Stagflation: Stagnation, Inflation, and Beyond

Since my prediction in April of 2007 of an impending economic crash, I've vowed not to risk my unblemished record with any further predictions. But a simple thing that I learned from the run-up to that catastrophe was when the “little people” -- the “every man and every-woman” -- found their way into stock market speculation, trouble was looming. Early in 2007, I recall acquaintances then announcing that they were day-traders, bragging that they were making more money buying and selling on their devices than from their regular job. 

The Wall Street Journal headlined in early October that More Working-Class Americans Than Ever Are in the Stock Market. “Among Americans with incomes between $30,000 and $80,000, 54% now have taxable investment accounts. Half of these investments have entered the market in the last five years according to…Commonwealth and the BlackRock Foundation.” 

A red flag.

And also, I learned that when the investment commentariat-- not the media cheerleaders-- sound the alarm, Marxists should listen. It’s a curious thing that academic Marxist economists, who frequently claim to foresee future crises in broad terms of overproduction and rate of profit, seldom cite the views of those solely driven by money-making realities. The Wall Street Journal, hedge fund managers, investor consultants, and others of the pursuing-alpha herd are good sources of alarm for market volatility as opposed to the capitalism-boosters of The New York Times and The Washington Post.

When a few weeks pass with the front page of The Wall Street Journal warning Credit Markets Are Hot, But Froth Is Worry and OpenAI’s For-Profit Restructuring Draws Pushback, Rattling Executives and Persistent Inflation, Soft Jobs Data Pull Fed in Two Directions and Shutdown Starting To Exact Its Toll on Business and Volatility Returns To Haunt Stock Market, it might be time to sit up and take notice.

When financial sites like QTR’s Fringe Finance-- not one to mince words-- announces Sh*t is Breaking… And it’s Going To Get Worse or when Reuters Morning Bid coins the jingle Bubble, bubble toil and trouble or when Wolf Street raises the alarm that Corporate Profits in Nonfinancial Industries Plunge by Most Ever in $, amid Massive Downward Revisions, it might be just the moment to question the health of the US economy.

More red flags.

The truth is that the US economy is strapped with two intractable, life-sucking issues.

First, the post-2007-2009 economic crisis has never been resolved. The US has foisted the damage onto its partners, subsidized sick and floundering corporations, run up enormous debts through monetary pump-priming schemes, fostered new armament production through escalating global confrontations, and sold investors on shaky, over-hyped “innovations.” That same concerted effort to overcome the deflationary tendency spawned by the financial collapse overshot the mark, generating a powerful inflationary trend. 

As I’ve argued emphatically since 2021-- contrary to the punditry-- inflation is rarely, if ever, a momentary, episodic development. It does not go away with policy tinkering or rebalancing. Once prices begin to rise, businesses and corporations try to catch up or get ahead. The floodgates of profit-taking and profit-preservation will not be easily closed. For those who fashionably love to borrow Marx’s concept of commodity fetishism, the conventional thinking on inflation fetishizes price rises, hiding the fact that inflation is the result of human decisions and human (capitalist) interests. And when capitalists see an opportunity to raise prices, they seize it.

Compounding the last four years of persistent inflation is stagnation in the non-financial economy. Economic growth-- apart from the stock market, the pocketbooks of the very rich, and the bloated military budget-- is slow and slowing. In November of 2021, I reminded readers of the dangerous return of 1970s “stagflation” in an article aptly entitled When Have We Seen This Before?. Of course, the dilemma is that government efforts to invigorate the stalling economy will only further increase inflation.

Second, the economy is currently in the hands of a helmsman without a compass. President Trump’s economic policies are decidedly a departure from the conventional reliance on the Federal Reserve as a somewhat independent arbiter and navigator of economic policy, from the reliance on and guidance from Bureau of Labor Statistics and Commerce Department data, from some self-preserving restraint of corporate and financial excess, and from muting obscenely deep and unrestrained graft and corruption. Trumpism is elite enrichment on steroids, the public be damned. Reportedly, Communist Party of China Chairman Xi believes that Trump is not ideological, but “transactional.” That would well summarize his economic program.

