this post was submitted on 30 Nov 2025
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Chapotraphouse
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It’s not wrong that deflation is a much more dangerous situation than inflation. China and Japan have been going through a deflationary spiral, and it’s been dragging their economies down. Hence why the governments in China and Japan have been desperately trying to boost consumption to get into the inflation zone.
The problem with the US and Western neoliberal economies is that the wages are not rising faster than the inflation, as the wealth has been disproportionately concentrated at the top 1%, and this places a lot of financial burden on the working class.
This leads to another fundamental problem: if wages are being raised, how do you stop the wage-price spiral, where the rising wages also lead to an inflationary spiral?
The failure of the Fordist-Keynesian economists to stop the wage-price spiral in the 1970s directly led to the rise of neoliberalism under Thatcherism in the UK, and Reaganism in the US: if rising wages lead to uncontrolled inflation, then the only way (according to the neoliberals) to stop inflation is to crush the trade union movements and stop their wages from being raised.
Stalin’s USSR (1929-1955) had the only economic model in practice that I know of that succeeded in solving the wage-price spiral problem (wage increase without inflation), which gave support to the revolutionary contribution of Modern Monetary Theory (proposed 70 years later) in stopping inflation: the price anchor mechanism through jobs guarantee. Any other form of trying to control inflation, such as price controls, almost always end in failure.
So, it’s not wrong to say that deflation is worse than inflation. In fact, you really do not want to live in a deflationary economy. The question is what sort of economic policies you have to enact in order to solve these problems, and that requires an understanding of how fiscal policy and the monetary system interact within an economy, for which the neoclassical economists (whose theory justifies neoliberalism) have no answer for, so the way out is to crush the worker’s wages from rising and create an unemployment buffer to stop inflation.
The so-called "wage-price spiral" is bad economics not materialist analysis. It has been used by capitalists to justify not raising wages since Marx's time. Marx literally wrote Wages, Prices, and Profits to refute it and he further elaborates on these ideas in Capital Vol 2. Modern economists carry water for the capitalists in every argument they make. They literally invented neo-classical economics to refute Marx for being CORRECT. If the tea-leaf readers and bone throwers of the capitalist class are telling you its bad, it means its bad for capitalists NOT workers. Surprised to see anyone on here regurgitate capitalist propaganda let alone someone who has so much knowledge of theory.
Marx made important contributions to inflation theory but remember that he wrote Wages, Prices and Profits in the 1860s, when the world was still in the gold standard era i.e. a fixed exchange rate regime that exerted a natural deflationary force to the economy.
Marxist theory of inflation has developed much further in the hundred years since. Robert Rowthorn’s conflict theory in the 1980s is a much better representation of inflation in a modern economy, which took into account of endogenous money supply, the conflicting force between firm’s mark-up profit and leverage strength of the union in pushing for real wage increase, the central bank setting interest rates, and most importantly, the collapse of the Bretton Woods causing the natural deflationary force of the fixed exchange rate regime to be lifted and made the Keynesians lost control of the inflationary spiral.
That’s when neoliberals came in and brutally crush the unions.
I respect you've spent a lot of time in the shadow realm of modern economics and I understand that finance capital has more ways to punish workers. This, however, is not a refute on Marx's arguments against the so called wage-price spiral. Any wage increase won by the working class is a direct benefit to the working class. Saying otherwise only serves the capitalists and leads to to why the US no longer makes economy cars and affordable housing. Deflation, wage-price spirals, and every other argument as to why wages can't increase and prices can't fall is NOT for the benefit of the working class.
Two different things here.
First, wage-price spiral is not a problem until you have full employment and all resource utilization is fully occupied. In that case, GDP can only be driven by inflation. Strong unions can push through real wage increase and cut into the capitalist profit, which was why the UK went into an inflationary spiral as it did in the 1970s because the capitalists did not want to give up their profit. The Keynesians did not have an answer for that, hence the neoliberals came in and crushed the workers unions.
Second, I agree with you that under current neoliberal system, where full employment is not reached, there won’t be wage-price spiral. Hence, you won’t find it in the IMF study that Roberts quoted.
However, for any socialist who is serious about bringing full employment for the economy to ensure the prosperity of the working class, you cannot avoid this problem. As I already presented, you either go with Stalin’s mechanism or the MMT price anchor mechanism.
If you ignore this problem, you WILL get inflationary spiral as the Keynesians did, and the next thing you know, your government is overthrown. Again, ignore this at your own peril. So many left wing governments continue to regurgitate neoliberal model and see how they end up.
Any serious socialist would not be using capitalist economics and markets to determine prices.
Tell that to the Soviet and Chinese economists and all the Marxist economists.
Would if I could, but we've got the benefit of hindsight and modern computing. Not sure which Marxist economists you are referring to, but if they are reinforcing capitalist economic propositions they should be discarded. The UK could have gone another way during the inflation of the 1970s, but the same old tired nonsense was wheeled out and we got the old Thatcher classic "There is no alternative."
Sorry to interrupt, just want to say I love your username.