The big winners from inflation are those who demand little from global supply chains, the frugal, and those who own their own labor, skills, and businesses.
As the case for systemic inflation grows stronger, the question arises: who wins and who loses in an up inflation cycle? The general opinion is that inflation is bad for almost everyone, but that ignores the big winners from an inflationary cycle.
As I have explained here and in my new book Global crisis, national renewal, the two main dynamics on a global scale are 1) the scarcity of basic necessities and 2) the extremes of wealth/power inequality.
Shortages raise prices simply because of supply and demand. Conventional economics argues that there are always cheaper substitutes for everything and therefore there can never be a shortage long enough to fuel inflation: if steak becomes expensive, consumers can buy cheaper chicken , etc
But the conventional view overlooks the essential for which there is no substitute. Salt water may be cheap, but it’s no substitute for fresh water. There are no scalable substitutes for oil and natural gas. There are no scalable substitutes for fertilizers or hydrocarbon-derived plastics. As energy becomes more expensive due to the mass depletion of cheap resources to extract, the costs of everything from fertilizers to plastics to steel and jet fuel are rising.
This pressure on prices generates a number of effects. Rising costs embed self-reinforcing feedback as prices are pushed higher in expectation of higher costs to come, and these price increases generate the very inflation that triggered the preemptive price increase.
Second, rising costs reduce profits or force prices to rise. Neither is ideal, as higher prices tend to lower sales, which reduces profits.
Third, prices rise easily but fall only stubbornly, so that sharp price increases do not reverse as cost pressures ease: businesses and workers quickly get used to the prices and higher wages and are extremely reluctant to reduce prices or wages.
As I have already emphasized here, extremes of wealth-power inequality are systemically destabilizing. Extremes generate reversals when the pendulum reaches its maximum, then reverses its direction and gains momentum to the opposite extreme. In terms of wealth-power inequality, the pendulum is finally swinging back to higher wages for labor and higher taxes for the super-rich, and increasing regulation of exploitative monopolies.
In other words, systemic inflation is more of a driver than just “transient” supply and demand issues. Speaking of so-called “transitory” cost increases that are actually systemic, global supply chains that were deflationary (i.e. drove prices down) for 40 years are now inflationary ( i.e. which have driven up prices) while costs are rising sharply in exporting economies which now face labor and energy costs, and finally bear the costs for a long time delayed from the environmental damage caused by rampant industrialization.
As shown here in The real revolution is on the way but no one recognizes itthe work has been mined for 45 years, and now the worm has turned. As much as corporations and governments would love outright servitude where they could force everyone to work for low pay in abusive circumstances, people are still free to figure out how to simplify their lives, cut expenses, and work less.
Labor shortages allow for steep wage increases, especially in services. Anecdotally, I hear stories from service workers such as therapists, plumbers, accountants, architects, etc. increasing their hourly rates by 20% overnight. In my small slice of the economy (content writing/editing), hourly rates increase by up to 30% for experienced freelancers.
So let’s highlight some winners and losers in a self-reinforcing inflationary spiral.
Asset inflation driven by zero interest rates and a tsunami of central bank liquidity will wane as rates rise and liquidity taps are closed. As mortgage rates rise, already overpriced homes will become even less affordable as the number of buyers who can afford much higher monthly payments approaches zero.
Local governments that depend on skyrocketing real estate valuations driving up property taxes will be the losers.
Bonds paying 1% interest lose once rates reach 2% or 3%.
Stocks are mixed as relatively few companies with unlimited pricing power can benefit from inflation, but the majority will be pressured by labor, material, shipping and handling costs. energy, as well as higher taxes and fees as capital recovery gathers momentum.
Consumers lose when costs skyrocket, but service workers with pricing power win. The Federal Reserve can print $1 trillion in an instant, but it can’t print welders, plumbers, electricians, accountants, therapists, etc. experienced, and very little of this work can be replaced by low-level (i.e. affordable) automation/robotics. .
Farmers who have been decimated by decades of cheap imports could gain some pricing power as adverse weather conditions, higher shipping costs and other factors increase the cost of imported agricultural products. Companies with near monopolies on essential industrial minerals/metals such as magnesium, nickel, etc. will have pricing power due to scarcity and wide moat around their businesses: it is not cheap to create competing mines and acquire mineral rights. .
As a general rule, keep an eye on inelastic supply and demand. Elastic demand refers to demand that can fluctuate with costs – the previously mentioned classic substitution in which expensive beef is replaced by cheaper chicken. Elastic offer Ranchers are responding to much higher beef prices by increasing their herds.
There is always a certain elasticity of supply and demand because conservation, new efficiencies, recessions, etc. can stretch or reduce supply and demand. But the demand for essentials such as fertilizers, energy and food can only fall to a certain extent, and the supply can only increase to a certain extent.
The big winners from inflation are those who demand little from global supply chains, the frugal, and those who own their own labor, skills, and businesses in sectors where supply and demand are relatively low. inelastic. The losers are those who rely entirely on global supply chains for basic necessities, the wasters who waste resources, food, labor and money, and those who bet on a quick return to interest-free largesse and trillions of endless cash.
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