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Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives, jobs, debts, incomes, our own and those of our children coming down the road. I'm your host, Richard Wolff. Today's program is divided into two parts. In the first half, we're going to talk about China. Why? Because it continues to be a major part of what is going on in the world and drawing everyone's attention. And in the second half of the program, we're going to talk about inflation because that too, like China, is becoming more and more a part of the daily news cycle and therefore demands the kind of analysis that the major mass media will not do. So let me begin with China, and I want to say at the beginning, because some of you have apparently misunderstood what I'm doing here. I am not here to defend China. China has strengths and weaknesses like every other country. They are unique to China. China is a very special country in the world and has a unique history. But that's true of all countries in their own way. And I'm not here to defend or attack. I'm trying to get an understanding of what the economic role of China in the world has become, because it's an important part of any conversation about the future of the world economy in general, of the United States in particular. So I'm not going to rely on the latest hot news hot button items. I'm going to come to those at the end of this first half. But I want to talk now about what the statistics allow us to say because many years have accumulated. Okay, so let's begin. It's hard to talk about China because we are now engaged. We and by we, I mean the United States in what is looking more and more like another Cold war, whereas from 1945 to 1989, we had a cold war with the Soviet Union. We now, in the last few years, particularly starting with Donald Trump, seem to be heading towards the same kind of cold war with China. And the reason I mention that is because one of the first casualties of the Cold war with Russia was the end of any possibility of a balanced conversation about the strengths and weaknesses of the Soviet Union, Russia relative to those of the United States. And it is becoming increasingly difficult to have that kind of conversation about China. And it's again, for the same reason. What's a little different, though, is that in Russia, it was from the beginning a cold war with China. Yeah, it did start right after the revolution there in 1949. But when Henry Kissinger and Richard Nixon decided to rebuild, reopen China I'll put aside what kind of language that is. But when they decided to re establish political and economic relations with China in the 1970s, there was a radical shift and China became a friend. China became someone you could talk about. True, they still were communists in the government and that made a lot of folks leery, but. But it was clear the United States wanted a very different relationship and got one after the middle 1970s compared to what had happened before. Russia never went through the Soviet Union. That kind of an adjustment. So keeping that in mind, let's take a look at the People's Republic of China in terms of economics. Knowing that it was a Cold war right after 1949, then it was a warming thaw after the mid-1970s, and now into this early new century, a resumption, if you like, of the Cold War. First, here's what China has done and it's the most important factoid you can keep in mind. It has overcome its position as one of the poorest countries on earth and it has done so in record time. There is no comparable example of a country that size and a country that poor becoming a moderately prosperous. That's their term, moderately prosperous developed industrial economy in a few decades. It took centuries in Western Europe, it took a very long time here in the United States, it took less time in the Soviet Union. But. But the Chinese have the record. And whatever else you may say, that is an extraordinary achievement that literally makes China the envy of almost every other poor country in the world. And let's remember most of the countries in the world are poor. And it's not just that they grew their economic powerhouse of industry. They raised the real wages, the standard of living of their mass of people, 1.3 or more billion people, and they became the export powerhouse of the world. That's why everyone knows, including every one of you, how many of the goods and services you consume have that little phrase somewhere on them. Made in China. Amazing achievement doesn't erase flaws, failures and weaknesses, but it has to be understood because it underlies everything else I'm going to be talking to you about. Well, this very success has occasioned a bizarre conversation. Here's the. Well, we admit China has done real well. This took a while to get many commentators to admit, but they had a quick comeback. That's because after the middle 1970s, they opened up to private capitalism, both to Chinese people becoming private capitalists and to foreign private capitalists, European, American, Japanese and so on coming into the Chinese economy. So let me first make it clear that's true. It is correct that after the mid-70s particularly there was an opening up, an explicit decision by the Chinese Communist Party to open China up to private capitalist enterprise. And it is also true that the economic growth of China from 1949 to this opening in the mid-70s averaged about 6% a year. And that after they opened it up for a while IT rose to 9% on average per year. So there's the plausible basis for the argument it's private capitalism that somehow deserves the credit for China's