Inflation is here, and there are a *lot* of explanations for it. People who worry about the monetary supply - especially people in the deflation-loving cryptocurrency world - blame it on excessive money creation during the pandemic and uppity workers demanding higher wages:

businessinsider.com/elon-musk-

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Anti-monopolists blame inflation on price-gouging. This is a persuasive argument. After all, CEOs of companies in highly concentrated industries keep giving investor presentations where they chortle, rub their hands, twirl their mustaches, and announce that their profits are sky-high thanks to their ability to raise prices:

pluralistic.net/2022/02/02/its

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Some take a middle road and blame inflation on covid's supply-chain shocks, or, translated into normal human speech: "China makes everything. China locks down every time there's a covid outbreak. When that happens, China stops sending us stuff, which drives prices up":

ft.com/content/483ef3bc-e600-4

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There's a Russia/Ukraine version of this, too: "Russia exports a lot of gas. Ukraine exports a lot of wheat. Russia's invasion of Ukraine triggered economic sanctions on Russia and disrupted farming in Ukraine, therefore prices of wheat and gas (and everything we make from wheat and gas) are going up":

cnbc.com/2022/04/21/from-food-

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All of these can be true at once. The Trump administration's decision to pump trillions into the capital markets *definitely* triggered massive asset inflation, including and especially inflation in shelter, with Wall Street landlords buying up houses and jacking up rents:

pluralistic.net/2022/03/17/sha

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And yeah, the decision to centralize manufacturing in China, wheat production in Ukraine, and energy production in Russia means that when they stop exporting, other countries face shortages, which leads to bidding wars, which leads to inflation.

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Likewise, it's undeniable that industries dominated by one company or a small cartel of companies are raising prices *because they think we think prices are going up* and so we will blame their excess profit-taking on the abstract forces of "inflation," rather than the greed of eminently guillotinable corporate execs:

pluralistic.net/2022/03/15/san

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Is there a way to synthesize all of these factors into one explanation? Writing for Employ America ("Tight labor markets, higher wages, and better jobs"), Alex Williams gives it a go, with "The Physical Capacity Shortage View of Inflation":

employamerica.org/researchrepo

Williams turns the question of whether Chinese lockdowns or Russian invasions caused supply-chain shocks on its head and says, "Why can't America respond to these shocks by making the stuff we need on-shore?"

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The answer? Because of decades of deliberate American de-industrialization, undertaken by private firms who chased lax regulation and low wages overseas. Take semiconductors (AKA "microchips"): nearly all chip fabrication is in China and Taiwan. Building a new chip fab and training workers to operate it takes a long time.

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When the supply of chips from Taiwan stops, we can't just offer higher wages to tempt workers to quit their Uber job and come to work in a chip factory. Chip shortages aren't being driven by workers demanding outrageous wages, quitting their jobs to play video-games and live off their stimmies. Shortages aren't being driven by an unwillingness of chip companies to offer competitive wages to get workers into their factories. The workers aren't trained and the factory doesn't exist.

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For decades, US policy-makers have deliberately pursued a strategy of moving "low value-add" industries offshore. The underlying ideology of this move is that if the market doesn't attribute high valuations to a process or product, then we can safely assume that we can hand off that work to someone else.

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But markets have clearly mispriced these "low value-add" activities and products. There's actually a bigger shortage in the low-end chip market (embedded chips used in cars, appliances, etc) than in the high-end chip market. Not coincidentally, products that integrate low-end chips are experiencing high inflation. These chips may be "low value-add" but they're definitely not *low-value*.

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Williams also looks at the housing market. He points out that after 2008, the US government bailed out the banks that loaned money for housing speculation, but largely neglected the new housing supply chain, from lumber mills to house builders. Unsurprisingly, the data over the past 15 years shows the a steady reduction in on-shore capacity to produce the raw materials and finished goods that go into new housing.

