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The Hidden Ethics of Inflation

photograph of hands removing fiver from wallet

A danger of the modern obsession with data, facts, and figures is that it can disguise questions of ethics as questions of facts. Authors here at the Prindle Post, as well as elsewhere, have discussed the slipperiness of the slogan “follow the science.” It is easy to follow the science to belief in COVID-19 and the effectiveness of vaccination, but far harder to follow the science to what an acceptable level of risk is.

Our measures and metrics, the ways we describe the world we inhabit, involve more than taking a ruler to the structure of the universe. Science requires reflection and judgment. An awareness of the way our facts and figures are constituted opens up new space for ethical and political deliberation.

Inflation is a good case in point. The naturalization of inflation as a simple descriptive fact about the world, like bad weather, prevents a discussion of the causes of inflation and the choices behind those causes. The reporting of inflation as a single tell-all figure hinders awareness of whom it impacts most.

Inflation as simultaneously fact and decision

It is not uncommon to see inflation referenced as a cause or explanation for higher prices, in the sense that the reason prices are higher is because of inflation. For instance, in an op-ed for Newsweek, former congressman Newt Gingrich wrote, “Each day that inflation increases prices, the Democrats lose ground with ordinary Americans.” Similarly, CNBC declared, “inflation has raised the prices of many goods people want for a home revamp.” However, as economists define it, “inflation” is simply the word we use to describe any general increase in the prices of goods and services over some period of time in a country. “Inflation,” then, no more explains a price increase, than a “drunk-making power” explains the inebriating effect of alcohol. What matters is the why of inflation.

It is of course likely that businesses are partly raising prices for reasons consumers can appreciate – COVID-tangled supply lines, elevated raw materials costs, increasing production capacity or workforce, raising worker pay. However, as critics of current record profits have pointed out – such as Elizabeth Warren, economist Paul Krugman, and others – at least some inflation might be the result of large corporations leveraging pricing power due to market dominance or consolidation. Inflation is, if nothing else, a good excuse to raise prices.

But even if one grants the contentious point that corporations are actively doing this, we might still believe that it is perfectly fine for a corporation to increase profits when the consumer demand is there. These are for-profit entities after all. I am, however, not concerned with the ethics of this particular practice at present; rather, my point is that all those important debates about corporate responsibility, pricing power, and anti-trust are being obscured by our insistence on treating inflation like the weather – that is, as a force beyond human control.

Likewise, it is taken as natural that higher product costs should be passed onto consumers. Here again, there can be choice. Corporations could choose to cut executive bonuses or curtail stock buybacks (which are currently surging) rather than exclusively opt to increase prices. Yet further choices are in the background about tax levels for very high income earners and the permissibility of buybacks, which were largely illegal before 1982.

Even for the notionally bloodless topics of supply lines and logistics, choices were made by corporations about prioritizing efficiency over resilience, about offshoring and the use of cheap foreign labor, and about concentration of manufacturing in specific markets.

These choices may or may not be defensible, given one’s values and their economic framework, but it is imperative to recognize them as choices, occurring in a specific political and institutional context which facilitated them, and which could be otherwise.

Whosoever hath not, from him shall be taken away even that he hath

All sorts of significant choices and hidden values are buried within the way inflation is measured.

Inflation is typically measured by the Bureau of Labor Statistics’ Consumer Price Index (CPI). The index is, in their own words, “a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services.” (See their  FAQ.) The “basket” of goods includes gas, clothes, groceries, healthcare, and other typical purchases.

The Bureau of Labor Statistics collects an enormous amount of data, from across regions and consumer income levels. Economists quibble about the details – about how perfectly it captures overall inflation – but the more foundational concern from an ethical perspective is the move from an inflation measure, to how that measure impacts a particular consumer. While national policy decisions may take the details into account, national news will typically only report the overall Consumer Price Index. However, the very act of averaging across the diverse economic landscape of the United States entails the measure is insensitive to the specifics.

This happens in at least three ways. First, price increases are uneven across the bundle of goods. Inflation of 7% does not mean that gas rose 7% and frozen concentrated orange juice rose 7%. In fact, gas prices have increased several times that, spiking even higher after the invasion of Ukraine. Second, price increases are uneven across the country. Third, even if the bundle of goods is the same, it represents a different proportion of income for different people. (Stocks and other assets are not immune to negative effects from inflation, but inflation can potentially be waited out and money moved to less sensitive assets.)

