategic limits).

We need to recall, as well, that an expression of countering the price-setting power of corporations was the call for ‘deregulation’ that accelerated in the late 1970s. This especially affected long-distance telecommunications, airlines, and trucking, and the results for workers were hardly positive. The increased competition may have lowered prices, but this was more than offset by the accompanying crushing of labour standards and the decisive weakening of unions.

New entrants temporarily lowered prices, and as often as not, didn’t last long. But before they flamed out, they contributed to restraining or lowering standards across the industry. As with neoliberalism more generally, the intensification of competition among corporations was quickly passed on to workers competing for jobs while the reconcentration of capital returned. Increased competition in the economy is not a saviour for workers.

Reframing the narrative

If we identify the issue brought on by higher prices as not just inflation per se, but the broader question of how to act along multiple dimensions in an equitable and solidaristic way, this helps transform the narrative to the distributional conflict – a class conflict. And this brings greater potential for building popular and working-class strength for future struggles.

If the argument is that the costs of dealing with the pandemic have created a large debt that must be dealt with or that fiscal spending is overheating the economy, especially with future needs for infrastructural and green spending, we must not pretend that this can be resolved by simply gearing the printing presses up. Choices do have to be made about how to allocate and reallocate who benefits from our productive capacities.

From a distributional perspective, paying for the pandemic doesn’t suggest higher interest rates but an emergency wealth tax justified by the contrast in the pressures the pandemic placed on front line workers vs the rich. Such a one-time emergency wealth tax might also give us a foot-in-the door-for a permanent significant, not just token, wealth tax. Addressing an overheating of the economy doesn’t require a general slowdown, but rather a reduction in specific spending that has especially been ‘overheating’ – again, the unjustifiably gross incomes of the rich with far higher income taxes on high earners alongside luxury taxes on their expenditures (typically also a measure that impacts carbon emissions). And then there are the government expenditures that have been rising and are seen as untouchable: the surveillance, policing-prisons, and military branches of the state.

But we need to be sober about an inevitable ceiling on redistributive policies. If we don’t also address the democratization of production – if we don’t also redistribute economic power, capital’s control over production and investment will leave it with the capacity to undermine or sabotage alternative priorities and redistribution goals.

We can put controls on house prices, but developers can refrain from building more houses or build the kinds of housing society needs. We can put controls on gas prices, but this won’t address the issue of a planned phase-out of the oil industry and investment in renewables. We can set drug prices, but the drug companies will still decide which kinds of illnesses they should focus on to maximize their profits. And we can’t control the price of food or adequately subsidize food as needed without a radical rethinking of food production.

As the struggle over distribution comes up against such impasses and causes new crises, the crucial lesson to internalize is not to retreat from our goals. It is to organize to go further and pose public ownership and planning in key sectors – not just for ideological reasons but also as a practical matter of self-defence and meeting critical social needs.

The left has shied away from taking over declining industries. Should we instead argue for placing the energy sector under public ownership to speed up its transformation to renewal energy? Productive facilities are closing in every community: do we need a national conversion agency to take them over and convert them to produce the material goods we’ll need to transform everything about how we travel, work, and live if the environment is to be ‘fixed’? If Amazon is increasingly acting as a universal post-office (including using the publicly subsidized post office to deliver a good share of their goods), should it become a public utility under public ownership?

These are all questions that go beyond the normal discourse of inflation. But that is the point of changing the narrative. They also invite a further issue that needs to be put on the table in discussing real incomes and distribution: the relationship between individual and collective consumption. The debate around inflation generally revolves around maintaining the capacity to increase individual consumption. What can get lost here is the importance of collective consumption – not just maintaining the level of social programs but also vastly expanding them. This pushes us toward political decisions on how our lives are shaped and lessens the dominating influence of markets and prices.

There are three further pivotal reasons to support the emphasis on public consumption. First, it shifts the mechanism for distributing goods away from markets (and currently, inflation) toward political, and potentially more democratic, decisions where greater consideration is given to values, priorities, and solidarities. Second, universal access to collective goods is more egalitarian. The poor do need more individual money-income, but adequate universal social provisioning can go a long way in addressing their total needs. Alongside this, an emphasis on public goods is also more open to developing the self-management practices that change people’s circumstances and capacities.