Whether Trump’s approach is politically sustainable is one question. Whether it will add confusion and misdirection to escaping stagflation is not in question. It will make things worse.

What are the markers, suggesting economic hardship and a rocky road ahead?

• Inflation shows no sign of a letup, still well above the consensus goal. While Trump has “declared” it defeated, consumers are even more alarmed than the numbers suggest, with grocery store prices a particularly sensitive arena for shoppers. The full weight of Trump’s tariffs has yet to spread through the economy, promising even further price elevation.

• Hiring is falling off; businesses are hiring fewer people. Though limited hiring has not yet resulted in a dramatic change in unemployment, it foretells an increase in those jobless.

• Real average hourly earnings growth is tepid, growing .7% from August 2024 to August 2025. Median household incomes remained largely unchanged last year, adjusted for inflation. When higher incomes are extracted, the numbers for most households are in decline.

• Outlandish financial schemes are back and collapsing, especially around the used-car market. As in 2007-2009, irrational, super-exploitive lending patterns have generated unserviceable debt with lower-income consumers. Car-loan delinquencies have reached 5.1%, a level approaching that of the earlier financial crisis.

• While stocks appear to be booming, their price-to-earnings ratio-- a traditional measure of overvaluation recently hit 22.5, one of the highest readings in the last forty years.

• Investor fear of market volatility is reflected in the great demand for the safety of gold, a commodity hitting its all-time high in price. Other signs of the turn toward safety are emerging. 

• The driver of stock-market growth is almost entirely artificial intelligence (AI) and its data centers. With immediate investment in AI estimated in hundreds of billions of dollars (as much as three-quarters of a trillion globally), little return on investment has materialized. OpenAI is expected to return only $13 billion this year. Morgan Stanley calculates that the entire industry only sold $45 billion in products last year. Many see a bubble much like the fiber-optic mania of 2000.

• Bank failures have prompted JP Morgan Chase’s top dog, Jamie Dimon, to quip “When you see one cockroach, there are probably more”.

• Private, direct credit-- a growing factor in finance-- has a default rate of over 8%, the highest ever.

• Class divisions are intensifying. Annual wage and salary growth for the bottom third of households through August of this year was lower than any year since 2016. At the same time, growth for the top third grew four times faster than that of the lower third. For the first time, consumer spending by the top 10% of earners was nearly half of total consumption.

• The Black unemployment rate went from 6.1% last August to 7.5% this August, a harbinger of employment trends: last hired, first fired.

• Recent college graduates are experiencing one of the highest unemployment rates of the last decade, another harbinger of a weak labor market.

• More children are claimed to suffer from some food inadequacy than at any time in nearly a decade; the US Department of Agriculture estimated the number at 13.8 million in its 2023 report. The Census Bureau similarly reports that nearly ten million children live in poverty, the most since 2018. The Trump Administration has halted the USDA survey of hunger in the US.

The high interest rates established to contain inflation are predictably slowing real, material economic activity and large consumer purchases for the majority. Four years of rising interest rates have made debt service a growing burden, as well as making the refinancing of debt costly. 

Economic royalty and their courtiers are publicly downplaying the growing inflation in a desperate effort to convince the Federal Reserve to lower interest rates and stimulate tepid economic activity. Should the Federal Reserve comply, inflation will undoubtedly accelerate to the great harm of most working people. Historically, stagflation ends with a deep recession, like the painful Reagan recession of 1981-1982. 

Many in ruling-class circles believe that a new wave of innovation will rescue the sluggish, fragile economy with the exploitation of Artificial Intelligence. They foresee a new age of high productivity and growth. 

However, research by JP Morgan Chase economists has failed to find a significant connection yet between the use of AI and industrial productivity. So far, it has boosted stock market values enormously, without showing a concurrent return on investment.

