Q and A

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June 28, 2022

[Q] The biggest driver of inflation now is skyrocketing energy prices*, which lie directly at the feet of Clueless Joe Biden, whose sanctions on RUS have blown up spectacularly in his face, and, in those of the world.

We didn't vote for WWIII

FFS, why doesn't any of the Anglo media take him to task on the above?

* not supply chain disruptions -- Crocodile Chuck, Sydney, Australia [2022-06-26]

[A] Well, energy prices are baked into everything manufactured, grown, and/or processed, as well as transportation, and oil and gas are still the largest source of energy, so sure, that's an easy explanation. And Biden's sanctions against Russia are meant to take one of the big three oil producers off the market, so they are the most obvious reason for supply falling short of demand, and that spells higher prices. But how effective have they really been? China and India are still buying lots of Russian oil, and the flow of gas to Europe never really stopped. Sure, there was a price bump when the war started, when speculators were encouraged to run up prices, but that has largely returned to normal. Then there's the problem that prices were already rising before Russia invaded Ukraine and the sanctions kicked in. During the pandemic, demand fell, so suppliers cut back on production -- something that happened all across the board, contributing to the supply chain problems we've seen as the economy has snapped back toward pre-pandemic levels. This rapid sequence of contraction then expansion created the perfect breeding ground for inflation everywhere. One notable example is rent, which has no direct relationship to energy prices. Rents were suppressed during the pandemic, creating a pent-up pressure to raise them as soon as demand increased.

And that's basically what's been happening. Companies aren't obligated to increase supply when demand increases. They only do so when they see an opportunity to profit more by making more, but as long as supply shortages are rewarded with higher prices (and profits), they really have little incentive to do anything else. (In this, OPEC is acting much as a company would.) We like to think markets are self-correcting, but they don't react all that quickly, especially when competition has been limited -- and if you've been following the renewed interest in antitrust lately (Barry C. Lynn's 2010 book Cornered: The New Monopoly Capitalism and the Economics of Destruction is a good place to start; a more recent book is David Dayen's Monopolized: Life in the Age of Corporate Power, from 2020), this will be obvious. We've created a perverse system where capitalists easily fail upwards.

But what does "Clueless Joe Biden" have to do with this? Mostly, the pandemic relief and post-pandemic stimulus programs left many people with increased savings (and staved off disaster for many more people), and that created a good deal of post-pandemic demand, which has been driving prices upwards. The programs also helped strengthen the labor market, which helped bolster wages (probably more than any time since 1980, which I'd count as a good thing even if it does contribute a bit to inflation). Some sort of recovery would have happened without Biden -- just one more skewed toward the rich, and consequently less robust, but given the framework I noted above, any recovery would have allowed prices to rise.

Where Biden is more culpable was in the run up to Putin's attack on Ukraine. I've argued elsewhere that the whole string of US presidents going back to Clinton have made sport of degrading and provoking Russia, and Biden probably looked worse than any of them because he hoped to rebuild US commitments to Europe that Trump had hadn't actually abandoned but had made a confused mess of. Chances are, Biden's closer embrace of Ukraine encouraged Zelensky to be more recalcitrant and ambitious over Donbas and Crimea, and Putin reacted as he did. The sanctions were a foregone response that any US president (even Trump) would have signed off on. The military aid was less certain, but once Russia's offensive stalled, the temptation was hard to resist. As a long-time critic of American foreign policy, this is not a course of policy I'm in favor of, but within the practical limits of our existing two-party system, I don't want to single Biden out for special condemnation -- although I have broken party ranks with LBJ over Vietnam, with Clinton over Iraq, and with Obama over Afghanistan, Libya, and Syria). The one thing I do fault Biden on is not stressing enough the need for a cease fire and conflict-ending agreement, although as far as I can tell, he's not personally on the more hawkish side of his administration.

Of course, I'm also critical of Biden for continuing his predecessors' hostile policies toward Iran and Venezuela -- perhaps least importantly because they've increased oil prices for American and allied consumers, although at the moment if one did want to flood the market quickly, the easiest (and perhaps only) way would be to suspend their sanctions (and/or end the war with Russia). The "tax holiday" scheme is too little, and not likely to help customers. Even worse are schemes to incentivize companies to increase drilling and refining -- a long-term solution counter to needs on climate change. It would be better to just give people more money to help out on inflation (e.g, you could advance the COLA on Social Security).

I've long been skeptical about the efficacy as well as the politics and morality of US sanctions, so I'm not surprised that they seem to be hurting us and our friends as much or more than they're influencing Russia. The best you can say for them is that they let us feel like we're doing something short of direct military engagement. Still, the notion that you can overcome their shortcomings by making them harsher and more resolute is a natural delusion. The longer the war drags on, the more likely both sides are to do really stupid things.

I don't know what you mean by "Anglo media." The American media is pretty relentlessly critical of Biden, especially on inflation, where he is damned for not anticipating it, damned doubly for not fixing it, and blamed for all sorts of imaginary causes and consequences (well, except for the war, which the media are typically unquestioning of). One favorite Republican talking point is to blame high gas prices on "Biden's Green New Deal," which never got passed, and wasn't Biden's in the first place. (Although note that while electricity prices are up, that's only about half as much as natural gas, thanks to all of the renewable capacity installed over the last 10-20 years.) But aside from Fox, it doesn't even seem that the media picking on Biden is ideological. They just like to watch him squirm.

One more point while we're at it. I'm seeing a lot of articles that purport to "fact check" or otherwise refute the charge that high gas prices are due to corporate greed. They're so common I suspect that industry PR flacks are orchestrating them. (Given the state of the media, that's not what you'd call unlikely.) The usual answer is to offer some other explanation -- many, like sanctions against Russia, aren't untrue -- as if greed only works as an answer once every other explanation is ruled out. But isn't it more like this: greed ensures that every possible excuse to raise profits will be jumped on? The way capitalism works is that every company is as greedy as possible. If a company's management isn't greedy enough, shareholders will rise up and replace those managers with greedier bastards. Still, it's kind of touching they feel the need to lie and obfuscate about such an obvious point. Perhaps it doesn't mean that they're ashamed, but suspect that they should be. And that they don't trust ordinary consumers to salute as they're being fucked over.