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Why It Matters Who Caused Inflation

www.theatlantic.com › newsletters › archive › 2023 › 06 › why-it-matters-who-caused-inflation › 674448

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This is an edition of The Atlantic Daily, a newsletter that guides you through the biggest stories of the day, helps you discover new ideas, and recommends the best in culture. Sign up for it here.

Hi, everyone! I’m Lora Kelley, and I am a new writer for the Daily. I’m thrilled to be working with Tom Nichols and the team to bring you the newsletter. I joined The Atlantic in an interesting week for the economy—after two years of runaway inflation, which led the Federal Reserve to crank up interest rates, the government announced on Wednesday that it would be pressing pause on its hikes for now. Today I explore a question that’s dividing economists: Whose fault is inflation, anyway—and why does it matter?

First, here are three new stories from The Atlantic:

The fake poor bride

Car-rental companies are ruining EVs.

The choice the Philippines didn’t want to make

America can take a breath: Inflation is finally cooling off. It’s now hovering at about 4 percent, according to Consumer Price Index (CPI) data released earlier this week, down from the 9.1 percent peak in June of last year. But the Fed is saying that it would like inflation to be closer to 2 percent, and that it may raise interest rates again in the future to try to get the country there. Now that inflation has abated (for the moment), discussions have turned to how we got here.

Fed Chair Jerome Powell recently said that rising wages were not the principal driver of inflation. As economists, the media, and laypeople alike try to figure out whom to blame instead, fingers are pointing at the consumers who started spending large amounts of saved dollars and stimulus checks in 2020; at the corporations that have seen juicy profit margins after raising their prices; and, in Sweden, even at … Beyoncé?

Trying to understand the factors that fueled inflation is important, because whom we blame for inflation also shapes what we do about it. If inflation is caused primarily by overheated consumer demand, then it makes sense for the Fed to quell spending by hiking interest rates. But if corporations, rather than consumers, are driving inflation by raising their prices, then other tools may make more sense.

One conventional explanation is that widespread consumer spending started in 2020 and persisted in the years that followed, causing demand to explode and prices to spike. Some economists have called the influx of post-lockdown spending on goods and travel “revenge spending,” and recent data show that it is receding after two years.

The Fed has consistently raised interest rates in its past 10 meetings in part to get consumers to stop spending money—and so far, the hikes seem to be working. “The Fed has done the thing you would expect the Fed to do,” Chris Conlon, an economist at NYU, told me. “Right now, it looks like raising rates is starting to cool demand and temper expectations.” (Pulling this lever is imprecise, however, and can cause pain: High interest rates have triggered layoffs, especially in tech, and made it harder for a lot of people to afford big-ticket purchases such as houses and cars.)

Although CPI data show clear patterns in consumer spending and demand, another explanation, that corporations are fueling inflation by raising prices in order to increase profits, has been gaining steam in recent months. Some economists are taking a closer look at the idea that corporations’ profit margins could be playing a role in keeping inflation high—especially after recent earnings calls in which corporations reported that profits are up even as they are selling fewer goods.

Isabella Weber, an economist at the University of Massachusetts at Amherst, argues that a host of geopolitical factors have provided “cover” for firms to raise prices. Weber refers to the phenomenon as “sellers’ inflation,” but others call this “greedflation,” “excuseflation,” and “profit-led inflation.” Companies wrestled back pricing power earlier in the pandemic—and consumers, seeing high prices at the gas station and everywhere else, came to expect higher prices. Now, some ask, are companies doing more than simply responding to costs, and instead just ramping up prices to pad their margins—and in the process, feeding inflation like a pandemic baker feeding sourdough starter?

“If you believe that big corporations are the ones who are pushing up prices,” Rakeen Mabud, the chief economist at the progressive nonprofit Groundwork Collaborative, told me, “then there are a lot more tools in our toolbox” to address the issue. “We can go way beyond the Fed,” she added. Those tools, she told me, include tax policies that target excess profits or incentivize productive investment in firms. “We’re really seeing a big rethink of some orthodox understandings of inflation and its causes,” she said.

