When Are Booms ‘Booms’? When Are They Merely 'Inflations'?

Sometimes it seems as though every time public officials return to talking about productive Hamiltonian public investment, or speak in a balanced way of rebalancing productive relations long since gone out of balance, unbalanced people begin crying ‘inflation.’ We are used to this coming from self-styled ‘conservatives.’ But when center-left wonks do this even after ‘conservatives’ leave off, one must wonder whether there’s some kind of cosmic irony, or maybe Stockholm Syndrome, at work…

Coming from a Larry Summers, of course, this isn’t new or surprising. It’s a great way of drawing attention back to yourself after having been nudged from the limelight by – gasp – first our first woman Fed Chair, and now our first woman Treasury Secretary. Having edged Summers out from the job that he wanted – Fed Chair – Janet Yellen now holds the job he once had – Treasury Secretary. And by all reckoning thus far she is proving far better at the job – far more attentive to what worrisome facts on the ground warrant and even require – than Summers ever was.

What is more surprising than Summers’s recent outbursts, however, is what we are hearing from Martin Wolf and even Raghuram Rajan, who are smart enough, humble enough, and socially conscientious enough to know better. Darkly warning of ‘runaway inflation,’ ‘labor militancy,’ and ‘riotous spending,’ both authors seem poised to become new Cassandras, worried more about falling skies than about rising floors and higher ceilings. Given how ‘outlier’ these warnings seem, should we attend to them? Should we pay any mind at all?

I think we should. And my reason is simple: Saying what goes unsaid in these recent columns can show us precisely why Building Back Better à la President Biden is apt to prove, not only non-inflationary, but actually counter-inflationary. That’s kind of important, now that our Second New Deal – our Green New Deal – is at last gathering political steam.

Start with Wolf. Wolf introduces his discussion by ‘journeying into history.’ He first recaps the ‘stagflationary’ late 1960s and 1970s – the period that prompted the Reagan reaction whose devastating consequences are precisely what Building Back Better is all about reversing. In so doing he notes that while oil price shocks and demographic change played some role in inducing stagflation, so did what he calls ‘domestic spending’ and ‘labour militancy.’ The terrible upshot was what Wolf calls ‘an era of terrible performance for asset prices.’ ‘Stocks,’ he continues, ‘did terribly too.’ ‘[T]he stock markets,’ it seemed, ‘were saying that capitalism was finished.’  And so what we had was what Wolf calls ‘a financial disaster.’

This is quite telling, when you think about it, of what ‘capitalism’ apparently was in the eyes of the privileged of the era – but is it really what Rajan, Wolf, Summers and their peers think that capitalism is and must be today? Yet more surprising is what Wolf tells us austerity, labor suppression, and financial deregulation from the Thatcher and Reagan eras on down brought in the way of putatively welcome corrective – namely, ‘a prolonged and remarkable boom in asset prices.’

Now why is this interesting?

Well, because language…

The ‘boom’ to which Wolf refers here has another name: ‘ bubble.’ And a bubble in asset markets is nothing more than … wait for it … a hyperinflation in those markets. Do you see what is happening here, then? What Wolf is effectively telling us is that the inflation in consumer goods markets that characterized the 1970s was simply re-routed to financial markets in the 1980s, where it has remained ever since. And he’s saying that this was a good thing!

Now the great Thatcher/Reagan re-routing of inflation from goods and services to asset markets is hardly surprising in light of the mass transfer of purchasing power – from labor to capital – also orchestrated by Thatcher and Reagan, then Major, two Bushes, Blair, Clinton, Cameron, May, Johnson and Trump over the ensuing 40 years. For wealthy owners typically max out on consumption long before they grow über-wealthy. There are few places left for their money to go, absent taxation, than the City of London and Wall Street betting markets. Why then is one called presumptively deleterious ‘inflation’ while the other is called a presumptively welcome ‘remarkable boom’? I have my suspicions, but let us move on to our next exhibit first …

Look now to what Raghuram tells us. Unlike Wolf, Rajan avoids celebrating asset price booms. He wrote importantly, after all, on the role played by inequality in generating the last great financial meltdown, as well as the role played by asset price bubbles in exacerbating inequality. His Fault Lines should still be required reading for all, as should be Martin’s own Fixing Global Finance.

But what Raghu once gave with the left hand he now takes back with the right. For while he does not protest, as Martin effectively does, on behalf of Wall Street as prospective payer in the event that in future we must open more fiscal space, he does in effect ‘capitulate to capital’: he avers that ‘it will be hard to make the rich pay – they will oppose new taxes vigorously and avoid them if implemented.’ Riotously decrying ‘a riot of U.S. spending’ while posing as protector of … here we go again … ‘future generations,’ moreover, he sounds an awful lot like Wall Street’s favorite Republican representatives in past Congresses. What gives?    

