(S)inflation in the 21st Century
Inflation has taken hold again - could the latest variant be payback for the west's sins?
Inflation is the latest global pandemic. Everyone is suffering as we experience virulent price increases. The UK and US are projected to reach double digit inflation rates, which we have not seen for thirty years. Last time it was about high labour rates and the oil shocks. This time around we could call it ‘sin-flation’.
There is nothing cool about inflation. Economists and bankers will bang on about fiscal headwinds, debt burdens and trade imbalances - but for the average consumer it's a pain up the purse. The most basic staples that we depend on to survive have shot up in price - and yet our earnings have not. At the same time poorly timed tax increases are compounding the problem in certain countries. What is the root of this monetary evil?
“No one seems to understand if inflation is here to stay.”
It could be that the latest inflation is about the west atoning for its rampant globalisation that created long, complicated supply chains and an over dependence on food, energy and raw materials from far flung nations with diverging political interests. It seems that we might need a price vaccine. Or at least an attempt to explain how we got here that could be understood by mere mortals.
We call it ‘sin-flation’. Formed by three defining sins.
1. The first ‘sin’ was our greed for new markets and cheap labour.
(How’s that working out for you??)
Since the 1990’s western corporations and governments piled into far eastern and African markets desperate to sell to their growing middle class while, at the same time, establishing new factories and sources of cheap labour in these lower cost economies.
It was salivating - a once in a generation double whammy. Not only could western products find new markets and accelerated growth, but by entering these markets they could use the country’s cheaper labour, raw materials and minerals to drive down costs and improve profits. It was a bit like being both the dealer and user.
We gorged on less developed markets and assets to drive growth and wealth while hollowing out our own manufacturing capability and resource base. We ignored the fact that many of these countries had different agendas. Some of them were using western money and know-how purely to develop their own internal markets. As their economies improved and the middle classes expanded they started to push back.
They don’t need us any more. They could develop their own markets. Their people could enjoy better, home grown jobs and all kinds of locally made products. For every iPhone there was a Samsung. For every Facebook a WeChat. For every Starbucks, well, another Starbucks. And they could charge us more for their products and labour.
The adverse effect of globalisation, coupled with the pandemic, ruptured supply chains. Which pretty much meant we were all ‘stuffed’. Cheap products became less cheap. Factories were regularly closed due to lockdown and sickness. Shipping became more expensive because we ALL needed it. It seems none of us want to pick up in store any more - we want it all delivered.
As a result demand for many of the most basic products and services started to outstrip an increasingly fractured and belligerent supply. And we all know what happens when demand systemically outstrips supply - prices shoot up!
2. The second ‘sin’ was employees finding a life during the pandemic.
(How dare they!!)
The pandemic taught the world about the future of work - in other words how to take more breaks, work less (and from home), develop the multi-tasking skills necessary to watch Netflix in a virtual meeting, while artfully dodging the boss when things go a bit pear shaped.
Seeing as we have to commute again, generally show up at offices and run the risk of people peeking at our screens once more, it makes sense that we would want to get paid more for this shittier life. And sometimes even resign when the on-screen stuff becomes too racy. And I don’t mean Dirt Rally 2 kind of racy.
If we don’t get paid more, then there is always another gig waiting around the corner. Who wouldn’t want to trade double shifts at the local diner for a more fashionable customer support role at a trendy online shoe brand done from the comfort of our home?
Well, apparently lots of people are making the move, so it costs more to get people to stay at the shittier jobs.
At the same time a tonne of people figured out they could retire early and stay fit in their later years by peddling packages for Deliveroo. And this life skill can get transferred anywhere. After all which country does not need extra pedal power: Rickshaws in India, rice mills in China or the two wheeled silent escape from a Mexican cartel.
If we had not nuked our wild, ancient forests seeking out Pangolins for the local exotic food market we would not have caught Covid and as a result we would not have taught everyone how to work AND have fun/family/Zoom which means we would not have people wanting to get paid more for shitty retail or hospitality or fruit picking jobs because they could get paid more to work flexibly at Uber/Deliveroo/Amazon rather than back at Costa - meaning the price of a cup of coffee has shot up serving to remind us how less than enticing the coffee was in the first place.
Can I Deliveroo at the Ponte Vecchio?
3. The third sin was relying on despots for oil and gas.
During the 1990’s America figured out a clever trick. Oil shocks, wars in the Middle East and somewhat unreliable despots led to a light bulb moment. They realised that if they liberalised oil production in America the mighty American entrepreneur would move heaven and (green) earth to produce their own oil. And they did.
They figured out that by fracking the country to hell and back they could not only empty any oil well previously unattainable by mere mortals, but they would make a tidy fortune doing it and when the oil ran dry they would have a SPAC ready to flog to Donald Trump or Elon Musk or anyone else who wanted to sell some wacky stock to everyday punters.
Bingo! Within a decade or two America became energy independent without having to spend gazillions of public money doing an Asterix and Obelix on despots with massive oil reserves.
“So why didn’t the rest of the western world figure out how to frack their country to pieces too?”
If only continental Europe had done what Spain has done and littered their countries with enough wind farms to sail the country to Mars (sorry Elon) or at least stop importing oil from Russia - who now, it seems, is not averse to a little price gouging, and nuclear threats anyone? Talk about uncomfortable bedfellows, Depp and Heard have nothing on Putin.
Indeed Spain and Portugal have become a model for wider Europe, generating over half their energy from locally sourced renewables. If the rest of Europe had followed suit Putin might not have charged into Ukraine and we would not need to take out another mortgage to fill our car up at the local gas station.
Pensioners would be able to enjoy their much earned retirement rather than freezing to death in homes they can no longer afford to heat and Donald Trump would be a bit less likely to turn up and win the next election, as a result gifting New York to Russia in an act not too dissimilar to Ukraine being asked less nicely to give up the Donbas.
“Perhaps it is time to change our ways so we can afford to eat again.”
There could be another way. We could make our own food, energy and clothes again. We could stop relying on somewhat shady leaders for our most basic essentials and we could buy an electric scooter to get around (and deliver food). Mostly, by not making it illegal any more!
We could figure out how to make curtains that nail the insulation thingy once and for all and baseball caps with ultra miniature solar panels in place of NY Yankee badges to heat our bodies and we could support the four day week so everyone can make more money from the same amount of work. Vital in the short term and potentially an election boon in the longer term.
Mostly, we could help Ukraine win the war so we get our flour and cooking oil back - not to mention a bit of freedom and democracy. And we could rewild our gardens, Airbnb our homes and tell our bosses that we won’t be showing up at the office any time soon, however nice the welcome back card was that they planted on our desk, because we will be working from our electric rickshaw on Phuket from now on.
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