Conlon, however, is interested in possible factors beyond greed that may be pushing companies to raise prices. “Strong demand will also generate rising prices, rising profits, higher output,” he told me. He and his colleagues recently published a paper that found that, from 2018 to 2022, there was no correlation between the companies whose markups have risen the most and the industries in which prices have risen the quickest.

The exact causes and dynamics of our current inflationary moment may take time to unravel—Conlon predicted that in a few years, we may have more information about how companies behaved these past few years. These data will be worth a close look, especially if shocks to the economy continue apace in years to come. It’s become a bit of a cliché to say that we are living in unprecedented times. But a rash of recent, intersecting crises—supply-chain snarls, the war in Ukraine, elevated gas prices, bird flu—did scramble consumer spending, leading companies to raise prices over the past few years. Things may stay strange. Understanding what happened could inform how we respond to future shocks.

I will leave you with some good news, after all this talk of disaster: Global inflation is not all Beyoncé’s fault, though Swedish economists said this week that her Renaissance tour in Stockholm caused a surge in local prices—“It’s quite astonishing for a single event,” one economist told the Financial Times. One person, even an amazing one, can’t single-handedly cause inflation. But her music can probably alleviate some of the pain of thinking through all of this.

Today’s News

After a multiyear investigation into George Floyd’s murder, the Justice Department released a report finding frequent instances of excessive force by Minneapolis police officers, and unlawful discrimination against Black and Native American people.

The gunman who killed 11 people at Pittsburgh’s Tree of Life synagogue in 2018 was convicted by a federal jury.

Several federal agencies, including the U.S. Department of Energy, were affected by a global hacking campaign, according to officials.

Dispatches

The Books Briefing: Gal Beckerman reflects on the powerful weirdness of Cormac McCarthy.

Explore all of our newsletters here.

J. D. Vance and the Yahoo Caucus

found Jun '23 The Atlantic

www.theatlantic.com › newsletters › archive › 2023 › 06 › j-d-vance-senate-justice-department › 674428

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When J. D. Vance first ran for office, he impressed some observers as a bridge between red and blue America. I was less impressed, but as a senator, he’s worse than even I expected; he’s become part of a caucus of panderers who are betraying the people they claim to represent.

First, here are four new stories from The Atlantic:

The Instant Pot failed because it was a good product. The Toyota Corolla theory of college The path to happiness is narrow but easy. Trump’s bag man

From Hillbilly to MAGA Senator

I wrote about J. D. Vance during his Senate run back in 2021. I was appalled at his campaign and his rhetoric, but he has turned out to be even worse as a legislator than he was as a candidate.

Vance initially tried to position himself as a reasonable man from humble origins, someone who understood the angst of rural, Forgotten-Man America. He wrote a book about it, and in 2016 he warned the public—in The Atlantic, no less—that Donald Trump was “cultural heroin.” When he moved back to Ohio and stepped into the GOP Senate primary, Vance was running behind Josh Mandel, the hyper-ambitious former treasurer of Ohio, who was saying and tweeting unhinged things as a way of pulling out all the stops to capture a coalition of the most extreme primary voters. For a short second, Vance tried not to jump into the same septic tank.

But when you’re getting millions of dollars in support from Peter Thiel, losing to someone as off the wall as Mandel isn’t noble—it’s just losing. And so Vance retooled both his approach and his personality. He pledged his sword to Donald Trump, who duly endorsed him and lifted him to a win in the primary. Vance then ran as the MAGA candidate, appearing onstage with Marjorie Taylor Greene and Matt Gaetz and accepting their endorsements. This combination of pusillanimity and shamelessness, along with Trump’s support, helped Vance defeat the centrist Democrat Tim Ryan, and he headed back east to Washington.

Once in the Senate, Vance shed the MAGA clown costume and became a responsible center-right legislator, advancing the interests of the poor and forgotten in Ohio and … I’m kidding, of course. Vance did no such thing. What he once wore as electoral camouflage is now tattooed all over him, in yet another fulfillment of the late Kurt Vonnegut’s warning that, eventually, “we are what we pretend to be.”

