“Some of the causes are fairly self-evident: Entering the third year of the Covid-19 pandemic, the US — and much of the rest of the world — is grappling with a supply chain crisis. That means most goods, from game consoles to oranges, are more difficult to get to store shelves for one reason or another, whether it’s a lack of critical tech components or a backup at ports due to labor shortages. But US consumers simply haven’t stopped buying, and that demand-supply disjunction has caused record inflation.
Some economists, as well as President Joe Biden, take the view that the pandemic — and the pandemic-snarled supply chain — are the primary culprits, and inflation will ease as the US keeps combating the pandemic and implements supply-chain fixes. On Friday, according to CNN’s Kaitlan Collins, Biden told reporters that “the reason for inflation is that we have a supply chain problem that is really severe.”
Others, though, are concerned the problem is bigger than that. Former Treasury Secretary Larry Summers, for example, has also pointed to government spending as a reason for increased inflation, and believes it’s far from a bump in the road.”
“lockdowns and being stuck at home — unable to travel or go to restaurants, bars, and live events — have shifted what Americans are spending their money on. Less money spent on travel or experiences, combined with stimulus funds, has driven many Americans to buy more consumer goods. That, combined with supply chain problems decades in the making and exacerbated by the pandemic, has led to the current, precipitous rise in inflation.”
“While the US has spent trillions in pandemic relief, however, inflation is also occurring elsewhere in the world, where governments have taken different approaches to dealing with the fallout from the pandemic — suggesting that government spending doesn’t tell the whole story.”
“While the Biden administration is doing what it can to fix supply chain issues and drive down rising gas prices, most of the tools to address inflation are in the hands of the Federal Reserve.”
“One way the Fed plans to cool the economy is “tapering” — gradually decreasing the $120 billion it spends per month on government-backed bonds, which has injected money into the financial markets during the pandemic. In November, Fed Chair Jerome Powell announced the central bank would reduce that amount by $15 billion each month. The purchasing program is supposed to end halfway through 2022, but as the New York Times reported in early December, it could finish more quickly as the Fed attempts to reduce inflation.
“At this point, the economy is very strong, and inflationary pressures are high,” Powell said in late November. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner.”
Along with that could also come interest rate hikes, although the Fed has not announced specific plans to do so.”
“Beyond monetary policy, though, the other massive piece of the puzzle is the supply chain — and that’s something politicians and policymakers have much less control over. Biden has attempted to ease supply chain woes by running the Port of Los Angeles 24 hours a day, clearing the docks so goods don’t wait for days on cargo ships stranded in the water. And the release of 50 million barrels of oil from the US Strategic Petroleum Reserve last month was geared toward reducing gas prices, which have already begun to fall.
Most likely, however, the supply chain will remain snarled for the foreseeable future — keeping inflation higher than we’re used to — and policymakers will have to react to that reality.”
“Manufacturers haven’t overcome the worldwide semiconductor shortage. Gaming consoles like the PlayStation 5 are still scarce, automakers are delivering cars with missing features, and Apple may end up producing 10 million fewer iPhones in 2021. For a few companies, however, these supply chain woes may have an unexpected upside.
The manufacturing delays abroad and relentless demand for consumer electronics have turned into a windfall for some chipmakers in the United States. Even lesser-known American manufacturers with aging or secondhand equipment have seen a surge in sales for the legacy chips, or microcontrollers, they produce. These parts are inexpensive to make but are a critical component for many devices, and as supply chain troubles have affected larger companies that focus on more advanced technologies, demand for the more basic chips has grown. Flush with customers, the companies that make these microcontrollers are now on a spending spree to boost their overall manufacturing capacity.”
“The effects of mass death on the economic fortunes of workers were profound. On the eve of the Black Death, Europe was characterized by feudalism, a hierarchical social and economic system with military aristocrats (and the clergy) at the top and a large mass of peasant laborers at the bottom. Because the economy was overwhelmingly agricultural, the elite’s capital was held almost exclusively as land. Peasants were tied to this land through a highly exploitative system of forced labor called serfdom, which demanded the uncompensated provision of labor and greatly restricted workers’ mobility.
The demographic collapse wrought by the Black Death was a fundamental shock to this system — at least it was in the areas where the toll of the plague was high. The basic laws of supply and demand explain why. In areas where the plague hit hard, it decimated the labor force. At the same time, the disease left the upper classes’ main capital asset, land, completely untouched. Thus, one factor of economic production, labor, suddenly became scarce and expensive, while the other, land, became abundant and cheap. The result was a massive increase in peasants’ bargaining power. Thus, workers were able to demand better working conditions, improve their access to land and, given the challenges elites faced in policing their movement, migrate to the cities. In the years immediately following the Black Death, serfdom collapsed and was replaced by a wage economy based on free labor.
Yet this reaction to the Black Death did not take place across the whole of Europe. Although much of Western Europe (including some western areas of what we now think of as Germany) suffered from the plague with particularly high intensity, leading to those massive changes to the bargaining power of labor, Eastern Europe, which was less exposed to trade and had sparser human settlement, saw significantly less death. Consequently, in the eastern parts of Europe, including the east of German-speaking Central Europe, the system of serfdom persisted for centuries longer than it did in the West.
These differences in labor freedom had important consequences for local politics and institutions. We find that areas of Central Europe that experienced high mortality from the Black Death — leading to an early end for serfdom — developed more inclusive political institutions at the local level, such as the use of elections to select city councils. These changes initially resulted from shifts in the organization of agriculture. In areas where the Black Death hit hard, elites were forced to decentralize much of the everyday control over agricultural management to the peasants themselves. This created a local need for coordination, since agricultural production at the village-level could only be successful if peasants agreed on the crops to be harvested and the division of labor in the agricultural round. As a consequence of these early experiences with self-governance, peasant villages began to demand the right to elect their own officials. Over time, this led to wider and wider participation in collective self-governance at the local level. Such experiences fostered a lasting culture of civic engagement and cooperation that proved essential for safeguarding the freedoms of laborers from future attempts by elites to roll back the gains won in the wake of the Black Death.”