James Meek, writing in the October 9, 2025 issue of The London Review of Books, may well have captured where AI has taken us and how far it has to go:

Leaving aside the known problems…-- their massive energy use, their ability in malign human hands to create convincing fake versions of people and events, their exploitation without compensation of human creative work, their baffling promise to investors that they will make money by taking the jobs of the very people who are expected to subscribe to them, their acquired biases, their difficulty in telling the difference between finding things out and making things up, their de-intellectualizing of learning by doing students’ assignments for them, and their emerging tendency to reinforce whatever delusions or anxieties their mentally fragile users already carry-- leaving aside all this, the deep limitations of generative AI make it hard to see it as anything but a dead end if AGI is the goal.

Faith that AI is more than a possibly malign novelty is based on confidence that the tech oligarchs have a vision of our future that benefits us all.

Not likely.

Is economic reckoning on the horizon?

Greg Godels

zzsblogml@gmail.com

Out of the Wilderness

As the Soviet Union and our historical memory of it disappear in the rear-view mirror, ideological clarity about socialism disappears with it. It is not that the Soviet Union had a monopoly on socialist thinking-- there were certainly contributors from within and without the then-existing socialist world who reflected different times, different circumstances, and different traditions-- but the Soviet Union represented a historical constant, an evolving constant that connected the rise of revolutionary Marxism in the early twentieth century to later socialist thought.

One didn’t have to agree with Soviet socialist theory in the late twentieth century, but one had to reckon with it; one had to locate one’s thinking longitudinally and latitudinally from that pole.

Because it served as a frame of reference for other leftist movements-- purported Communist, non-Communist, and anti-Communist leftism-- there was a certain logic to the politics of the global left, best expressed by the division between the Communist, revolutionary left and the social-democratic, reformist left. These two trends captured left politics, with various wrinkles and departures playing a lesser role.

Subsequent to the demise of the Soviet Union, left ideology became unhinged. Social democracy retreated to applying a modest, slightly more human face to capitalist triumphalism, reaching full-expression with the self-described Third Way of Clinton, Blair, and Hollande. Without competition from the historical legacy of revolutionary Marxism (Marxism-Leninism), a rightward swing was inevitable.

Within the Marxist-Leninist movement, frustration and disappointment led to bitter fights, splits, and retreat to what Lenin described so well as “the years of reaction” after the defeat of the 1905 Russian revolution:

All the revolutionary and opposition parties were smashed. Depression, demoralisation, splits, discord, defection, and pornography took the place of politics. There was an ever greater drift towards philosophical idealism; mysticism became the garb of counter-revolutionary sentiments… It is at moments of need that one learns who one’s friends are. “Left-Wing” Communism: An Infantile Disorder

Many academic Marxists-- theorists whose ideas never took root in the working class, but who commanded much influence, nonetheless-- abandoned revolutionary socialism for social criticism, spurred on by a shiny new intellectual toy, postmodernism. The ideology that coalesced around the idea of class was shattered into the politics of individual identities and varied interests. Too often this thinking seeped into left-wing politics, confusing younger comrades, by nature, enthralled with the new.

Other academics believed that they had found a more rigorous foundation for Marxism in the neo-positivism of optimized choice, self-interest, and individualism, the growing intellectual consensus of bourgeois social science. After sterile debates-- often couched in formal language-- proponents concluded that the most interesting, most original ideas in Marxism could not be reduced to statements about isolated individuals maximizing their self-perceived, narrow, immediate interests. So Marxism must be abandoned to preserve the beloved method, a patent absurdity!

In the last decade of the 20th century, a process of soul searching had begun in major sections of the left, especially in the West. Both the centrality of class politics and the legacy goal of constructing socialism receded in the newly minted approaches of the broad left.

In the wake of the 2007-2009 global economic crisis, the idea of class reemerged, albeit in a simplistic, primitive way. In 2011, activists, organizing around the slogan “Occupy!”, introduced the dichotomy of the 1% and the 99% as an expression of the great and growing inequalities of wealth and income in the US. Lacking any grasp of the complexities of class and strata, the slogan “the 99%” was bound to conjure an illusory unity of the supposed have-nots that was naive and unattainable. And the idea of “the 1%” reduced the historically evolved power and rule of the capitalist class to a mere actuarial number.

The retreat from class (as Ellen Meiksins Wood so aptly characterized it) continued unabated. And the retreat from any real advocacy of socialism accompanied it.

