Understanding Inflation Analysis
by John Case

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Understanding Inflation

(Literary Masterpieces, Volume 14)

Which comes first—the prescription or the description? In any political argument composed well, it is impossible to answer this question with any certainty. Description of a problem, though typically presented prior to the prescription, serves to prefigure the proposed remedy, and that is how it should be, for who would want a described problem, with its implicit explanation, to be divorced from the chosen solution? A good description, in other words, narrows the choice of conclusions, and the more complete the description is, the less room is left for alternative implications, alternative courses of appropriate action.

Furthermore, political discourse requires one to use language that is not completely neutral. Issues must inevitably involve partisan positions that relate not only to judgments of value but also to judgments of fact. It is these latter assessments, or, more precisely, the words selected to express them, that distinguish one politically relevant description from another.

Understanding Inflation is political ecomony at its best, and is therefore a perfect example of the descriptive-prescriptive interdependence just discussed. In exploring “why we pay more, get less, and what we as Americans can do about it,” John Case spends the first 175 pages on the “why,” leaving only the last twenty to the “what.” Although the reader must wait so long for the author’s explicit statement of solution, it is all there, albeit indirectly, in the earlier chapters, or at least almost all there, for Case does at times appear to be pointing to a solution that is very different from the one finally presented.

The main thrust of the book, the author’s account of inflation, involves numerous elements. To understand inflation, one must consider it as a system, a system involving the interplay of big business, “not-so-big business,” labor (including unions and licensed professional associations), and government (in its roles as employer, borrower, and consumer). As the book jacket so succinctly states, Case shows exactly how and why inflation has become a built-in feature of the American economy, as various interest groups have combined to try to insure that their share of the economy’s income—whether in the form of profits, wages, or fees for services—will not fall; and how government protection of these groups’ prerogatives and government spending have sustained the price rises. In addition, the impact of historical events such as the Vietnam War and OPEC actions are considered as exogenous factors that are basically beyond the control of American economic policy. What Case presents, then, is a picture of the American political economy that is quite pluralistic. A variety of fairly equal interest groups, in the context of an overly responsive government, are seen as inflation’s primary cause, and impacting on this pluralistic system from the outside are those world events beyond control. All the pieces are thus in place in the so-called puzzle of inflation.

What does all this entail in terms of what should be done? Obviously the stimulus-response relationship between interest groups and government must be broken, somehow stopping either the demands being made on government or the government’s responsiveness. To attempt the former is seen as unrealistic: “Everyone, given half a chance, asks for more.” Besides, in practice, since the specific “voluntary” self-controls would actually be determined by those in power, the call for everyone to sacrifice is likely to lead to a situation resembling that envisioned in a 1980 letter to the editor of The New York Times: “The poor will give up food stamps and summer jobs; the rich will give up Federal programs to aid the poor.”

Instead, Case proposes to do something that will not put “an unfair burden on those . . . who are politically weakest.” He proposes to focus on the government end of the process. Responsiveness must be drastically curtailed by adopting the only practical alternative left. In order to put a freeze on the inflationary spiral, controls must be imposed on wages and prices. Then the “demands from individual groups can be refused because everyone is being asked to sacrifice.” A pluralist prescription thus emerges from a pluralist description of the underlying cause of inflation.

Yet this prescription encounters the same difficulty that an attempt at self-control among interest groups does, namely, how to achieve equity between the rich few and the rest of the population. Case makes no attempt to deal with this problem, which is to be expected from the fact that his ability to do so would require a departure from his overall picture of the American political economy. It is a picture, remember, that is pluralist; and a pluralist framework is not at all conducive to a concern, let alone a solution, involving the unfair burden that wage controls impose on those who are politically and economically at the bottom. As suggested earlier, however, despite Case’s explicit pluralist statements, one also finds some descriptions that point to an alternative prescription. It is an alternative based on a class (or radical) rather than a group (or pluralist) analysis.

These nonpluralist descriptions are found only in the last chapter, however, in the course of defending price controls against a number of familiar objections. The descriptions arise when Case turns to a consideration of why recession does not cure inflation as well as it once did and who suffers most from this increasingly ineffective remedy. The burden of recession, notes the author, usually falls on people who already were not doing too well. It is a burden borne least by those who “not coincidently” are most likely to prescribe recession to lessen inflation. As for the reason behind recession’s increasing ineffectiveness, Case turns his attention to the role of big business. He notes that in 1980 the domestic auto industry, for example, responded to drastically declining sales by raising its prices between six and nine percent, and later he observes that “only a small number of prices respond quickly and accurately to changes in supply and demand. Others are raised to protect profit margins . . . whether or not business is good.” The pricing that is unresponsive to the market occurs with most goods manufactured in the “highly concentrated” industries. It is these prices that the author proposes be controlled, and the effect of such control over such industries would be to turn them into “regulated public utilities.” In contrast, the prices among not-so-big businesses, operating in a relatively competitive market, would be allowed to rise even more freely than they are able to at present under the restraints of their biggest customers—big business.

The author does, therefore, show some awareness of the relevance of class factors to an understanding of inflation, but not much. Neither the full impact of recession on poorer citizens nor the full influence of giant corporations on inflation is explored. For example, no mention is made of the fact that, in the deep recession of 1973-1975, prices in the not-so-big business sector rose only 1.8 percent, but in the big business sector prices rose an astounding 27 percent! It is, in short, Case’s failure to pursue the class-based, radical analysis of which he gives only glimpses that render his understanding of inflation much less realistic than, say, Howard Sherman’s well-reasoned and statistically grounded account in Stagflation (1976).

Be that as it is, there are other problems with the author’s view. Under his plan, the government is left free to set wages, prices, and benefits (though welfare payments are not mentioned) at whatever levels deemed necessary to advance particular policies, and so, as Case correctly observes, these wage and price controls would serve to remove the veil covering the struggle over who gets what. Such a policy would make the economic struggle no more political than before, but a good deal more public.

How much the struggle would result in a more equitable distribution of society’s burdens and benefits depends upon how much the distribution of ecomomic power would be equalized under Case’s proposal. If the governmental regulation of big business failed to change the distribution of wealth based on corporate ownership, then surely the same economic stratum that usually wins at the expense of the rest of the population would continue to do so—even if more publicly than before. Just as surely, the new battles over policy would more sharply reveal the class conflict that uncontrolled inflation now camouflages.

If, on the other hand, the author’s prescription does involve a fundamental change (which seems doubtful) in the nature of corporate ownership, then one can only wonder how his pluralist account is at all useful in understanding the class struggle that would be needed to obtain public control over those corporate oligopolies that represent the primary cause of inflation today.

Bibliography

(Literary Masterpieces, Volume 14)

Book World. XI, March 29, 1981, p. 8.

Kirkus Reviews. LXIX, February 15, 1981, p. 259.

Library Journal. CVI, February 1, 1981, p. 341.

Progressive. XLV, July, 1981, p. 56.

Publishers Weekly. CCXIX, January 30, 1981.