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Indeed, if you want a symbol of the erosion of onshore capacity as a deliberate policy choice, the spectacle of ex-factories being turned into luxury condos for offshore investors who want an investment, not a home, is just about ideal:

gen.medium.com/the-rents-too-d

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That means the sky-high prices you're quoted for a kitchen renovation, an ADU, or a new condo aren't just the product of price-gouging, competition from cash-flush REITs, or wage demands from skilled tradespeople - they're the product of sky-high prices for the stuff that your house will be built from.

The collapse of onshore manufacturing capacity was a choice, not an accident. It was part of the financialization of our economy, which was heralded as a source of efficiency and abundance.

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But the polycrisis of disease and war and economic collapse have shown us that the core thesis of Modern Monetary Theory is indisputable: governments that issue their own currency aren't constrained by how much money they have (because they can make more whenever they need it). They're constrained by what things are for sale in the currency they issue:

pluralistic.net/2020/06/10/com

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Follow

Financialization insists we should treat money as scarce - rather than goods, or capacity. Financialization is why California gave away its $200m stockpile of ventilators, N95s and mobile pandemic hospitals in 2008 - rather than spending $5m/year to maintain it:

locusmag.com/2020/07/cory-doct

But when the covid crisis struck 12 years later, Calfornia's $60m in savings cost it tens of billions in losses because it needed *stuff*, not *money*, and it had given away stuff in order to save money.

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This same dynamic has played out in the corporate world as companies have merged to monopoly in the name of "efficiency" - then realized that efficiency by firing workers and hiring temps, selling buildings and renting them back, raiding cash reserves for stock buybacks - anything to reduce the amount of *stuff* and increase the amount of *money*.

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Financialization dismantles productive companies and turns them into balance-sheets. In Anand Giridharadas' interview with David Gelles about his book "The Man Who Broke Capitalism," about former GE CEO and financialization pioneer Jack Welch, there's a striking illustration of this:

the.ink/p/like-capitalism-itse

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> In that golden age of capitalism, major corporations understood their employees were their most valuable asset. They treated them as such, giving them excellent pay and sterling benefits far beyond what most companies offer today.

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> Then Welch arrived, and he came to the job with this explicit view that GE employed too many people. And what did he do about it? In his first couple of years on the job, he fired more than 100,000 people in a series of jarring mass layoffs that fundamentally destabilized the American working class and set a precedent for other CEOs to follow in his footsteps.

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In a financialized economy, the ability to make money is explicitly pitted against the ability to make stuff. A large, skilled, productive workforce is a cost, not an asset.

I found Williams' tactic of zooming out from proximate causes of inflation to underlying causes a powerful and illuminating way for understanding inflation. But I must disagree with how he sorts underlying causes from immediate ones, because of the role that monopoly plays in all of this.

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It's true that monopolists' price-gouging can't account for all inflation, and that inflation is, at root, a capacity issue. But the dismantling of American onshore capacity is *also* a monopoly issue.

The most acute shortages - chips, cars, building supplies - are all in sectors that are heavily monopolized, dominated by firms that bought or crushed their rivals, stamping out any domestic capacity before it could develop.

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These monopolists - heavily backed by private equity - led the pack when in selling off, laying off, and draining reserves.

Just as importantly, monopolists are able to ignore prudent policies and pursue their self-interest despite the risks they impose on the rest of us. Exhibit A: the shipping industry, controlled by four giant cartels who pursued economies of scale in the form of ever-larger ships, ignoring warnings that these could get stuck in the Suez Canal:

pluralistic.net/2021/03/29/eff

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Corporations pursue monopoly because they can charge more, sure - but they also pursue monopoly because monopolies have *political* power, the power to suborn or ignore or capture regulators, so they can offload their costs onto us, extract subsidies from us, and regulate their competitors out of existence.

marker.medium.com/we-should-no

Yes, inflation is a capacity issue. But *capacity is a monopoly issue.*

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@pluralistic This! This is what made the Borkian re-interpretation of anti-trust/anti-monopoly laws in the 70s and 80s so horrible. It is not just about if consumers are being intentionally harmed by the monopoly right now. There were bigger things at stake than just that.
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