Understanding Inflation with Fadhel Kaboub

This week’s episode is the audio portion of a presentation by our friend Professor Fadhel Kaboub when he spoke with the Hanon Project's Yousra Magouri in September about the causes and effects of inflation during the pandemic. It’s a beautiful illustration that you don’t need an education in MMT to make sense of the economy. With Fadhel’s characteristic cogency, complex subjects are made accessible without sacrificing depth.

He opens with basic definitions of inflation and how it is measured. He describes the two main types – demand pull and supply push -- then contrasts the mainstream and MMT explanations of inflation and the connection of our current circumstances to the pandemic.

For the last several decades since the 70s, the mainstream economist will tell you too much government spending will cause inflation, right? Whether it's government subsidies or government contracts, you're just flooding the system with cash, giving people dollars to go out and shop and increase demand way beyond the capacity of the economy to keep up with it.

Needless to say, different explanations of the causes lead to very different prescriptions for the solutions, as evidenced by political opposition to further pandemic relief measures and spending on social programs and infrastructure.

Fadhel maintains the risk of inflation is triggered by the lack of productive capacity, including the supply chain disruptions during the pandemic. These problems exist on a global scale.

The second source of inflation, which is the most important, I think, and most neglected by the economics profession is what I call the abusive market power and price setting behavior of key players in the economy. Think of big pharma, think of the energy companies, think of companies that have high degrees of market concentration that allows them actually to set prices simply because they can, because there isn't enough competition, because consumers don't have a choice...

…Now, that type of inflation is not going to go away by spending less on the unemployed, on the pandemic, on education or infrastructure. It's got nothing to do with it.

The episode goes into creative solutions for the global South, the danger of deflation, the limits of quantitative easing, the effect of climate change on the economy, and much more.

Full transcripts of this and every episode of Macro N Cheese can be found at realprogressives.org/macro-n-cheese-podcast

Dr. Fadhel Kaboub is an Associate Professor of Economics at Denison University and President of the Global Institute for Sustainable Prosperity. He holds a Ph.D. in Economics & Social Science Consortium, 2006, University of Missouri - Kansas City; M.A. in Economics, May 2001, University of Missouri - Kansas City; B.S. in Economics, June 1999, with Distinction. Emphasis: Money & Banking.

@FadhelKaboub on Twitter