Michael Hudson and Radhika Desai: What Causes Inflation?

Image by killabodhi via Flickr

by Michael Hudson
Writer, Dandelion Salad
February 6, 2023

Geopolitical Economy Report on Jan 27, 2023

In this episode of Geopolitical Economy Hour, economists Radhika Desai and Michael Hudson discuss inflation: what it is, what causes it, and what are the problems in how the Federal Reserve and other central banks respond to it.

Transcript

Excerpt:

[…]

Michael Hudson: By far [though], most money is bank credit. And bank credit is debt. And if you look at debt, then you have a whole different perspective, not only on inflation, but on how wealth is created and how the economy is polarizing.

You have to look at the whole economy as an economic system, which you and I have been talking about for years. The purpose of the mainstream media talking about inflation is to prevent you from looking at how the economy is working, to prevent you from looking at how corporations are raising prices, and to prevent you from looking at monopolies and war.

People talk about hyperinflation and again and again you will see the New York Times, the Washington Post, the Wall Street Journal, saying that, “Well, if we keep running budget deficits to spend on Social Security and Medicare we are going to end up like Zimbabwe. Or like Germany in the 1920s.”

Well, as I’ve shown in Super Imperialism, and Killing the Host, every hyperinflation in history has resulted from trying to pay foreign debt — it’s by dumping your currency on the foreign exchange markets to pay debts denominated in another currency.

[…]

Radhika Desai: [The] Federal Reserve’s policies — and the policies of many other central banks that have drunk the neoliberal Kool-Aid, the monetarist Kool-Aid and so on — essentially is to claim that the only way to deal with inflation is to have high interest rates. And this is essentially a class war. It’s a class war in at least two senses. At both ends of it it’s a class war.

[On] the one hand, by causing high levels of unemployment, what you’re doing is, you’re devaluing labor, which is the only thing we have to sell. Most of us — the majority of working people — all they have to sell is their labor. So, by causing a recession by increasing interest rates, you’re devaluing labor.

On the other hand, by increasing interest rates, by keeping asset prices high, you are preserving the wealth of the wealthy, and this is not the least reason why this century has seen such a great shift in income from labor to capital, and particularly to financial capital. And that is why we have seen inequality rise to such obscene levels.

[…]

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Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of A Philosophy for a Fair Society (2022), The Destiny of Civilization (2022), …and forgive them their debts (2018), J is for Junk Economics (2017), Killing the Host (2015), The Bubble and Beyond (2012), Super Imperialism: The Economic Strategy of American Empire (1968 & 2003 & 3rd Edition 2021), Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy (1992 & 2009) and The Myth of Aid (1971), amongst many others. He can be reached via his website Michael Hudson, mh@michael-hudson.com. Originally published Jan. 29, 2023.

From the archives:

Michael Hudson and Radhika Desai: Since Money is Political

The World Bank — Underneath The Rhetoric, The Usual Right-Wing Prescriptions, by Pete Dolack

Michael Hudson and Radhika Desai: Multipolarity and the Decline of US Hegemony

Central Banks Are A Symptom, Capitalism Is The Cause, by Pete Dolack

Chris Hedges and Richard D. Wolff: The Looming Disasters Built Into The U.S. Economic System

Michael Hudson: The Rentier Economy is a Free Lunch

Michael Hudson and Ralph Nader: The Federal Reserve, Quantitative Easing, and Who Runs the US Treasury

Michael Hudson and Ralph Nader: The Real Purpose of The Federal Reserve

Michael Hudson: A Short History of Inflation in Modern Times