Dissatisfaction with a soulless Democratic Party increasingly catering to a more affluent, petty bourgeois base, revived an interest in social democracy in the US. This new interest grew from the campaign of independent Democrat Bernie Sanders who refused to renounce the moniker “socialist.” Young people, in particular, were drawn in great numbers to a ‘legitimized’ socialism, energizing a number of leftist organizations and electoral campaigns.

Ironically, this new social democratic moment occurred in the US when social democracy in Europe-- its traditional address-- was discredited and marginalized.

While acceptance of the word “socialism” in the US was welcome, it was attached to a tepid, incremental socialism deeply embedded in the Democratic Party and virtually indistinguishable from its 1930s New Deal precedent.

Certainly, this leftish turn was welcome, and the freeing of the word “socialism” from its Red Scare chains marked progress.

But so-called democratic “socialism” was not socialism by any measure, but a brand associated with the left-wing of the Democratic Party.

The retreat from the real-- real-existing and real-theoretical-- socialism and the abandonment of the tool of class analysis disables and disarms the left in every way, leaving it vacillating between accommodating capitalism with patchwork reforms and surrendering the socialist project all together until a time off in the distant future.

My own advocacy of socialism has often been met with the patronizing dismissal: “Sure, but tell us how we get there from here.”

But we can’t get anywhere unless we settle on where we want to go. And surely, we must choose our route collectively.

The signs that our left has abandoned the goal of socialism, along with class partisanship abound… unfortunately.

The contradiction-- and the Marxist term is most appropriate-- between surging inflation and shrinking growth has capitalist policy makers in a bind. Their consensus-- and their consensus follows from bourgeois theory-- is that spending must be retarded. The conventional way to do this is through restraining economic activity, exactly what the Federal Reserve’s interest-rate increases are meant to do.

Given that a hard braking of the economy will inevitably produce widespread and deep pain on an already struggling working class, one would think that this would be a powerful, unassailable argument for socialism. Given that this moment in US history presents a seemingly intractable problem for the ruling class with only two possible and disastrous outcomes-- escalating inflation or a deep recession-- that the left would lay the portended disaster at the doorstep of capitalism.

But, no, that is not happening.

Instead, the left is blaming the Federal Reserve or searching vainly for ways to save capitalism from its dilemma.

● A headline in Jacobin-- a journal of “socialism”-- and reposted in Portside states ominously: To Fight Inflation, The Fed is Declaring a War on Workers. No, it is not the Federal Reserve declaring war on workers. The Federal Reserve is a capitalist institution. It is always at war with workers-- that’s its job. It is-- as it always is-- capitalism that is at war with workers. Say it! C-a-p-i-t-a-l-i-s-m…

The article ends by suggesting how capitalism could “forge” an alternative path to reducing inflation-- a brief suggestion unrelated to the dilemma that capitalism finds itself facing, but having the merit of evading the elephant in the room.

● Then there is Michael Hudson’s response to the Federal Reserve's interest-rate action, The Fed’s Austerity Program to Reduce Wages, found on numerous websites from Counterpunch to TeleSur. Hudson commands a huge following, despite having no history or connection with the organized left aside from apparent youthful happenstance with Trotskyism. His long history as a financial industry insider and his loquaciousness seem, somehow, to bolster his popularity.

Again, it is not capitalism that is responsible for the mess facing working people, but “neoliberalism,” “the tunnel vision of corporate managers and the One Percent,” and “Biden’s Cold War.” Hudson punches the explanation up by invoking his two favorite bêtes noires: debt and the rentier-class. But not capitalism.

I have no quarrel with the term “neoliberalism” if it is shorthand for the socio-politico-economic adjustment made by and for capitalism during the 1970s stagflation crisis and after the failure of Keynesian solutions. But today it is used far too often and with zeal to conjure an evil malignancy that attacks otherwise stable and enduring capitalism and imposes onerous conditions on a disgruntled, but somewhat-satisfied-with-capitalism working class.

This is sheer nonsense, of course, but it is the latent assumption behind the obsession with neoliberalism held by most left punditry. If only we could expel neoliberalism… Again, capitalism as an all-determining socio-economic formation gets a free pass.

