Adam Tooze: belief

Transcript context

…But it’s a speculative world we’re living in now, right? Absolutely. But the advanced economies have not experienced those kinds of inflation rates for a long time, and that’s part of what defines them as advanced economies. There’s a real circularity in the way in which we classify the economies of the world. Eric Lonergan has a great piece where he says what defines an emerging market is that it has the kind of inflation dynamics you’ve just outlined. In other words, prices actually do respond to monetary shocks, and that has a social underpinning. For me, one of the reasons I’m skeptical about a strong inflation scenario is it’s not obvious to me that we have, as it were, the sociological guts that would — I don’t mean like bravery — I mean in the sense the underpinnings of a wage price spiral, which I think would be crucial to drive the kind of inflation that you’re talking about if we were to be in 15 percent and 20 percent. It seems to me that you would need the mechanics of a wage price spiral and indexation of various types to be actually operating. And we stripped most of that out in a highly conflictual way, really, from the Volcker shock onwards if not before, through to the late 1980s. And in the absence of that, it’s difficult for me to see the scenario in which we head towards spiraling inflation of the type you’re talking about. Of course, it’s an endogenous process. It’s much more attractive to join a trade union when you actually need to defend your wages against nominal price shocks. So that might be a mechanism that would work. I find it difficult to imagine that being something that happens in 2021 or 2022. What’s the best way to think about which emerging economies are most vulnerable? You’re free to nominate some, but just conceptually, how do you approach the question?…

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