Central Bank Economy Opinion Yanis Varoufakis

Who Is to Blame for Inflation? The Power Brokers of Capitalism

A half-century long power play, led by corporations, Wall Street, governments, and central banks, has gone badly wrong.
To save not just the bankers but also the labyrinth itself, central bankers stepped in to replace the financiers’ pyramids with public money. (Photo: Getty Images/Javier Ghersi)

By Yanis Varoufakis / Project Syndicate

The blame game over surging prices is on. Was it too much central-bank money being pumped out for too long that caused inflation to take off? Was it China, where most physical production had moved before the pandemic locked down the country and disrupted global supply chains? Was it Russia, whose invasion of Ukraine took a large chunk out of the global supply of gas, oil, grains, and fertilizers? Was it some surreptitious shift from pre-pandemic austerity to unrestricted fiscal largesse?

The answer is one that test-takers never encounter: All of the above and none of the above.

Pivotal economic crises frequently evoke multiple explanations that are all correct while missing the point. When Wall Street collapsed in 2008, triggering the global Great Recession, various explanations were offered: regulatory capture by financiers who had replaced industrialists in the capitalist pecking order; a cultural proclivity toward risky finance; failure by politicians and economists to distinguish between a new paradigm and a massive bubble; and other theories, too. All were valid, but none went to the heart of the matter.

The same thing is true today. The “we told you so” monetarists, who have been predicting high inflation ever since central banks massively expanded their balance sheets in 2008, remind me of the joy felt that year by leftists (like me) who consistently “predict” capitalism’s near-death —akin to a stopped clock that is right twice a day. Sure enough, by creating huge overdrafts for the bankers in the false hope that the money would trickle down to the real economy, central banks caused epic asset-price inflation (booming equity and housing markets, the crypto craze, and more).

But the monetarist story cannot explain why the major central banks failed from 2009 to 2020 even to boost the quantity of money circulating in the real economy, let alone push consumer price inflation up to their 2% target. Something else must have triggered inflation.

The interruption of China-centered supply chains clearly played a significant role, as did Russia’s invasion of Ukraine. But neither factor explains Western capitalism’s abrupt “regime change” from prevailing deflation to its opposite: all prices taking off simultaneously. This would require wage inflation to overtake price inflation, thus causing a self-perpetuating spiral, with wage rises feeding back into further price hikes which, in turn, cause wages to rise again, ad infinitum. Only then would it be reasonable for central bankers to demand that workers “take one for the team” and refrain from seeking higher wage settlements.

But, today, demanding that workers forgo wage gains are absurd. All the evidence suggests that, unlike in the 1970s, wages are rising much more slowly than prices, and yet the increase in prices is not just continuing but accelerating.

So, what is really going on? My answer: A half-century long power play, led by corporations, Wall Street, governments, and central banks, has gone badly wrong. As a result, the West’s authorities now face an impossible choice: Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.

For 50 years, the US economy has sustained the net exports of Europe, Japan, South Korea, then China and other emerging economies, while the lion’s share of those foreigners’ profits rushed to Wall Street in search of higher returns. On the back of this tsunami of capital heading for America, the financiers were building pyramids of private money (such as options and derivatives) to fund the corporations building up a global labyrinth of ports, ships, warehouses, storage yards, and road and rail transport. When the crash of 2008 burned down these pyramids, the whole financialized labyrinth of global just-in-time supply chains was imperiled.

To save not just the bankers but also the labyrinth itself, central bankers stepped in to replace the financiers’ pyramids with public money. Meanwhile, governments were cutting public expenditure, jobs, and services. It was nothing short of lavish socialism for capital and harsh austerity for labor. Wages shrunk, and prices and profits were stagnant, but the price of assets purchased by the rich (and thus their wealth) skyrocketed. Thus, investment (relative to available cash) dropped to an all-time low, capacity shrunk, market power boomed, and capitalists became both richer and more reliant on central-bank money than ever.

It was a new power game. The traditional struggle between capital and labor to increase their respective shares of total income through mark-ups and wage increases continued but was no longer the source of most new wealth. After 2008, universal austerity yielded low investment (money demand), which, combined with plentiful central-bank liquidity (money supply), kept the price of money (interest rates) close to zero. With productive capacity (even new housing) on the wane, good jobs scarce, and wages stagnant, wealth triumphed in equity and real-estate markets, which had decoupled from the real economy.

