November 8th and the Rebirth of Inflation

For all the millions of worthless words wasted during this election, I’ve seen nothing that explains what’s going on better than a piece in by Anis Shivani, published back in May, entitled: ‘Donald Trump is Going to Win: This is Why Hillary Clinton Can’t Defeat What Trump Represents.’ 

Anis Shivani isn’t an economist or a political scientist, and I very much doubt he’s a Trump supporter either. Rather he’s one of the unacknowledged legislators of the world: a poet. I quoted his piece at length when I wrote about the Brexit vote, and here again is Shivani's  crucial insight: 

‘The neoliberal economy has become pure abstraction; as has the market, as has the state, there is no reality to any of these things the way we have classically understood them. Americans, like people everywhere rising up against neoliberal globalization (in Britain, for example, this takes the form of Brexit, or exit from the European Union), want a return of social relations, or embeddedness, to the economy.’

‘Capitalism today is placeless, locationless, nameless, faceless, while Trump is talking about hauling corporations back to where they belong, in their home countries, fix them in place by means of rewards and retribution, like one handles a recalcitrant child.

‘Trump is a businessman, while Mitt Romney was a businessman too, yet I predict victory for the former while the latter obviously lost miserably. What is the difference? While Trump “builds” things (literal buildings), in places like Manhattan and Atlantic City, places one can recognize and identify with, and while Trump’s entire life has been orchestrated around building luxury and ostentatiousness, again things one can tangibly grasp and hold on to (the Trump steaks!), Romney is the personification of a placeless corporation, making his quarter billion dollars from consulting, i.e., representing economic abstraction at its purest, serving as a high priest of the transnational capitalist class.’

Back in 2009, someone who I respect and who works broadly in the nexus between intelligence and finance remarked: ‘You haven’t seen anything yet. Wait until they start chasing us down in the streets’. 

It didn’t happen, but that didn’t mean that new political imperatives were not going to demand a radical revision of the terms of globalization. 

Almost certainly this will result in the rebirth of inflation as the underlying global trend, and the reversal of a bond bull market which has been in place since the start of the 1980s, and which since 2008 has survived only in the central banks’ intensive care units.  

Why? Because the political systems of the West are being forced to recognize the claims of a constituency which has been able to ignore for the last 30yrs or so: the working class. The ability of Western states to mobilize sufficient financial resources to satisfy these newly urgent claims must be doubted - who, after all, are they going to tax?  Equally, the ability/willingness of businesses to invest enough to underwrite the sort of productivity gains which could be needed to sustain a rapid rise in real wages must also be doubted.  In these circumstances, inflation beckons - the ultimate extension of financial repression. 

Moreover, there is at least one indicator which suggests the re-birth of inflation is nearer at hand than we might like to acknowledge. In theory, capital goods are priced according to the flow of income expected from their deployment, and this has the consequence that movements in the price of capital goods are always more volatile than the goods they produce.  And specifically, during deflationary times, the price of capital goods falls more quickly than the price of the consumer goods they produce (and this is little more than what is commonly observed during the business cycle). Conversely, during inflationary times, the price of capital goods begins to rise faster than consumer goods.  Now consider what’s happening to the capital goods/consumer goods terms of trade in the US and also in Japan. 

In both cases, we have the strongest signal we've seen for 25 years. And now we discover we have proximate cause.