growth, at least after the mid-70s. The problem that makes this argument false is that over the last 10 or 15 years the economy of China has slowed down back to around 6% a year. And it is more capitalist today than it has ever been before. So that the growth of capitalism cannot possibly explain the rise of China's importance in the world because the last few years have been the most dramatic as China enters the high tech world with a real powerhouse bang, competing with the most developed technology companies in the world, as I assume you know. So the argument that the Chinese development miracle has has something to do with its turning to capitalism is full of holes. It's a nice try, but no cigar. Nuh. Doesn't work like that. What's remarkable about China is the control exercised by the Communist Party of China, which is clearly the dominant player, if you like, in that society. But what they have been very good at is mixing private and state enterprises, having the government play a big role, but not the only role, allowing private capitalism, but requiring it to be regulated in a number of ways that make it a socialist society, because it's a level of government intrusion and government control way beyond what the United States or Britain or other countries like that permit. Here's the next thing that's very interesting. Both private enterprises and public enterprises in China have the same internal structure. A board of directors hiring the top managers who in turn run the enterprise, telling the mass of people pretty much what to do. In the private sector. These are private boards of directors elected by the major shareholders. In the public sector it's another board of directors looking quite like the first one, except it isn't elected by shareholders, there aren't any. It is put in there by the government and in the end by the Communist Party. But for those of you who have been following this program and know that we are advocates here of a democratization of the enterprise, a creation of worker co ops as the basic way to reorganize beyond the capitalist system, there is no way to escape the reality that the people's Republic of China, like the Soviets before them, have not made that move. Yes, the government plays a very powerful role, but they haven't transformed the workplace in the direction of the democratization that worker co ops are all about. They may, but they have not yet done so, which is why their capitalist and their state enterprises are so similar. Now the next point I want to make about this is that keep in mind that therefore the Chinese are in a sense halfway between the Soviet Union and say Scandinavian socialism. In Scandinavian socialism, the government regulates mostly private enterprise. In Soviet socialism it was mostly state enterprise. It didn't allow much private. China really is in between. It allows much more private than the Soviets ever did, but it has much more state enterprise intervention than the Scandinavians allow. But that's where to understand what the Chinese approach is. And remember, we're looking at it because it has been so stunningly successful in terms of economic development. Okay, now let's get to those hot button issues that are now in the news. Because everything I've just told you is very rarely discussed in the news, very rarely examined, which is a shame, because what I've just gone over with you is what's really important about China as a model, China as a global player, China as a competitor to the United States and so on. And I want to comment on the bizarre hot button issues to show you that they are about the Cold War. They're not really much about anything else. Hong Kong. Hong Kong is not free. Hong Kong is controlled by the central government. That's correct. But let's please remember what Hong Kong was before it was controlled by a government much further away than Beijing, a government in London. It was a British colony and it never had independence from Britain for the 99 year lease that China gave to the British, which ended at the end of the last century. And if you wanted an example of what Hong Kong is like, the example might be Puerto Rico, which now has a government that's elected. Yeah, but it can't do anything without the approval of a congressional committee that has absolutely nothing to do with Puerto Rico, but has the real power to make a big deal of Hong Kong and to forget Puerto Rico. This is a strange kind of argument, you know. Then there's the Uyghurs, a Muslim minority in one corner of China. I have no idea of how they're being treated. Some of the evidence looks like it's not so good. But for a country like ours that has just finished 20 years of continuous warfare destroying two Muslim countries, at least Iraq and Afghanistan, not to speak of Syria, Libya and so on. This is a strange argument to be having breasted, beating considerations for the Uyghurs. South China Sea. The name tells it all. It's their area, not ours. There's no Chinese navy and they go for Mexico, is there? And then the unfair practices. Oh my goodness, the Chinese gave the American companies a want to come here. You get cheap labor, you get a growing market, and we in turn get your technology. You don't want the deal, don't come. You want the deal. Okay, that's the price. Calling that intellectual property theft after the fact, that's kind of dirty pool. We've come to the end of the first part of today's show, and as always, I want to thank all of you whose support makes this show possible each week, especially our Patreon community and other regular monthly supporters. If you haven't already, Please go to patreon.com