At the end of July, an economic adviser working for Bank of America wrote a memo that got leaked. It made bluntly explicit the long-standing common knowledge among savvy investment advisers: those “economic policies” debated among politicians, economists, and dutiful mass media operate at two different levels. On the public level, debaters discuss what “we” need to do to fix “our economy’s problems.” It reeks of that “we are all in this together” language that reminds us of commercial greeting card poetry. On the other, private level, insiders discuss how the government should respond to economic problems in ways that boost employers’ profits even if at employees’ or the public’s expense. Insiders express their preferred solutions in that nicely neutered term: “policies.”
Inflation, that “problem” torturing capitalist economies these days, offers us the first example of such policies. Inflation is a general increase in prices. Employers, not employees, decide the prices to charge for whatever goods and services their employees’ labor produces. Employers are at most 1 percent of the population while employees and their families constitute most of the other 99 percent. That 1 percent is not accountable to the other 99 percent of the population. Inflations directly impact—reduce—the standards of living of the 99 percent. The only exceptions are those employees who are able to raise their wages or salaries at least as fast as inflation raises prices. That is a tiny minority of the employees in general and also right now during the 2022 U.S. inflation. If inflation raises prices faster or more than wages, that represents a redistribution of income and wealth upward from employees to employers. Simply put, raising or protecting profits motivates employers’ price-setting decisions. Indirectly, inflation deeply impacts societies that suffer them, yet no democratic process determines where, when, or how employers’ decisions to inflate prices lead to those impacts. In modern capitalism, inflation reveals the class struggle in economics. There it operates without the constraints that formal democracy (voting) imposes on politics.
“Quantitative easing” (QE) intoned Treasury Secretary Janet Yellen, repeating what Fed Chair Jerome Powell had said while offering a policy solution to recession. The technical-sounding phrase simply referred to the Federal Reserve’s particular economic policy to slow or stop the sharp economic downturn that had started in 2020 and was worsened by the COVID-19 pandemic. That Fed policy created a vast new amount of money and provided it, via loans and security purchases to big banks and other large financial institutions. To be clear here, the Fed made vast new monetary resources available to some of the largest and richest financial employers. The stated goal was to stimulate “the economy.” The Fed hoped that the financial employers it enriched would find it profitable to use this money to lend more to non-financial employers who would then hire unemployed workers. Note that QE favors the employer class. It works first and foremost to enrich the top 1 percent and then “hopes” the latter’s gains trickle down to the other 99 percent. Note further that the fresh new money is not provided to the mass of workers with the hope that they spend it thereby generating sales and profits for employers. Such a “trickle-up” approach to “stimulate the economy” would favor workers. That is why it is rare and almost never the primary focus of “expansionary monetary policy.”
Against inflation—the other scourge of capitalism’s instability—the Fed’s preferred policy is reversed to become “quantitative tightening” (QT). This policy reduces the quantity of money in circulation and raises interest rates. To these ends, the Fed sells securities chiefly to major financial institutions (inducing them to buy by charging attractively low prices for those securities). Those major financial institutions then pass on the higher rates (plus a markup for their own profits) to their customers (individuals and businesses). In short, the major financial players profit from Fed policy while offloading its costs onto the smaller economic players they service with loans. Note that the policy favors the biggest financial players and merely “hopes” that costlier loans will dissuade borrowers who will then demand fewer goods and services and thereby “induce” sellers to inflate their prices less. All the “ifs” and “hopes” concern the ultimate results of such policies. They immediately convey cash advantages to major employers, especially in financial enterprises. QT policies likewise favor the richer among all individuals and businesses. That is because higher interest costs are a heavier burden, and a greater risk, the smaller the size of a business or of an individual’s wealth.
Note that inflations can be and have been reduced in other ways less favorable to capital as against labor and to the richer as against the rest. Wage-price freezes, like the one then-President Richard M. Nixon imposed in August 1971, provide alternative anti-inflationary policies. Likewise, rationing can replace markets as a way to stop inflation. Former U.S. President Frankin D. Roosevelt used rationing in the early 1940s. But precisely because such policies are less favorable to the employer class, they are only used rarely. The dubious achievement of President Joe Biden’s administration (and the complicit GOP) has been to speak and act as if QT were the only policy that exists to fight inflation. Yellen’s and Biden’s past verbiage of “concern” about U.S. income and wealth inequalities might have acquired some teeth had a freeze of prices combined with wage increases been able to actually reduce those inequalities. That would have been an anti-inflationary policy doing double duty, reversing rather than exacerbating existing inequalities.