Then came the pandemic, which changed one big thing: Western governments were forced to channel some of the new rivers of central-bank money to the locked-down masses within economies that, over the decades, had depleted their capacity to produce stuff and were now facing busted supply chains to boot. As the locked-down multitudes spent some of their furlough money on scarce imports, prices began to rise. Corporations with great paper wealth responded by exploiting their immense market power (yielded by their shrunken productive capacity) to push prices through the roof.

After two decades of a central-bank-supported bonanza of soaring asset prices and rising corporate debt, a little price inflation was all it took to end the power game that shaped the post-2008 world in the image of a revived ruling class. So, what happens now?

Probably nothing good. To stabilize the economy, the authorities first need to end the exorbitant power bestowed upon the very few by a political process of paper wealth and cheap debt creation. But the few will not surrender power without a struggle, even if it means going down in flames with society in tow.

Yanis Varoufakis
Yanis Varoufakis

Yanis Varoufakis is a Greek economist and politician. A former academic, he served as the Greek Minister of Finance from January to July 2015 under Prime Minister Alexis Tsipras. He has been Secretary-General of MeRA25, the political party he founded in 2018.


  1. This all sounds spot on to me. Can we blame Milton Friedman for issuing an 11th Commandment that there is only one important corporate metric, stockholder equity.

    There is no corporate responsibility felt for a society that passed laws to permit corporate existence and whose taxpayers built a massive infrastructure allow corporations to flourish—- and a military to defend them.

    For decades the profits due to workers’ increase in productivity has gone not to the workers but to the stockholders. The right war against Unions explains a lot of that.

    Then we have had a corporate friendly Supreme Court that has granted a paper entity personhood and constitutional rights and the right to free speech in the form of dollars to influence government and our elections.

    What could go wrong?

  2. Consumers a re legally and lawfully free to transact with their own sovereign debt-free money to drive real economic growth and thus allow interest rates to safely climb without an economic crash or even a recession.

    The introduction of the debt-free medium has to have an organic rate of introduction from the bottom-up, consumer driven. Because of this process that eliminates a debt bubble POP in favor of a safe and sane leak, a top-down introduction by fiat is strictly forbidden.

    It’s begun.

  3. Yanis Varoufakis is one of the most important voices in economics and social justice extant today. The birth of financialization and US imperialism after WW2 began with the rigged nomination of Harry S. Truman, a Democratic “machine politician” who replaced FDR’s choice, Henry A. Wallace, in 1944. The US and the world would have been a much better and safer place had not Democratic party bosses blocked Wallace’s nomination on July 20, 1944. To paraphrase “The Godfather”, “It was Truman all along.” https://thegalareport.substack.com/p/the-birth-of-the-deep-state?r=79z6p&s=w&utm_campaign=post&utm_medium=web

  4. Brilliant analytical mind, right?

    so what is that?

    “Was it Russia, whose invasion of Ukraine took a large chunk out of the global supply of gas, oil, grains, and fertilizers? “

    No genius. Russian fighting Nazis who murdered tens of thousands of fellow ethnic Russians in Ukraine has nothing to do with inflation.

    Russia sells her grains, oil and gas like crazy for Rubles to anyone who want it including foaming vicious western attack dogs of NATO and EU and her success among many structural causes like unpayable US national and private debt contributes to precipitous global petrodollar collapse.

    In four months Ruble turned PetroRuble came down from 150 Rb/$ catastrophic weakness to historically unprecedented strength of 53 Rb/$ as of yesterday with Russia’s Central back interest rates returning to pre war levels and is going down to… further weaken soaring Ruble.

    Within Russia Ruble came up to shocking 35-40 Rb/$ as Russians are dumping dollar as useless, can’t buy anything with that junk.

    If China did what Russia did and demand Yuan payments Yuan would go to parity with dollar almost overnight.

    They won’t but Western “geniuses” like Varoufakis and neoliberal gangs he seems to have joined know that any similar sanctions against China means complete collapse of dollar and all controlled by dollar Western currencies.

    BTY What kind of loaded and preposterous question implying that of Russia caused inflation is that.

    I may as well ask Varoufakis how often he beats his wife who then shops her sores and frustration away causing huge inflation.

    It is insulting to our intelligence and any objective debate to hear such a crap from supposed expert.

    If he can’t figure out the truth about that then he just shows himself as a cheap opportunist and political hack peddling propaganda lies.

    The hard fact is that Russia did not take any chunk of global supplies of commodities .

    It was deliberate act of the West and a tool of unprecedented but utterly failed all out economic war against Russian people. It turned out to have been self defeating nonsense that hit hard people in the west who are about to be starved and frozen this winter while their elites are destroying their countries.

    I suspect that it was the real goal of all of that all along.

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