The long and the short of this is that inflation hits different people differently. The people it hits hardest include those who must spend a large proportion of their income on consumable goods like food, those with less financial flexibility to modify their habits and assets, those with primarily cash saving, and those poorly positioned to negotiate inflation adjustments to their pay. The savvy reader may notice these are circling a central descriptor – those who are already poor.

In the U.K., activist Jack Monroe is developing a Vimes Boots Index that she believes more accurately reflects inflation specifically for people with less money. It is named after a character in a Terry Pratchet novel who comments that the poor cannot choose to buy boots that cost five times as much even if they last ten times as long because the poor never have the cash on hand to buy the nicer boots in the first place; a riff on the more general idea it is expensive to be poor.

Again, this is not to dispute that there is value in reporting the Consumer Price Index. It is instead to attend to the fact that how we discuss inflation and the metrics we use are not simply “following the science,” even the dismal science; they are, either more or less knowingly, decisions that express our values.

 

The author would like to acknowledge the valuable feedback of Rashid CJ Marcano-Rivera on economic matters.

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Moral Distinctions between Crisis Capitalizers

photograph of hands exchanging a one hundred dollar banknote

After announcing an expectation-exceeding fiscal quarter, Apple CEO Tim Cook unabashedly stated that despite “uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation.” Cook’s statement comes amidst waves of criticism due to Big Tech’s apparent invincibility to the pandemic-driven economic crisis. News of unprecedented profits and increasing stock shares is often juxtaposed to highlight the giant disparity between a few lucky corporations and billionaires with the majority of Americans and businesses financially suffering. While some activists and politicians have proclaimed the gross immorality of those continuing to profit during the pandemic, there has been little discussion surrounding the moral distinction between these so called “crisis capitalizers.” Is there something inherently immoral about profiting from the pandemic? And is there significant moral distinction between profiting off of a crisis rather than profiting during it?

The sheer inequality of the current economy might be enough to argue that anyone still profiting during this time has an obligation to help those suffering. Since March, 51 million Americans have filed for unemployment. The United States just reported its worst economic drop ever recorded in one quarter, with US GDP collapsing by 32.9%. To make matters worse, over 40 million Americans are at risk for eviction, after relief programs expired on July 31 with no economic safety net in place. Meanwhile, the profits of businesses and individuals in the tech industry have been soaring. The Guardian reported that Amazon’s profit over the past quarter was $5.2 billion, shockingly higher than this time last year. Both Facebook’s and Apple’s quarterly revenue have also exceeded projections. This stark economic inequality between the majority of Americans and the “1%” might be immoral in itself. When one considers the fact that these very same corporations have notoriously been exempt from paying taxes in recent history, it is troubling to witness their general lack of action in contributing to alleviating the economic crisis fueled by the pandemic. In terms of the billionaire individuals at the helm of these tech corporations, only about 1 in 10 billionaires worldwide have verifiably contributed monetary donations to COVID-19 relief efforts. The moral obligation for wealthy individuals to act is even more pertinent considering the underwhelming response to both the health and economic crisis by the United States government.

However, others have argued that profiting during the pandemic is not immoral, and should in fact be celebrated as a sign of adaptation and resilience. In an article on Medium, Bloomberg Beta head Roy Bahat argues that it is important to acknowledge the difference between taking advantage of the pandemic and adapting to it. He considers it “okay, even noble for businesses to thrive right now,” since companies are “helping to keep people employed.” Bahat makes a point, especially considering the fact that the US is facing one of its worst unemployment crises in history.

Is there something to be said for businesses’ ability to adapt? Many independent entrepreneurs have adapted to the crisis such as those on popular small business website Etsy, which is projected to double its quarterly income. The success of Etsy has also meant the success of “anyone with creativity and 20 cents.” Additionally, the profits of many of the thriving corporations are the product of their sales revenue, reflecting consumption of products. One might argue that if we all stopped buying products from Amazon and Apple, and stopped using Facebook, perhaps the revenue of these organizations would not have increased during the pandemic. If we consider current corporate profits are simply a reflection of consumer demand, it appears as though these companies have adapted to fill an economic niche. In fact, some might argue these very corporations are actually filling a crucial role in ensuring access to necessities during a crisis.