Fiscal policies work quite like monetary policies in terms of the class favoritism built into them. When recession is the problem, expansionary fiscal policy—for example, increased government spending—usually favors spending on infrastructure, defense, and other objects where well-established, large capitalist enterprises prevail. The government spending to moderate a recession then flows first and foremost into the hands of large employers. They will in turn use that money much as they do with all their capital and revenues: minimize labor and other costs so as to retain the maximum as profits and funds for capital accumulation. Only when it becomes politically unavoidable will government spending bypass employers and flow directly into the hands of the employee class. “Transfer payments” or “entitlements” encounter the most resistance, delay, undoing, or reductions resulting from pressure from the employer class. Thus, for example, the extra governmental outlays in 2020 and 2021 supplementing unemployment insurance and mass assistance during COVID-19 shutdowns stopped even as negotiations for massive infrastructure spending and “chip subsidies” to employers proceeded.
Similarly, when anti-recessionary fiscal policies entailed cutting taxes, history shows that taxes on corporations and the rich were disproportionately cut. Certainly, the massive tax cut under former President Donald Trump late in 2017 followed that pattern.
Class warfare lies behind how many politicians, mass media, and academics explain the economic problems requiring the solutions that their policies offer. For example, consider the typical analyses during 2022’s inflation as it became a hot public issue in the U.S. and beyond. Prices rose, we were told, since demand had risen (because of COVID-deferred spending) and supply had fallen (because of disrupted supply chains). Conservatives stressed the demand side: huge fiscal stimuli responding to COVID-19 (government checks and additional unemployment cash) that would be funded by budget deficits. Liberals stressed on supply chain disruptions instead (attributed to, say, China’s lockdown policies such as COVID-19 and Russia’s invasion of Ukraine). Note how both sides neatly removed employers’ profit-driven price increases from their respective analyses.
Yet employer decisions do play a key role in modern capitalism’s inflations. When demand rises (for any reason), most employers know they have a decision to make. They can either order more goods and services to be produced and sold to meet the rising demand or they can raise the prices of the goods and services they already have. Whatever mix of higher price and availability of more products they choose will be determined by what they deem as their more profitable course of action. Their choices in 2022 produced major inflation in the U.S. and beyond. Yet the vast majority of discussions by mainstream media, politicians and academics about inflation omitted to mention, let alone analyze, how employers’ profit-driven choices led to the inflation. Capitalist competition provides incentives for enterprises to accumulate significant market share. Enterprises with such a share and the pricing power this often entails could well choose price increases as their most profitable course of action. And if that is the case, then inflation is caused in part by employers’ profit-driven choices. Note that avoiding that conclusion was, consciously or not, a key component of anti-inflationary policy debates throughout 2022. That was why the debates so bizarrely left out employers’ decisions as if they had no choice and thus no responsibility for the inflation.
Endless policy discussions focus on raising or lowering taxes or government spending as ways to counter recessions or inflations. Rarely is the discussion focused instead on whose taxes should be raised or lowered and which recipient of government spending should get more or less. Yet it is well-known that cutting taxes imposed on middle-income and poorer individuals and their families is usually more stimulative than cutting taxes on corporations or the rich. Likewise, government spending on middle-income and poor people is more stimulative rather than spending on corporations and the rich. Discussing and voting on fiscal policies in terms of aggregates of taxes or spending abstracts precisely from those policies’ class dimensions.
A class analysis of economic policy reveals that its goals include much more than solving an immediate economic problem. Policies are carefully selected and pruned to leave intact the employer-employee structure of enterprises and thus the basic economic system. Exposing that bias can enrich all policy discussions by opening them to policy options that are now kept off the social agenda. System change can then come into view and focus as another way to solve the problems ailing the economic system. Given the accumulation of problems confronting global capitalism today, bringing system change into the discussion is long and desperately overdue.
his article was produced by Economy for All, a project of the Independent Media Institute.