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There are two basic ways to interpret economic news. One is the academic way, in which every development is weighed and scrutinized and plugged into various models in a more or less genuine attempt to intuit what is happening in the chaotic complex system we call “the economy.” This is what honest economists do, and sometimes they develop new theories that end up causing enormous shifts in global history, many years downstream. This is not the kind of economics we are talking about now, in 2021.
The other way of approaching economics is the political way, in which each new piece of economic data is hammered and squeezed and molded into a form that serves a preexisting political agenda. This is economics as an instrument to serve politics, not vice versa. This is, unfortunately, the way that most people experience “the economy”: not as something to be understood, but as something to be either squeezed for all its worth, or something that is squeezing you for all you’re worth. Karl Marx and Adam Smith may have been honest economists in the first category, but most of their disciples in governments have been firmly in the second.
It is important to understand this distinction when we discuss economics, lest the discussion go off in two different directions. While academic economists and journalists peer at the past year’s bizarre economic contortions — a historic collapse followed rapidly by a historic government-fueled rebound leading to an uncertain future — and conclude (honestly) that they don’t really know what’s happening, political actors are already sharpening their knives to go to war over what happens next.
In terms of political economy, the question now is whether we are poised to enact a new New Deal — a huge increase in government-funded social spending to finally try to turn the tide on inequality that has been building for more than 40 years — or whether we are instead poised to swing back towards austerity, a brutal budget-balancing to “make up for” the large spending bills enacted during the past year’s lockdowns. Despite the fact that the trillions of dollars the government spent in several relief bills has successfully staved off what would have been another Great Depression (and has caused a boom in financial asset prices that is making rich people richer), the institutional preference of the Republican Party is, always, for austerity. The political case for austerity is going to be made no matter what. And inflation is going to be the primary tool used to make it. The honesty of this analysis is beside the point.
Along with the contentions “raising the minimum wage destroys jobs” and “raising taxes hurts the economy” canards, a key part of the right wing economic gospel is that increasing government spending is bad because it leads to dangerous levels of inflation. Never mind the fact that right-wing economists have been steadily predicting this outcome since the recovery from the 2008 recession, and it has never come true. They will continue to predict it.
Now, inflation is actually here. Never mind the fact that the Fed believes that inflation can be kept under control, and that more government spending is in order — all popular media coverage of inflation occurs in the frame of fear. A little evidence of inflation combined with a lot of fear of inflation will be the formula for turning inflation into a political weapon in service of austerity.
You should get ready to hear two primary messages. The first, with each passing month of inflation, will be: “OUT OF CONTROL government spending is causing inflation that will EAT UP YOUR SAVINGS and cause prices to SPIRAL OUT OF CONTROL and we must immediately STOP all new spending and also CUT ENTITLEMENTS.” In this way, longstanding Republican priorities — namely, cutting government spending on everyone except the rich — will be shoehorned into a prescription for today’s (mostly imaginary) problems, without mentioning that the GOP was pushing the same prescription a decade ago when the problems were the opposite.
The second message you will hear, which may be a bit subtler, will be: “This is caused by Modern Monetary Theory, a wacky theory that Democrats embrace, and all this inflation proves that the theory is a failure.” Political speech is about caricatures. The caricature of MMT is: “These fools think the government can print as much money as it wants with no consequences, but we all know that that will cause runaway inflation.” If you know a little about MMT, you may object to this characterization by understanding that, in fact, MMT specifically focuses on inflation as the signal to tell us how much the government can spend. That doesn’t matter. It is too nuanced for the caricature, and in politics, the caricature can become far more important than the reality.
What percentage of Republicans who hold strong opinions on “Critical Race Theory” do you think have actually studied critical race theory outside of the caricature? Exactly.
It will only take a shift of a single seat in the Senate and a small handful of seats in the House to make the idiotic Republican economic caricatures into the reigning economic orthodoxy of the United States Congress. At that point, the opportunity for transformative change is finished. And even if Republicans don’t manage to win back control of Congress in the midterms, there is the danger that the caricature becomes influential enough to scare Democrats back into the deficit-fearing hole where they have spent most of the past half century.
Every last thing happening right now counsels strong, fast action. Get the money out the door now or risk losing any chance at major debt-fueled government spending programs in the foreseeable future. That means the obliteration of any hope for turning around the rise in economic inequality, the single most damaging trend in America in my lifetime.
Most Americans are economically illiterate. This is not an insult to them. It is just an observation of fact, and the completely predictable outcome of our nation’s unwillingness to engage in any widespread form of economic education that is not soaked in free market jingoism. For political purposes, nobody knows what MMT is. But they do know enough to fear inflation, because inflation makes stuff cost more, and nobody likes that. Therefore the weaponized rhetorical power of inflation will tend to overwhelm whatever it is being deployed against. And we know that it will be deployed with full force against the possibility that the American welfare state could be permanently expanded. That always makes rich people scared that they’ll have higher taxes, and therefore they will wage war against it.
We are now in a race to give people new government benefits before they get tricked out of wanting them. Every month that inflation ticks up, the lies will get louder, and the task will get harder. Spend the fucking money now. There is no time to waste.
Hamilton Nolan is a labor reporter for In These Times. He has spent the past decade writing about labor and politics for Gawker, Splinter, The Guardian, and elsewhere. You can reach him at Hamilton@InTheseTimes.com.