While the morality of profiting during the pandemic might be considered up for debate, can the same be said for profiting off of the pandemic? Profiting off of a crisis can be considered immoral from many different ethical perspectives. While profiting during the pandemic clearly requires the participation in an inequitable economy, profiting off of the pandemic could be considered more sinister in both its proximity to the crisis itself and in its willingness to use suffering for personal gain. If one believes healthcare to be a human right, the entire concept of private industry profiting off of medical assistance is potentially immoral. Those who identify strongly with Kantian ethics would be most disturbed by instances during the pandemic where access to goods and services is limited to use people’s need to survive as a means to an end. Profiting off of crisis also is potentially immoral because it might showcase inherent selfishness, which reflects a corrupted internal character. Lastly, profiting from the pandemic might even be considered wrong on consequentialist grounds if withholding goods and services necessary for survival leads to further sickness and economic suffering. This is especially true if individuals are unable to afford/access healthcare to treat or prevent COVID, or if an individual/company is attempting to profit off of phony healthcare products which arguably endanger the general public.

Alternatively, some might argue that though the medical/pharmaceutical industry is directly profiting from the pandemic, it is more consequentially balanced than its critics paint it to be. Take the widespread demand for masks for instance. Masks have been prescribed by public health officials to slow the spread of coronavirus, yet masks remain a for-profit industry. While some politicians, like Senator Bernie Sanders, have argued masks should be subsidized and free for all, there remains a giant market for masks — both from large medical companies and small independent businesses using their skills to make decorative or high-end masks. From a utilitarian perspective, the market for medical supplies to combat COVID is promoting good as widespread mask use has been projected to save lives. Cheap medical masks are largely accessible, protecting those who wear them and profiting the companies that sell them. Higher end customizable ones arguably encourage more people to wear them and give satisfaction both to those selling them and those buying them. Similarly, pharmaceutical companies profiting off of test kits — and potentially vaccines in the future — could be argued to be a net positive (from a consequentialist perspective) if these products are largely available to the general public. Perhaps it is especially important that private industry take a role in developing a vaccine for COIVD-19 considering the fact that most medical research in the US is already privately funded.

Perhaps even more complicated are those who are less clearly profiting directly off of the pandemic. Large department stores, like Walmart and Target, sell PPE and important cleaning products, but also reportedly resulted in an uptick in sales items related to quarantine and work-from-home. For Target, the sales bump in April actually exceeded its typical holiday profits. Whether or not to categorize such organizations and profits within the “profit off of” or “profit during” category depends largely on what types of products we consider necessities, how those goods get marketed to consumers, and who benefits.

Whether or not we believe profiting during the pandemic is immoral depends largely on if we interpret these profits to reflect adaptation or exploitation. And that perception likely rests on whether or not we believe the sale of those products tends to produce the most good for the most amount of people. Our answers to these questions go a long way in determining if we truly believe there exists a moral distinction between these “crisis capitalizers.”

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The Pandemic and the Threat of Income Inequality

photograph of Sao Paulo favelabutting up against expensive buildings in background

In years past, the concept of national security has primarily been understood militarily. Recently, however, the effects that the disparity between the very rich and the poor has on national security have been hypothesized as a potential cause of social unrest, increased crime, or as a threat to economic growth. With the COVID-19 epidemic, the potential for wealth inequality to act as a threat to national security is even more obvious; poorer people are disproportionately affected by the epidemic and this makes it more difficult to manage. Recognizing that income inequality is a national security issue highlights a new aspect of its moral significance for societies everywhere.

The United States has one of the highest levels of wealth inequality in the developed world. It is not new information to most people that the top 1% of income earners make 30 times the income of those in the middle. The top 10% of families held 76% of the wealth in the United States in 2013. Over the past ten years many have tied this information to national security. An article from 2013 notes that this disparity, along with a lack of employment, could lead to an increase in youth gangs, property crime, and higher prison populations. Another from 2018 similarly points to the potential for higher crime. Despite these concerns, others have argued that we should not see income inequality as a problem. In 2013, the Cato Institute argued that the threat of civil unrest owing to income inequality is negligible and has no relationship to the concept of national security, noting “it is difficult to credit the view that inequality poses a security threat unless ‘security’ is completely redefined.” In 2017, the Heritage Foundation published a report arguing that there is little evidence that the very rich and the very poor have significantly divergent interests or influence over policy.

