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Three errors, all stemming from obsolete and discredited 1990s and early 2000s style thinking, have vitiated our national responses to inflation thus far. Counterpart errors, as it happens, account for our past 50 years’ economic, hence social and political, entropy.
Those facts already suffice to recommend serious course correction. Yet, as if through some form of divine harmony, the present day also confronts us with by far our best opportunity since the 1940s to restore and renew our nation’s true ‘greatness’ potential – that of our incomparably productive citizenry.
Let’s take the errors and the proper responses to them sequentially, then turn to why now’s a great time to renew…
The first error is thought-leaders’ astonishing and continuing blindness to the role of production – better yet, lost production – in generating our current inflationary pressures in the first place. Inflation is, to put the point in mnemonically useful form, a relation. Roughly speaking, it’s a relation between money availability and goods-and-services availability. If the latter suddenly plummets, or if the former suddenly spikes, or if both should occur, you hit the proverbial problem of ‘too much money chasing too few goods.’
This is precisely what happened beginning in early 2020 – as I and my colleagues at New Consensus warned at the time. We cautioned against ‘fighting the last – 2008 – crisis’ and urged all to take 2020’s on its own terms. For while 2008’s was a demand-side crisis, 2020’s was a demand- and supply-side crisis.
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Alas, the warnings went all but unheeded.
Demand-support was admirably and innovatively forthcoming during the pandemic’s first year. Supply-support, not so much. Production units shut down nationwide as Covid prevented our working together in close spatial proximity. (Remember those closing canneries, shop-floors, and empty shelves?) Supply chain nodes suffered the same. (Look at those loading docks.) The upshot was what we’d reluctantly predicted – pent-up demand with no symmetrical growth in supplies.
A second 1990s/2000s-style error is now compounding the first. Old school Clintonites, Bushites, and even some contemporary center-right and center-left leaders (some of them now in the Senate), at last now concede that supplies indeed matter – but then utterly fail to link them with production. In particular, our production. ‘It will take too long to produce here at home,’ these folk whinge with near jaw-dropping defeatism. ‘And it costs more here anyway. Better to open the floodgates again to cheap imports from China and other jurisdictions that oppress or under-pay labor.’
This unilateral surrender of America’s productive potential is remarkable in at least two ways…
For one thing it calls for precisely what got us all into our present-day mess in the first place – the gratuitous ceding of our productive capacity to strategic rivals over the course of the later 20th and early 21st century. Had our nation’s first Treasury Secretary, Alexander Hamilton, taken the Ricardian advice proffered by today’s old school politicos, treating ‘comparative advantage’ as fate rather than choice and accordingly forgoing development of a robust industrial base and diversified economy, we’d have reverted to colonial status within a generation. (It almost happened in 1812, after Presidents Jefferson and Madison abandoned Hamiltonian development; and it’s where we’ve been headed for much of the past quarter-century.)
The other remarkable feature of the ‘let’s import from China again’ surrender is its sheer underselling of American ingenuity and ‘can-do’ determination when we are talking about producing rather than bickering about bathrooms or birth certificates or ‘saying “gay.”’ Perhaps the most important historical fact to remember right now is that FDR got the same 1990s style reply as the one we hear now when he called in the late spring of 1940, after Germany had stunned the world by overrunning France in but six weeks, for 50,000 warplanes a year – this at a time when our aircraft industry produced barely 3000.
Though aging and wheelchair-bound, the President was every bit as gritty and stiff-spined as Hamilton had been. He pushed forward in collaboration with American labor and industry – just Google GOOG ‘Bill Knudsen,’ ‘Frances Perkins,’ ‘Henry Kaiser,’ ‘Janet Kleinsmid,’ ‘K.T. Keller,’ ‘Walter Reuther,’ ‘Richard Reynolds,’ ‘Office of Production Management,’ ‘War Production Board,’ or ‘National Defense Mediation Board,’ for example – to build thousands (literally thousands) of factories and associated housing, power, transport, and educational infrastructures in record time, all while quickly resolving corporate intransigence and labor disputes to keep production lines running.
The upshot was not only 60,000 warplanes per year – 20% more even than Roosevelt had ‘unrealistically’ demanded – but thousands upon thousands of warships, transport ships (the renowned ‘Liberty Ships’ manufactured by Kaiser in mere days rather than months per ship), tanks, trucks, jeeps, guns, munitions, boots, uniforms, … everything we needed to vanquish Germany, Italy and Japan. Roosevelt even started up whole new industries from scratch – synthetic rubber, for instance, made necessary by Japan’s inconvenient conquest of natural-rubber source Indonesia – and preemptively bought up all global supplies of strategic minerals and other materials within months. (China is doing that now, while we sit and watch.)
Meanwhile erstwhile national monopolists in aluminum, magnesium, and other essential minerals industries suddenly found themselves facing multiple publicly established competitor-producers. Neither industry, nor labor, nor even consumers in the long run ever had it better than they had during the nation’s rebuilding and retooling during and after the Second World War.
There is no reason that we can’t embark on a comparable effort right now – the project of making America make again, reclaiming our status as one of the world’s great manufacturing societies, founding and rapidly growing the industries of tomorrow so quickly that, as back in 1945, we account for leading shares of the world’s gross product and exports alike. Indeed, at this point domestic and global perils alike resemble no other time as they do the ‘40s.