Third, as we approach environmental limits on individual consumption of material goods, collective consumption, which tends to be less resource-and-carbon intensive, will be a necessity. This needn’t be posed only as a matter of making personal sacrifices in individual consumer goods and services (though certain sacrifices will indeed be necessary). It’s also about consuming differently and perhaps in richer ways: no-fare public transit; better and more comprehensive health care; universal public child-care; life-time learning; more libraries and community centers with more services; more parks; expanded sports, music, and cultural facilities; more social interaction; and more democracy in planning and influencing this kind of consumption.


In developing a counter-response to dealing with inflation, the temporary as opposed to structural nature of both the supply shocks and pandemic-generated fiscal deficits may reinforce just waiting this out. But the pressures of higher prices exist, have an immediate impact on working people, and leave them vulnerable to the framing of the problem by corporate and government elites. We must intervene to offset that framing and pose alternative inflation narratives that offer radical alternatives in the distribution of income and power.

What has now emerged as random and temporary in the form of price shocks and inflation may occur more regularly and even exhibit systemic characteristics. The lack of preparation for the Covid pandemic is not leading to substantive planning to be better prepared for the next pandemic. The war in Ukraine, aggravating the post-pandemic supply shocks, may herald on-going geopolitical instabilities. And sleepwalking through the environmental crisis will make repeated social disruptions predictable, and even inevitable, events such as droughts, floods, food shortages, and responding to surges in environmental refugees.

Above all, we must intervene because we must see every crisis as a moment of both dangers and openings. It is the responsibility of the Left to not only try to limit the damage, but also to build toward a new world. These moments of more intense political discussions are opportunities to deepen understandings of the world we inhabit – capitalism – and to act toward building the kind of social power that can replace it.


As this article was prepared for publication, US President Joe Biden announced a new budget (Canadian Prime Minister, Justin Trudeau, will follow on April 7). A few selected highlights:

  • DEFICIT: The deficit would be cut by $1.3-trillion, the largest cut in US history (over $1-billion came from the end of the special pandemic costs).
  • SOCIAL EXPENDITURES: Beyond the pandemic costs, the costs of mandatory social programs (social security, Medicare, Medicaid) will fall another 3% next year even before inflation is taken into account.
  • DEFENSE SPENDING: An additional 3.8% – $31-billion – next year over and above this year’s 3.2% increase (police funding also increased).
    • Trump had lowered the top income tax rate from 39.6% to 37%. Biden proposes restoring the higher level. But even if Congress rejects this, it will still come into effect in 2025 since Trump’s tax cut was scheduled to end that year.
    • The corporate tax will increase from 21% to 28%. Trump had lowered it from 35%, so Biden’s half-measure only returns us to the mid-point of where it was pre-Trump (which wasn’t much of a ‘fairness’ standard).
    • A new ‘billionaire’s tax’ will ensure that the top .01%, i.e., those with income over $100-million, will pay a tax of at least 20% on their income. Aside from the question of what took so long to close the loopholes that allowed this, and why only 20%, is the fact that this is an alternative to taxing the far larger class of rich Americans; increasing taxes on the top 10% includes 1000 times as many rich people as taxing the top 01%. (In introducing this tax the White House press release is careful to note that “President Biden is a capitalist and believes that anyone should be able to become a millionaire or a billionaire.”
  • INFLATION: The Budget barely mentions inflation, projecting inflation to fall to 2.3% in 2023. Even if understated, this hardly merits the Fed prioritizing inflation by raising interest rates – reinforcing the view that the Fed’s concern seems to be with pre-empting any upsurge in wage increases. •

Further reading:

Sam Gindin was research director of the Canadian Auto Workers from 1974–2000. He is co-author (with Leo Panitch) of The Making of Global Capitalism (Verso), and co-author with Leo Panitch and Steve Maher of The Socialist Challenge Today, the expanded and updated American edition (Haymarket).