economicupdate or visit democracyatwork.info to learn more about how you can support this show. Please remember to follow us on Facebook, Twitter and Instagram. And if you're watching this on YouTube, be sure to hit the red subscribe button below. Stay with us. We'll be right back. Welcome back, friends, to the second half of today's economic update. In this second half, I want to talk about another important issue very much in the news now and likely to remain so. It's this thorny topic of inflation. And remember, inflation is simply a word to describe a general increase in prices. Not every price, of course, and not every price the same amount, but a kind of a general rise. Most prices going up somewhat, and the government keeps track of this. Why? Because it's important. So let's go through that, since the level of nonsense spoken about inflation outruns even that spoken about China, the topic of our first half today. Between July of 2020 and July of 2021, the Consumer Price Index, that is a general measure of the increase of prices, rose by 5.4%. Here's what that if your wages were the same this July as last July, you could afford to buy 5.4 fewer goods and services because their prices had gone up. Or another way to say it is a dollar bill in your possession could buy 5.4% less this July than last July. That's all inflation means, prices going up. Or if you like, the value of the dollar going down. And of course, if you have a dollar and the value of it in terms of what you can buy goes down, you are not likely to be a happy Camper who gets hurt by this? Well, let's do the easy part. Anybody on a fixed income, if you're an elderly person relying on a fixed flow, a pension, a fund, for example, this is going to really hurt you. Why? Because the prices you pay go up, but the money coming into you doesn't. And that's a real pincher. That's going to hurt you pretty quick. Another group of people very typically hurt are the poor who have little or no regular income and they're going to face these higher prices. So it's particularly painful for them. Another group, working people, people who rely on a wage or a salary because typically those are set quite some time in advance. Unions, for example, sign three year contracts and those may or may not have any wage increase in them. They may have a modest increase, but most unions today get modest increases, 1, 2, 3% per year. But if prices are going up 5.4, your increase in wages can't even allow you to keep up. Why? Well, because workers and salary earners cannot raise the flow of money into their hands to match the rising prices of what they buy. So it hurts a lot of people and not everyone. If you're able to get the prices of what bring money into you to go up faster than the prices you have to spend on, well then an inflation's good for you. And there are people like that. But I want to focus on the majority of us who are hurt by an inflation. So let's talk about what causes an inflation. One of the biggest mistakes cultivated in our culture by very important special interests is the notion that there's some unique relationship between the amount of money in circulation and prices. Let me be clear with you. There isn't. When you increase the quantity of money, if that money is used by the people who get the new money, the extra money, typically in our society, banks and institutions like that, it will only raise prices when they spend that money. And when they spend that money, it may or may not raise prices. This is very important. There's no necessity that prices go up. Let me give you the simplest example I know of. Let's imagine that the money supply has increased. The Federal Reserve increases the money supply. And let's assume, just to make the story simple, it goes into the hands of the bank. Or if you don't like that, let me imagine with you that helicopters fly over the American cities and drop the money and we all run out with baskets and collect the bills floating down, okay, now there's a lot more money in the economy. And you know who knows this business? They know that the public has more money to spend because they know what the Federal Reserve is doing, whether it's increasing the money supply or not. And at this point, the employer makes a decision. The manufacturer, the company that sells any service, they know people have more money to spend. So here's what they decide. Either the way you deal with that is to raise your price. Why? Because people have more money to spend, and so you can reasonably expect to get the higher price. Or here comes the key issue, folks. Or you can decide that the way you want to respond to the extra money in the economy is by ordering more goods to sell for that extra money. The second one gives people jobs making the extra goods, and we tend to like that. But the first one, jacking up the price, that's not getting anybody a new job. That's just getting the seller more because there's more money in the economy. Why am I stressing this? The answer is employees. The vast majority of us, we don't set prices. But employers, a tiny minority of us, they do. They're the ones who decide what price gets put on that tag connected to the software program, the haircut, the hamburger, or anything else we buy. It's a decision of employers that is the cause of every inflation. Employers set the price. Make sure you understand that. That's how a capitalist economy works. The employees have nothing to say. The government, in most cases, has little or nothing to say. It's an employer prerogative, and they hold on to it. But it has its problems. And here we go. To understand the difference between the reality