Those who say we cannot do this are not speaking the truth, they’re speaking the would-be self-fulfilling prophecies of preemptive surrender. They are why we recall Lincoln and Roosevelt, not Clinton or Bush or Obama or Trump, as clear-cut American success stories. (Yes, Lincoln too had to mobilize America’s enormous yet latent productive capacity during the Civil War just as did Wilson in the First World War and FDR in the Second – and he used much the same methods.)
The third error now made daily by late ‘90s and early ‘00s throwbacks is implicit in the second. It undermines American productive revival by targeting our primary producers themselves – nearly all of us, America’s working citizenry. You’re hearing it already – people like Larry Summers (again) and other self-styled ‘moderates’ darkly warning of ‘untamed labor’ and ‘wage-price spirals.’ When you hear words like these, you are hearing the enemies of work and material industry – you are hearing the overpaid friends of Wall Street and speculation rather than Main Street and production.
Think about it: as we’ve known since the days of James Steuart and Adam Smith at latest, prices always comprise at least two supply-side factors – costs and markup over costs, a.k.a. ‘profits.’ In other words, those who take profits from industry are just as responsible for prices as are those who are paid to produce. And, last we checked, American firms – especially the biggest firms – have been raking in record profits throughout the pandemic, not to mention their new record share-buyback activity. Why isn’t it they whose demands must be ‘tamed,’ Mr. Summers? Why is it only those actually producing who you think to be out-of-line and in need of return to the ‘reserve army of unemployed’?
Those who choose profiteers over producers might have argued in earlier centuries that we need profiteers’ ‘capital’ to produce, and hence have to take their side in ‘taming’ labor much as China has ‘tamed’ the Uighurs who work in their textile mills. But even assuming – contestably – the truth of that claim in centuries past, it is rank nonsense today.
Simply look to where profits flow now – again to share buybacks, to volatility-accelerating commodity and housing speculation, to unproductive ego contests over the ownership of noise mills like Twitter – and remind yourself that our World War II mobilization was almost entirely publicly financed (especially but not solely by the War Department). Then you will see at once that the ‘labor-taming’ crowd are nothing more today than their counterparts were in the Gilded Age – apologists for anti-productive rentiers and takers, not makers.
What, then, to do? Easy – we must do what I and my colleagues at New Consensus have been urging our nation to do now for years: produce. We’ve got a plan for how to do that, a plan that restores in contemporary form the uniquely American form of public-private collaboration that has worked miracles throughout our earlier history. But any plan framed and scaled as ours is will be far better than what the ghosts of the ‘90s and ‘00s are advocating now.
Mix public coordinative capacity, market-making procurement power, and trillions in combined public and private capital with private productive know-how; publicly build and lease out cheaply as much factory space as we need (Roosevelt’s ‘GOCO’ model – ‘government owned, company operated)), recognize that it is working Americans who are producing Americans, who bear rights to the world’s best housing and healthcare and education (again as did Lincoln and Wilson and Roosevelt), and guide private capital out of speculation and into production… That is how you’ll make America make again.
Now as I noted above, the present is an especially propitious time to make our move. Why do I say that?
There are multiple reasons all of which warrant their own columns, so here are but a few for right now …
First, Americans are flush with pandemic savings and ‘pent-up demand’ for goods and services, as new data shows even in the face of lost growth (due to import surges and domestic supply constraints) this past quarter. Second, economists are now widely agreed that record trade deficits and domestic supply constraints are the principal present-day drags on our economic growth.
Third, Russia’s invasion of Ukraine and China’s support thereof have underscored what Covid had already shown – the vulnerability of our nation’s supply side to global turbulence and assertive strategic rivals. Fourth and relatedly, the projected date at which supply constraints will abate is accordingly still being pushed ever further out.
Fifth, China’s production itself is now plummeting as Covid, burst real estate bubbles, and quasi-pariah status for support of Putin begin taking their inevitable toll. Sixth, China’s currency, like that of Japan and many other nations worldwide, is now plummeting relative to the dollar, dramatically heightening the danger of import surges that now confronts us – which danger accordingly will come ever more widely appreciated.
And finally (for now) seventh, the project of revitalizing America as a ‘workshop of the world’ offers a ‘win-win’ prospect to serious Democratic and Republican leaders alike (people like Romney, Murkowski, and Rubio, not grotesque sideshows like Boebart and Cawthorn and Greene) – the prospect of massive job growth and wealth growth and security growth that is not only non-inflationary, but is indeed counter-inflationary.
Why aren’t we doing it already? Why aren’t we doing it now?
Years back a rightwing Chicago economist said with straight face that ‘inflation is always and everywhere a monetary phenomenon.’ He elaborated with more nuance than do those who now routinely ape him. Today even some self-styled Democrats – including again Larry Summers – treat Milton Friedman as though he were as serious as he was loud.
The quip that ‘inflation is always and everywhere a monetary phenomenon’ is always and everywhere half true – and trivially half-true at that, as Friedman himself more or less knew. Inflation and deflation are money-to-goods-and-services phenomena. They are effectively ratios – what I above called relations.
Thanks to Jay Powell, Janet Yellen, Ben Bernanke and others, we’ve had the numerator – the money part – of those ratios more or less right this past decade. It is time now to remember and act on the denominator. It’s time to deliver the goods. It is time to produce and produce massively.