The surge in inflation and the development of bottlenecks across the economy is being blamed on the effects of the pandemic.
But a different perspective was provided in a comment piece published in theFinancial Timesearlier this month by Jeff Currie, the head of commodities research at Goldman Sachs.
He wrote that apart from some labour issues the present bottlenecks “have little to do with COVID.” The roots of the “commodity crunch,” he continued, could be “traced back to the aftermath of the financial crisis and the following decade of falling returns and chronic under-investment” in what he called the old economy.
This was a direct result of the policies pursued after the global financial crisis of 2008 when the Fed, via its quantitative easing (QE) program, supported financial markets.
“Lower-income households faced sluggish real wage growth, economic insecurity, tighter credit limits, and increasingly unaffordable assets. Higher-income households, on the other hand benefited from the financial asset inflation caused by QE.”
This disparity in incomes hit the old economy hard. As lower-income demand fell so longer-term investment declined “in favour of short-cycle ‘new economy’ in investment in areas such as technology.” Currie did not refer to it, but he could have pointed to the massive amounts of capital that were diverted to speculation on stocks and other financial assets as well as share buybacks.
His conclusion was that “as infrastructure aged and investment waned, so did the old economy’s ability to supply and deliver the commodities underpinning many finished goods” and, after years of neglect, phenomena such as rising gas prices and copper shortfalls could be described as its “revenge.”
The European economy is also being gripped by the same forces—rising inflation and supply bottlenecks. In her press conference following a meeting of the European Central Bank’s governing council on Thursday, ECB president Christine Lagarde acknowledged these factors would remain longer than expected. https://www.wsws.org/en/articles/2021/10/30/usec-o30.html