● Professor Richard Wolff is an impressive expositor of many Marxist ideas. He is the go-to interview when center-left media, like Democracy Now!, wants to hear from Marxism. But Professor Wolf is no Marxist. Nor is he a socialist, though he might challenge this claim. While he is unquestionably dedicated and earnest, it is not to socialism that he is dedicated. Instead, he advocates for a snail's-pace assault on capitalism through small-business-like consumer and producer cooperatives, a persisting utopian strategy of nipping away at the edges of capital. That strategy has no answer for monopoly capitalism, the capitalism of our ages.

Like so many others, Wolff demonstrates an aversion to locating capitalism as the material, formal, efficient, and final cause of today’s crises, preferring to find the reparable flaws in capitalism and to search for a fix.

In his Three Anti-Inflation Alternatives to Raising Interest Rates appearing in Economy for All, In These Times, Popular Resistance, and other places, Wolff signals more interest in finding a way to manage the inflation-stagnation crisis than attacking its cause.

Wolff proposes not one, but three alternatives available to capitalism to escape the clutches of inflation.

First, he proposes a wartime solution: ration cards. One can only imagine how that would be received by a citizenry already divided by masks, vaccines, and lockdowns, not to mention guns. Indeed, this proposal might unwittingly be a stealth spark for further misunderstanding and mindless conflict.

Second, Wolff revives the Nixon-era tactic of the wage-price freeze. Like rationing, a freeze-- including Nixon’s brief wage-price freeze-- freezes injustices as well and merely temporarily bottles up the growing, deep-seated inflationary pressures. In Nixon, Ford, and Carter’s case, those pressures exploded for the rest of the decade to no relief or benefit to working people. Like rationing, price freezes give the impression of action, while leaving the cause of economic distress-- capitalism-- untouched and unspoken.

While not mentioning socialism, Wolff’s third “alternative” invokes its spirit with the possibility of “[t]the socialization of private capitalist enterprises…” But before one can anticipate Marx’s call in The Communist Manifesto for “the abolition of bourgeois property,” Wolff dashes our hopes. He is not calling for the end of “the exploitation of the many by the few” but something else entirely. Instead, he says, let’s borrow from the history of public utility commissions that have failed so miserably to protect consumers from fraud, unjustifiable price increases, and other abuses:

Across the United States, insurance, utility, and other public commissions limit private capitalist enterprises’ freedom to raise their prices in the markets they regulate. Private capitalists in such markets cannot raise prices without the permission of those commissions to do so. A government could establish all sorts of commissions in all sorts of markets with criteria for granting or refusing such permissions. Suppose, for example, that some or all food items were socially (democratically) deemed to be basic goods, such that no producer or seller could raise its prices without approval by a federal food commission. Fighting inflation could be among the approval criteria in this case (just as that is a criterion now for the Fed’s monetary policies).

Is this less utopian, less fabulist, less unrealistic, more promising than the call to abolish bourgeois property? Is championing socialism a more remotely possible solution than establishing “commissions” that would regulate capitalist prices and, accordingly, profits? Wolff simply issues a fanciful wishlist to address an impending disaster.

A survey of the various “solutions” to the contradiction of exploding capitalist prices and slowing economic activity offered by prominent left thinkers shows that they have no solution at all. Moreover, the offered “solutions” all portend to manage capitalism better than its bourgeois managers. They all seek to improve capitalism, to make it friendlier, to tame its “excesses” while guiding it through its internally generated crises.

If today’s left refuses to seriously discuss socialism, deferring it to another time and place, it consigns the people to eternal wandering in the biblical wilderness.

It is not another half-hearted attempt at reformist or utopian change (after centuries of disappointing attempts), but a commitment to revolutionary socialism that will deliver the working class “out of the hands of the [capitalists], and to bring them up out of that land unto a good land and a large, unto a land flowing with milk and honey…” (with apologies to Exodus 3:8).

The working class deserves better than another thirty years of wandering through the wilderness of misdirection, muddled ideas, and fear of socialism.

Greg Godels
zzsblogml@gmail.com