In politics, you pay at least some of the debt you owe for a crucial endorsement, but Vance is paying it all—including a brutal vig. It’s one thing to hand-wave about supporting the nominee; it’s another entirely to speak up when staying quiet would be just as effective, and perhaps more sensible. But when you’re writing articles defending Donald Trump’s foreign policy—a radioactive subject many Republicans would rather ignore—you’re not just paying off what you owe the sharks; you’re begging to be part of the crew.

Some credit where it is due: After a major train derailment in Ohio, Vance teamed up with his senior colleague Democratic Senator Sherrod Brown to advance a rail-safety bill. But that was an easy call; when I worked in the Senate many years ago, we called similar legislative proposals “apple pie,” as in “Mom and apple pie and the American flag,” a bill or resolution that any legislator could support without hesitation.

But Vance couldn’t resist the intoxicating call of performative irresponsibility, and he has managed to latch on to almost every MAGA hot-button issue in his short time on the Hill. (He even fawned over Tucker Carlson after he was fired by Fox News; most other Republicans quietly treated Carlson’s canceled show like a barrel of industrial sludge that they allowed to sink in a dark lake without trace or comment.) Last week, Vance responded to Trump’s indictment on 37 federal charges by vowing to put a hold on all Justice Department nominees.

For those of you unfamiliar with this tactic, many senior posts in the U.S. government constitutionally require confirmation by the Senate. A smaller and less hierarchical body than the House, the Senate does much of its business, including scheduling votes on nominees, by “unanimous consent.” The current rules of the Senate allow any single senator to put a “hold” on a nominee by withholding such consent, thus preventing the chamber from acting on the nomination. This is a fairly routine maneuver most of the time; sometimes a senator places a hold because of a particular concern or question—or sometimes, because of a political vendetta.

But Vance is just shilling for Trump by preventing the entire Senate from voting on any and all nominees to the Justice Department. This puts him in the exalted company of another Senate giant, Alabama’s Tommy Tuberville, who is holding up the promotions of some 200 senior U.S. military officers because he’s upset about expanded abortion provisions for service members. (He is also feuding with the Pentagon over various other culture-war grievances.) Vance and Tuberville are engaging in “blanket” holds not against any one person, but against an entire class of nominees.

This is not the Senate’s “advice and consent”; this is the howling of the Yahoo Caucus. As Jill Lawrence noted today in The Bulwark, the GOP is engaging in a “full-on trashing and undermining of the government,” creating “a civic and physical hazard to America” merely to defend Trump from even mild criticism. (Meanwhile, over in the House, Representative Thomas Massie of Kentucky is a good choice to be parliamentarian of this Yahoo Caucus, tweeting today that “no member of Congress can be prosecuted for reading aloud on the floor any of the documents Trump allegedly has copies of.” Massie, apparently, thinks it would help Trump’s case to read top-secret documents live on national television.)

Tuberville has repeatedly shown, much like Trump himself, that he does not understand how the American government actually works. Vance (a graduate of Ohio State and Yale) and Massie (who holds a degree in engineering from MIT) both know better, and that makes their actions even more odious. These legislators are showing contempt not only for their constitutional duty but for their constituents by treating them like credulous rubes in order to harvest their anger and their votes.

Tuberville, perhaps, never had a chance to be a better legislator. Massie might simply be an engineer who knows a lot about one thing and almost nothing about anything else. But Vance is different: He’s an intelligent and educated man who has chosen a shameful path in Congress as if his lifetime of opportunities and second chances never happened.

Today’s News

A global cyberattack hit multiple U.S. federal-government agencies by exploiting a vulnerability in a commonly used software, according to the U.S. Cybersecurity and Infrastructure Security Agency. In a 7–2 vote, the Supreme Court rejected claims that sought to invalidate parts of the 1978 Indian Child Welfare Act, effectively protecting the preference for Native American families to foster and adopt Native American children. A major heat wave has struck much of the southern U.S., bringing dangerous and record-breakingly hot conditions to Texas, Florida, and all the states in between; conditions are expected to persist through the weekend.

Dispatches

Up for Debate: Conor Friedersdorf probes what happens when science outpaces ethical norms.

Explore all of our newsletters here.