There are fancy economic theories that explain inflation, but, in lay language, things simply cost more. Beginning with energy. The national average gasoline price of $4.23 per gallon is $1.38 per gallon higher than a year ago. The average price of diesel hit $5.12 per gallon.
U.S. inflation, at 7.9%, is the highest in 40 years. Similarly, the Euro Zone’s inflation hit 7.5% in March, also the highest. It is hard to blame Biden for inflation. So, what are some of the real reasons prices keep rising?
Sheer greed and monopolies. Russia’s Ukraine war is driving already high gasoline prices higher. Fossil fuel corporations profit handsomely, profiting off the war. For the 20 top-selling drugs, Big Pharma profits more in the U.S. than in every other country on Earth combined.
Pharmaceutical companies blame development costs. But why then does the taxpayer-funded National Institutes of Health spend $40 billion a year on R&D? And why did the price of insulin soar in the U.S. over the past 20 years while staying level in other developed countries? A $21 vial in 1999 cost $332 in 2019 – 10 times more than in any other developed country. Insulin is over a century old. It has no development costs. Yet its price outruns inflation. It’s raw greed: People need it to survive, so they cannot forgo buying it, whatever the price.
Continuing supply chain problems help keep inflation high. Consistent with “supply side economics,” things are produced wherever wages are lowest – or automation eliminates workers. Products go through multiple for-profit intermediaries. Each adds its profit without adding value. The longer the supply chain, the higher the inflated cost. Meanwhile local industries and jobs are eliminated, forcing local economies to depend on imports shipped across oceans – even when local raw materials and skills exist to produce products similar or better.
The U.S. military budget hit a staggering $782 billion this year. Next year’s ask is $813 billion – more than the military spending of Russia and the next 12 countries combined. Throwing ever more tax dollars at Lockheed Martin, General Dynamics, Northrop Grumman and the rest of the military industrial complex certainly is inflationary. It also perpetuates dependency on ever more expensive oil, since modern warfare is simply not possible without it.
Meanwhile the U.S. is on track to recover from the pandemic recession eight years sooner than it did following the Great Recession. It added 431,000 jobs in March, and the January-February numbers were revised upward by 95,000. January through March 1.7 million U.S. jobs were created. Wages are up 5.6%; unemployment at 3.6% is near the all-time low. The key to this recovery has been the American Rescue Plan, passed in March 2021, which pumped $1.9 trillion into the economy, compensating for pandemic shutdowns.
The partisan vote recalls history. In response to the 1930s Great Depression, the government made sure workers and consumers had the resources to buy products and services. Rising wages, a basic social safety net, and improving education enabled the economy’s “demand side” to buy goods that employed Americans and helped increase productivity. Businesses were regulated, and programs funded with taxes based on ability to pay. Both parties embraced this progressive approach.
President Eisenhower called for universal health insurance, and backed the $26 billion Highway Act of 1956 that built 41,000 miles of roads across the U.S., creating jobs and public infrastructure. To pay for these, Eisenhower supported the high war-year taxes – including the 91% top income tax bracket. Both parties held that “if a job has to be done to meet people’s needs, and no one else can do it, then it is a proper function of the federal government.”
In the 1980s, Ronald Reagan’s first of many Republican tax cuts launched government support for “supply side economics,” arguing that as the government frees up capital for the wealthy, they’ll invest in new industries that hire workers. Everyone will rise together. Except “Reaganomics” never delivered the promised benefits.
Tax cuts turned into financial investments, concentrating wealth at the top. Yet, 40 years on, tax cuts are still considered Holy Grail, and government regulation, a social safety net, and public infrastructure are labeled “socialism.”
The conflict between the above two visions is reflected in the recent 193 Republican “no” votes against lowering the co-pays for insulin, the medicine necessary to keep 30 million diabetic Americans alive.
What would make it possible to economically produce necessary products (food, clothing, shelter, medicine, energy) locally, utilizing local resources, skills, energy, and labor at a scale that matches local demand – thus eliminating the compounded profits of multiple no-value- adding intermediaries and expensive long-distance deliveries? Successful models do exist.
Stay tuned.
(Paul Kando is a co-founder of the Midcoast Green Collaborative, which promotes environmental protection and economic development via energy conservation. For more information, go to midcoastgreencollaborative.org.)