and what you're reading in the newspapers or watching on tv, when employers raise prices, they do it for the same reason they do everything else. They want to make more profits. That's what they're in business to do. That's what they got their MBA at business school for being good at. Getting more profits. And if you can charge more for whatever it is you sell, bingo, you're on your way to higher profits. The problem is, it doesn't look good. To whom? To the vast majority of us, the employees. Because we've got to spend more. So our employers long ago learned, when you raise your prices to make more profits, never say that's why you're doing it. Always come up with a story, preferably a plausible BS that will get people to grudgingly accept your higher price, rather than saying, gee, you're gouging me, you're ripping me off. And so they do a PR and I'm going to Give you some examples. I have to raise my price because the workers are demanding higher wages. That's a hot one these days. Here's the way it goes. These big noise in Congress, there's a labor shortage. We don't have enough workers. What is this about? Well, let me tell you what the reality here is you will not hear elsewhere. Under Obama and then more under Trump and now even more under Biden, we are throwing undocumented immigrants out of the country. And we are preventing undocumented immigrants from coming into the country. They're the ones who did the work at the low wages that made big profits for the restaurants, the construction crews, all the rest of it. And you know what? They're not there to work at those terrible low wages that they were grateful for as immigrants. But now that they're not there as young Americansor even not so young Americans take those jobs, they discover what it was like to be treated like an immigrantwork hard, get paid very little, which is a clue as to why we have the biggest quit rate in history. Right now, everybody's taking a job, discovering what it's like quitting. Americans don't want to do the work that was imposed on immigrants. There's no labor shortage that dropped out of the heaven. The labor shortage is a consequence of our immigration policy. And maybe the people who ran the policy never thought it through, and maybe that's because it was politically convenient not to. But that doesn't make it go away. And we're facing it now. So guess what? Employers have to give a little more to get Americans to come and do that work. And they're going to use that fact imposed on them by the stupid immigration policy. Stupid on top of cruel and criminal. They're going to use it as an excuse to raise prices so we have an inflation because the businesses want to make more money. And why, by the way, do they suddenly want to make more money and raise prices? In part, yes, because they have to pay higher wages because they don't have undocumented workers. But there are other reasons. They lost money during the pandemic. They want to make that money up. They want to recoup what they lost. They want to make extra profits now so their prices get pushed up. Nor is that going to go away anytime soon because they got a lot of profits they lost over the last 18 months. Here's another BS story. We have global supply chains. Hello. How exciting. For 40 years, we've been moving production abroad to be able to get more profits for employers by sourcing materials In China, in Brazil, in India, wherever they are. You know that story. I'm not going to repeat it now. But guess what? If you depend on long supply lines that exist in many other countries, here's something that may occur to the people over there. May use what are called lockdowns to struggle with COVID You know, close the harbor, close the factory, close the city. That's what they do in New Zealand and Australia and Taiwan and Thailand and People's Republic of China and other places. And that shuts down the sources of your long supply line. You may not do it in the United States, but as long as it's done anywhere, it's going to whack you right in the rear end. And then we have the shippers coming in, the people who own the huge fleets of freighters that move all that stuff from around the world, located there because it's profitable by US and European and Japanese corporations. Those shippers weren't shipping anything for the last 18 months because of the pandemic. They lost a lot of profits. They now ship again. They want to make up the profits. You know what they're doing? They're jacking up the prices like all employers do. But like all of them, they can't tell us the truth. We want to make up with the profits we didn't get. That doesn't sound good. So here's the story. Infrastructure is inadequate. Look at this. Ship in the Suez Canal blocking. They love this. It's not them. You see raising prices on shipping that we all have to pay to make more profits. Oh, no, it's the problem of the Suez Canal. It's the problem of those lockdowns in Covid. Everyone who's an employer is jacking up the prices. That's why we have an inflation. They couldn't have one unless employers did it. Because they're the ones who set prices and they're doing it for their profits. Number one, this is not about government printing money. It's not about any of the things you hear. It's what you're not supposed to hear. That's the key issue here. Profit driven price increases. You and I have to pay so that the employer make sure that this capitalist system works for them and for us. We get to watch headlines that tell us nonsense. Thank you for your attention. I hope you found these analyses of interest. And as always, I look forward to speaking with you again next week.