\n\n“The monetary tightening inaugurated by Volcker was one part of an entire deflationary policy repertoire that also included union-busting and the creation of a global supply chain to hold down the costs of labor, components, and commodities.”
…
“The Fed might be able to choke off credit to slow investment and job creation, but it can\u2019t create the real-world political, legal, and logistical systems that in the past have kept prices down even amid economic growth.<\/p>\n\n\n\n
To truly tame prices, we can\u2019t just turn off the money hose. We have to plan for more concrete long-term solutions to a lack of labor, commodities, and goods.” <\/p>\n\n\n\n
…<\/p>\n\n\n\n
“Volcker\u2019s shock and central bank independence happened at the same time as Ronald Reagan\u2019s anti-union effort; the emergence of New Democrats like Jimmy Carter and Bill Clinton, who were less sympathetic to organized labor than their New Deal and Great Society forebears; and the collapse of union membership across almost every sector of the economy except government. Volcker and his central banker colleagues were keenly aware of the importance of union power to increasing wages: The minutes of Fed meetings show that these policymakers fixated on the ability of unions to set wages<\/a> even after many academic economists had moved on from the subject.”<\/p>\n\n\n\n …<\/p>\n\n\n\n ” Just as Volcker\u2019s rate hikes coincided with a bipartisan anti-union push, so the rise of central banks paralleled the acceleration of globalization and the creation of a world-spanning super-efficient \u201cjust in time\u201d supply chain. New logistics infrastructure, trade deals, and methods of inventory management allowed firms to get cheap commodities and components from the other side of the world astonishingly quickly. Globalization also reinforced the attack on unions, since it allowed businesses to move factories to countries with weaker labor laws, humbling labor leaders of industrialized economies. After the 1980s, and especially after the fall of the Soviet Union, markets began to integrate many formerly communist countries with large, well-educated \u2014 but poorly paid \u2014 workforces and ample natural resources. The creation of global supply chains depended in large part on a relatively calm geopolitical scene, with no serious confrontations between \u201cgreat powers,\u201d who generally seemed to be on the same page regarding globalization.”<\/p>\n\n\n\n …<\/p>\n\n\n\n “It\u2019s this model of globalization that is currently breaking down, leading to volatile rising prices. As anyone who has ordered a piece of furniture in the last two years can tell you, \u201cjust in time\u201d has become a thing of the past. Instead of speedy manufacturing getting imported from any nation on earth, now we import their supply chain bottlenecks, as, say, plumbing component manufacturers in China hamstrung by that country\u2019s \u201czero-Covid\u201d policy hold up house completions in the United States.<\/p>\n\n\n\n While supply chain bottlenecks were widely predicted to ease in 2022, geopolitics got in the way. The Russian invasion of Ukraine and subsequent economic retaliation rocked global energy supplies, a particularly troubling economic disruption since energy is a vital component of nearly every product, and further poisoned relations between wealthy Western countries and Russia\u2019s key ally, China, where so much of the stuff Americans buy is made. Instead of getting more cheap electronics from China, the world\u2019s second-largest economy, the US is sanctioning the chip industry there<\/a>.<\/p>\n\n\n\n If the Federal Reserve is largely removed from the internal dynamics of the labor market, it has even less to do with foreign policy and geo-strategic maneuvering.” …<\/p>\n\n\n\n “We don\u2019t want policymakers to make the mistake of fighting the last war. If we leave inflation up to the central bankers rather than continuing the push for coordinated investments in\u00a0cost-saving renewable energy<\/a>\u00a0and\u00a0dense housing<\/a>, or policies that reverse the\u00a0shrinkage of the labor supply<\/a>\u00a0since the pandemic, we won\u2019t so much beat inflation as resign ourselves to a poorer, less-resilient future.”<\/p>\n\n\n\n
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