The clear winners in inflation are those who need little from international supply chains, the frugal, and those who own their own labor, skills and business.
As the case for systemic inflation constructs, the concern emerges: who wins and who loses in an up-cycle of inflation? The basic view is that inflation is bad for practically everyone, but this disregards the big winners in an inflationary cycle.
As I’ve described here and in my new book International Crisis, National Renewal, the two primary characteristics internationally are 1) deficiency of essentials and 2) extremes of wealth/power inequality.
Deficiencies drive prices higher merely as an outcome of supply-demand. Standard economics holds that there are constantly less expensive alternative to whatever and hence there can never ever be scarcities sustaining long enough to drive inflation: if steak gets pricey, then customers can buy more affordable chicken, and so on.
But the traditional view overlooks basics for which there is no replacement. Salt water might be low-cost however it’s no substitute for fresh water. There are no scalable alternative to oil and gas. There are no scalable alternative to hydrocarbon-derived fertilizers or plastics. As energy ends up being more costly due to the mass exhaustion of the cheap-to-extract resources, the costs of whatever from fertilizer to plastics to steel to jet fuel increase.
This price pressure generates a number of effect. Rising expenses embed a self-reinforcing feedback as costs are pressed greater in expectation of greater costs ahead, and these rate increases generate the really inflation that triggered the pre-emptive rate boost.
Second, increasing expenses either reduce earnings or force rate increases. Neither is perfect, as greater costs tend to lower sales which then decreases profits.
Third, costs rise quickly however drop only stubbornly, so sharp boosts in costs aren’t reversed as expense pressures ease: enterprises and workers quickly end up being accustomed to the higher prices and pay and are incredibly resistant to cutting either costs or pay.
As I’ve described here prior to, extremes of wealth-power inequality are systemically destabilizing. Extremes generate turnarounds as the pendulum reaches its optimum and then reverses instructions and gathers momentum to the opposite extreme. In regards to wealth-power inequality, the pendulum is finally swinging back toward greater earnings for labor and higher taxes for the super-wealthy, and increasing policy on exploitive monopolies.
Simply put, there is more driving systemic inflation than simply “transitory” supply-demand problems. Mentioning apparently “transitory” cost increases that are in fact systemic, worldwide supply chains that were deflationary (i.e. pushing rates lower) for 40 years are now inflationary (i.e. pressing rates higher) as costs increase greatly in exporting economies that are now facing much higher labor and energy costs, and likewise lastly bearing the long-delayed costs of ecological damage caused by widespread industrialization.
As noted here in The Real Revolution Is Underway However Nobody Recognizes It, labor has actually been stripmined for 45 years, and now the worm has turned. As much as business employers and governments would like straight-out indentured yoke where they might require everyone to work for low pay in abusive situations, individuals are still free to figure out how to simplify their lives, cut costs and work less.
Deficiencies of labor are allowing sharp increases in pay, especially in services. Anecdotally, I’m hearing accounts of service workers such as therapists, plumbings, accountants, designers, etc raising their hourly rates by 20% over night. In my own little sliver of the economy (composing/ modifying material), per hour rates are up as much as 30% for skilled independents.
So let’s highlight a few winners and losers in a self-reinforcing inflationary spiral.
Possession inflation driven by no rates of interest and a tsunami of reserve bank liquidity will lose steam as rates increase and the liquidity spigots are shut off. As mortgage rates rise, currently miscalculated houses will end up being even less cost effective as the variety of purchasers who can afford much greater regular monthly payments recedes toward absolutely no.
City governments depending on skyrocketing real estate evaluations driving greater property taxes will be losers.
Bonds paying 1% interest are losers once rates click up to 2% or 3%.
Stocks are a mixed bag, as the relatively couple of companies with unlimited rates power may benefit from inflation, but the bulk will be pressured by higher labor, materials, shipping and energy costs, plus higher taxes and costs as the claw-back from capital gathers momentum.
Consumers are losers as expenses skyrocket, however service workers with pricing power are winners. The Federal Reserve can print $1 trillion in an immediate but it can’t print experienced welders, plumbing technicians, electricians, accounting professionals, therapists, and so on, and extremely little of this labor can be replaced by low-level (i.e. budget-friendly) automation/ robotics.
Farmers who have been decimated by decades of affordable imports may acquire some pricing power as negative weather, greater shipping expenses and other aspects increase the expense of imported agricultural commodities. Corporations with quasi-monopolies on important industrial minerals/metals such as magnesium, nickel, etc will have rates power due to deficiency and the broad moat around their services: it isn’t inexpensive to set up completing mines and obtain rights to the minerals.
As a general rule, watch on inelastic need and supply. Flexible demand describes require which can ups and downs with expenses– the classic alternative mentioned earlier in which costly beef is changed by less expensive chicken. Flexible supply is ranchers reacting to much higher beef costs by increasing their herds.
There is constantly some elasticity in demand and supply as conservation, new efficiencies, economic downturns, and so on can stretch or shrink products and demand. But demand for fundamentals such as fertilizer, energy and food can only drop a lot, and supply can just increase by so much.
The clear winners in inflation are those who require little from worldwide supply chains, the economical, and those who own their own labor, abilities and business in sectors with reasonably inelastic supply and need. The losers are those who are completely based on international supply chains for essentials, wastrels who squander resources, food, labor and money and those gambling on the quick go back to zero-interest largesse and endless trillions in liquidity.
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