Isabella Weber and ‘Sellers Inflation’

Below is a very good video by Isabella Weber who argues that, in contrast to the traditional model of inflation caused by excessive consumer demand, the current inflation is driven by corporations raising prices beyond what is necessary to cover increased costs. Weber’s analysis came to light in an article she wrote in The Guardian newspaper which went viral. She was vilified by her colleagues in the economics field including Nobel prize winner Paul Krugman who called her ‘truly stupid’. However her analysis, once considered radical, is now being acknowledged by mainstream institutions, including the Federal Reserve and the European Central Bank.

Weber stated in the article that the focus ought to be on sellers, not buyers. This “sellers’ inflation” is possible due to pandemic-related supply chain disruptions that have created temporary monopolies in various sectors, allowing companies to increase prices without fear of losing market share. Weber’s initial proposal for price controls was met with harsh criticism, particularly her suggestion to regulate natural gas prices in Germany.

• However, after Russia’s invasion of Ukraine further disrupted energy markets, Germany implemented a version of Weber’s price control plan, which appears to have helped lower inflation.

• Weber’s ideas have influenced a shift away from relying solely on a central bank to manage the economy through interest rates. Instead, policymakers are increasingly embracing targeted interventions, such as price controls on essential commodities and investments in strategic industries.

• She suggests that this new approach represents a “deliberate demotion of the market in favour of public economic management” and reflects a broader acceptance of economic policies that prioritise public goals over market forces. Examples of this shift include the G-7 price cap on Russian oil, the Biden administration’s efforts to stabilise energy prices and promote green energy, and proposals to strengthen price-gouging regulations.

• Weber emphasises the importance of developing economic policies that address the root causes of inflation, rather than simply relying on traditional approaches like raising interest rates, which can lead to unemployment and economic instability.

Source: The New Yorker: What if We’re Thinking About Inflation All Wrong? By Zachary Carter June 6, 2023

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