Yet, one event that the articles I have cited did not seem to see coming was an existential threat like a viral pandemic. It is well known from past cases that viral outbreaks can be particularly harsh on the poor. During the 1918 Spanish flu epidemic, the poor were significantly affected by the first wave. During the current COVID-19 epidemic we see this pattern repeating. Given that many people are now staying and home and not working, income is falling. Half of the nation would not have $400 if needed for an emergency which means that they are going to have a difficult time paying their rent and other living expenses. The result is going to be that millions will not be able to pay and could face evictions. While some politicians and governments are working to prevent this, that hasn’t stopped the calls for rent strikes during the pandemic. This means that during a time when social distancing is necessary, evictions and increases in the number of homeless will make the spread of the virus more difficult to contain.

In addition, wealth inequality is having a direct effect on healthcare. Roughly 10% of Americans did not have health insurance before the pandemic and most of these are likely to live in poverty. Without insurance, people are more likely to want to treat themselves at home or to avoid seeing a doctor. Now, millions of Americans who rely on employment benefits for coverage may now lose it. As many as 14 million may lose their jobs by summer. Those most vulnerable for losing their jobs are likely to work in the service and retail industries and are more likely to be low-wage workers. The cost of treatment for COVID-19 can be up to $35,000. This means that millions of Americans who could already not afford to pay rent can definitely not afford the potential cost of treatment. Indeed, there are already reports of potential deaths owing to lack of insurance.

What this means is that you now have large numbers of people who, despite the risk of increasing the spread of COVID-19, now still need to work in order to prevent losing their homes and their coverage. You have people who have now lost their jobs and their healthcare coverage less likely to seek medical care if they need it or to follow health protocols prescribed by governments to prevent the spread of the virus. This means that less will come forward for testing and less treatment of those who may have contracted COVID-19. As Joseph Eisenberg, chair of epidemiology at the University of Michigan notes, “People will go a lot longer since they don’t have access to healthcare…that both means they’ve been in the community more and been transmitting more, and when they get to the hospital their prognosis is going to be a lot worse.” So, in addition to a health crisis, there will also likely be an insurance crisis and a housing crisis owing to the economic situation of those worse off.

In addition, many of the jobs now deemed essential to keep supply chains going are those filled by the working poor. These include those who work in the food industry, custodial staff, many others including grocery stores staff. These people, in addition to staff employed in Amazon warehouses, are worried about a lack of protection against the virus. Amazon workers are calling for a strike to demand protection. Grocery store staff are worried about a lack of protective equipment as well. Despite efforts to protect these employees, several of them have now contracted the virus. At first many of these employers were not even offering paid sick leave and now that they are, there is still confusion. While many of these employers are now offering pay raises in response to the crisis, this still means that we are in a situation where most of us are now depending on low income workers to keep deliveries coming and to ensure that there is still food on the store shelves. These individuals are the very same who are now at a higher risk of contracting the virus and simultaneously less likely to seek treatment for it.

How does all of this relate to national security? Income inequality has exacerbated the healthcare crisis, will contribute to the eventual economic and financial crises, and has resulted in a situation where society is now counting on many of the poorest people to continue to risk their health in order to ensure supply lines continue to function, all while being more likely to be hurt by the pandemic. Now only does this increase the risk of social unrest, it makes handling the pandemic more difficult. Income inequality is now an existential threat to national security. While it may be easy to think that once the pandemic ends this threat will pass, a warming climate means the range of disease-carrying animals is increasing; this may not be the last major pandemic we will face. While it is cynical to think that we should only deal with a problem like income inequality because of this, the fact that the disparity between the rich and poor is a national security threat reminds us that there is a moral significance for everyone to do something about it.

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Who Can Help? Who Should? Being a Billionaire in a Suffering Society

Photograph of Jeff Bezos speaking at a podium and gesturing with arm

Jeff Bezos, founder of Amazon and richest man in the world, announced on the 13th of September that he would dedicate $2 billion to finance a network of preschools and tackle homelessness in America.

This move is controversial for a number of reasons, perhaps primarily given the relative amount of funds dedicated to Bezos’ spectacular fortune of 164 billion dollars. The two billion dollars amounts to 1.2 percent of Bezos’ fortune. Bezos has long been criticized for his lack of commitment to philanthropic work, and is the only American in Bloomberg’s top 5 world’s richest people who hasn’t joined the Giving Pledge, which would commit him to donating at least 50% of his fortune to charity.

