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Inflation Winners and Losers

The clear winners in inflation are those who require little from global supply chains, the frugal, and those who own their own labor, skills and enterprises.

As the case for systemic inflation builds, the question arises: who wins and who loses in an up-cycle of inflation? The general view is that inflation is bad for almost everyone, but this ignores the big winners in an inflationary cycle.

As I’ve explained here and in my new book Global Crisis, National Renewalthe two primary dynamics globally are 1) scarcity of essentials and 2) extremes of wealth/power inequality.

Scarcities drive prices higher simply as a result of supply-demand. Conventional economics holds that there are always cheaper substitutes for everything and hence there can never be scarcities enduring long enough to drive inflation: if steak gets costly, then consumers can buy cheaper chicken, etc.

But the conventional view overlooks essentials for which there is no substitute. Salt water may be cheap but it’s no substitute for fresh water. There are no scalable substitutes for oil and natural gas. There are no scalable substitutes for hydrocarbon-derived fertilizers or plastics. As energy becomes more expensive due to the mass depletion of the cheap-to-extract resources, the costs of everything from fertilizer to plastics to steel to jet fuel rise.

This price pressure generates a number of effect. Rising costs embed a self-reinforcing feedback as prices are pushed higher in expectation of higher costs ahead, and these price increases generate the very inflation that sparked the pre-emptive price increase.

Second, increasing costs either reduce profits or force price increases. Neither is ideal, as higher prices tend to lower sales which then lowers profits.

Third, prices rise easily but drop only stubbornly, so sharp increases in prices aren’t reversed as cost pressures ease: enterprises and workers quickly become accustomed to the higher prices and pay and are extremely resistant to cutting either prices or pay.

As I’ve outlined here before, extremes of wealth-power inequality are systemically destabilizing. Extremes generate reversals as the pendulum reaches its maximum and then reverses direction and gathers momentum to the opposite extreme. In terms of wealth-power inequality, the pendulum is finally swinging back toward higher wages for labor and higher taxes for the super-wealthy, and increasing regulation on exploitive monopolies.

In other words, there is more driving systemic inflation than just “transitory” supply-demand issues. Speaking of supposedly “transitory” cost increases that are actually systemic, global supply chains that were deflationary (i.e. pushing prices lower) for 40 years are now inflationary (i.e. pushing prices higher) as costs rise sharply in exporting economies that are now facing much higher labor and energy costs, and also finally bearing the long-delayed costs of environmental damage caused by rampant industrialization.

As noted here in The Real Revolution Is Underway But Nobody Recognizes It, labor has been stripmined for 45 years, and now the worm has turned. As much as corporate employers and governments would love outright indentured servitude where they could force everyone to work for low pay in abusive circumstances, people are still free to figure out how to simplify their lives, cut expenses and work less.

Scarcities of labor are enabling sharp increases in pay, especially in services. Anecdotally, I’m hearing accounts of service workers such as therapists, plumbers, accountants, architects, etc. raising their hourly rates by 20% overnight. In my own little sliver of the economy (writing / editing content), hourly rates are up as much as 30% for experienced independents.

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