Raghu’s counsel of despair and preemptive surrender is, it seems to me, nothing short of flabbergasting. Did Piketty and ‘Occupy’ simply not happen? Did Bernie and AOC not happen? Did Trump’s popular ersatz populism not happen? Did George Floyd’s murder, Black Lives Matter, and Joe Biden’s Damascene conversion not happen? Heck, did Broadway’s Hamilton - and our humble think tank, New Consensus - not happen? The same rising tide of political energy that has at long last returned us to our anti-austerian, egalitarian, pro-planetarian, Hamiltonian state-capitalist roots is still rising, inexorably. This is no time to surrender, preemptively à la first-term Obama, to either austerians or Wall Street tax-cut enthusiasts. We’re past that now.  

The despair and dark pessimism, not to mention the Wall Street apologetic, writ into Rajan’s take is both democratically enervating and out of step with the times, which are more reminiscent of those of the New Deal and Great Society than we have seen since… well, the New Deal and the Great Society. And this time no war or cold war need derail us. For unlike his predecessors over the past 40 years, President Biden ‘gets’ that such global competition as there is is itself economic and state-capitalist.     

So what does this tell us about now – and about the coming rebalancing that Rajan, Wolf, Summers, and very few others read not as rebalance but as ‘riotous spending,’ ‘labor militancy,’ and ‘the specter of inflation’? Intriguingly, Wolf in effect drops a hint in his recounting of the 1960s and 1970s: One country that didn’t experience stagflation in this period, and accordingly didn’t destructively ‘rebalance’ by moving to financial hyperinflation instead, was Germany. What did and what does Germany do that we didn’t and don’t? Might we find there how to Build Back Better sustainably here?

The answer is yes, and the Biden Administration, unlike Summers and apparently a few others, thankfully seems to have ‘got the memo.’ What Germany did and still does is never to stop producing, never to stop productive investment, and thus never to need countenance the unjust suppression of labor or unwise financialization of its economy. Germany also has long understood – since List and Bismarck at latest – that even public expenditure that Reaganauts and latterday Clintonites seem to think, trafficking in that most pseudo of pseudo-distinctions, ‘more social than infrastructural,’ is infrastructural and efficiency-growing precisely by being social and justice-spreading. For it promotes labor mobility and thereby good factor-flow just as all good infrastructures do.    

That is still capitalism. But it’s a capitalism that works through and in reasonable part with and for labor, not against labor – in effect, a fusion of laborism and capitalism. Only this form of capitalism – labor capitalism – is non-self-destructive. This is what Building Back Better at this point is looking like. The plan is very much aimed both at massively jumpstarting green infrastructure and industry on the one hand, and at massively boosting and spreading productive opportunity and capacity to incipient producers – that is, to all of us – on the other hand.

Each boost, meanwhile, operates both generally, economy-wide, on the one hand, and in particularly concentrated form among long-neglected sectors of our economy and society, on the other hand. (This is why Biden speaks so often of rural America and non-white-male America along with the rest of America.) The tax offsets to limit deficit-growth, meanwhile, can easily be made to target outsourcing and offshoring firms owned by Wall Streeters – those whose fortunes Summers, Wolf, and Rajan seem by implication either to favor or to be willing to surrender preemptively to – not working Americans.

It would be hard to overstate the significance of this shift. It represents a return to the Hamiltonian growth model that served us so well for 150 years and serves Germany, Japan, South Korea, and now China well to this day. (The prophet of Germany’s strategy was Friedrich List, who cheerfully acknowledged Hamilton’s influence, as did the architects of Asia’s ‘tiger economies.’) This is a model that looks not merely to financial indices as measures of our economy’s success, but to production indices, infrastructure ‘report cards,’ and indicators of human well-being like job quality and quantity, educational attainment, health and longevity, and the like.

It might be difficult, after 40 years of financializtion in the Anglo-American world, to persuade people like Summers and Wolf to stop fixating on asset price indices and associated Wall Street wealth metrics as measures of national success. But that doesn’t mean we need follow them. When we hear talk of ‘inflation’ and ‘asset price booms’ going forward, then, let us remember that these are the same thing, differing only in respect of cui bono – who benefits. And when we hear talk of ‘labor demands’ on the one hand and ‘bond market balking’ on the other hand, let us remember that these are the same too, differing only in respect of who is demanding what.

Given how workers and financiers have fared over the past 40 years, I don’t think I am being eccentric in saying that Main Streeters are due more, and Wall Streeters due less, if in fact we must choose. And as it happens, in any case, we needn’t yet choose. Both sets of interests remain complementary for as long as we have fiscal space – of which we have plenty for now.

Thank goodness President Biden appears now to see that. Let us now see and act on it too.