Andrew Carnegie, who was the richest man in the world in 1899, wrote about the moral obligation of the wealthy in an essay entitled The Gospel of Wealth: “The man of wealth thus becoming the sole agent and trustee for his poorer brethren.” Carnegie spend approximately 90% of his wealth on public programs and scientific discovery. It’s noteworthy that during that era, the tycoons who earned their massive wealth through monopolies and breaking labor unions operated in a society pre-New Deal, so that government assistance programs of the twentieth century were not yet established.The philanthropic work of the barons like Carnegie and Rockefeller that paid teachers and established libraries were a sharp contrast to the working conditions of their employees.

The conditions of Bezos’ own employees have been raked over in the news for years, creating a contrast between his wealth and the conditions of employees that allow his fortune to amass. Amazon floor workers have been reported to resorting to sleeping in tents in the warehouses in which they work and urinating in bottles in order to meet work quotas. Amazon is one of the country’s top employers whose employees receive food stamps. When those under Bezos’ direct influence are living in such conditions, his recent philanthropic announcement seems hypocritical or a media grab.

Beside concerns over publicity, the real impact of the charitable contribution of the mega-rich raises real moral questions. In a society that allows such drastic inequality that there are individuals that have amassed enough wealth to create programs to dramatically alter the lives of significant swaths of worse-off, is donating from their fortune a sufficient act of benevolence, discharging their moral burden for benefitting for the inequality-sustaining society? A recent critique by BBC news references Anand Giridharadas, “whose book Winners Take All tackles the so-called ‘charade’ of modern philanthropy, characterises Carnegie’s approach as ‘extreme taking followed by extreme giving.’ The super rich,” he argues, “stop short of ‘transforming the system atop which they stand.’”

To further complicate the moral evaluation of Bezos’ charitable actions, Senator Bernie Sanders recently claimed that Amazon paid no federal tax in 2017. This draws out the questions of responsibilities of corporations and businesses to contribute to society. While many of Bezos’ workers rely on government support programs, the corporation they work for does not support those programs.

In such circumstances, what obligations does the founder of the corporation, who can make nine billion dollars in two days, have to society, the government, and his workers? Bezos’ philanthropic move can be read as prioritizing private subsistence assistance, sidestepping government support that taxation would help, or directly supporting his employees by providing employment that would allow members of society to live without working multiple jobs and relying on government assistance.

With Bezos, the contrast between working conditions and philanthropic goals remains, but today it is less clear what the obligations of the wealthy are towards society en masse. The issue of what corporations owe to society is a complicated one in business ethics, for businesses are purportedly aimed at profit, not beneficence, but what obligations remain for the individuals that gain from the profits of the businesses like Bezos, Buffet, Musk, etc.?  When individuals have enough money to effectively run government programs of their own, while not paying taxes, the influence on society and the public good is significant.

When the public rely on the charitable feelings of the super-wealthy, and these wealthy individuals and their corporations can so easily side-step contributing to government programs via taxation, then problems of society become even more difficult to tackle. Public education, a long-term legislative log-jam, has attracted a number of uber wealthy, Bezos included. The water crisis in Flint, Michigan has been most attended to by private charities rather than the government. Elon Musk is currently addressing the problem along with celebrities such as Will Smith, the Game, and Eminem.

The obligations of individuals with wealth are complicated. As Giridharadas points out, the origin of one’s wealth is morally significant, and if there are massive inequalities between the wealthy and poor, or if the wealthy continue to rely on an economically exploitative system, it suggests there are real moral obligations on the wealthy. It may be wrong to remain that wealthy, to not take action using that wealth to adjust the system to produce less inequality, and to ensure that the production of wealth does not rely on unjust working conditions. The ways in which private philanthropy can undermine government efforts further complicates these questions — when should individuals step in where government fails and when should individuals work to adjust the way that government is being sensitive to the needs of society so that it won’t fail in the future?

Individuals with great wealth must grapple with these moral issues. The Giving Pledge is an overt statement that it does not make sense (potentially morally) for individuals to have as much money as those that top the Forbes list currently do. The amount of money that it would be permissible to keep, and what to do with the surplus, is difficult to determine, perhaps, but these observations put pressure on the complicity of the wealthy in an economic and political system that could be more morally permissible.