The U.S. Labor Department said Tuesday inflation in the United States rose to 8.5% in March — the highest in four decades. Oxfam warns that over 260 million people could be forced into extreme poverty this year by the pandemic and rising food and energy costs. For more on the growing inflation crisis, we speak with economist Jayati Ghosh, who says prices of essentials are soaring much higher than can be explained by oil prices and supply shortages alone, because of what she calls “feverish speculation” in financial markets and corporate profiteering. She also speaks about how the Global South sees the West’s response to the Russian invasion of Ukraine as deeply hypocritical when compared to the growing humanitarian crises in places like Yemen and Afghanistan, and calls on the International Monetary Fund to reverse practices of pushing austerity in less wealthy countries and instead focus on massive public spending to combat existential crises like inflation and climate change. Her recent article is titled “Putin’s War Is Damaging the Developing World.”
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, with Juan González.
We are now seeing the rising prices of energy and food all over the globe. The U.S. Labor Department said Tuesday inflation in the United States rose by 8.5% in March — the highest it’s been in 40 years. Oxfam warns that over 260 million people could fall into extreme poverty this year, due to rising food and energy costs and the pandemic. Oxfam International said, quote, “Without immediate radical action, we could be witnessing the most profound collapse of humanity into extreme poverty and suffering in memory.”
For more, we’re joined by Jayati Ghosh, economics professor at the University of Massachusetts Amherst, previously an economics professor at Jawaharlal Nehru University in New Delhi, India, where she taught for 35 years, just appointed to the U.N. Advisory Board for Effective Multilateralism. Recent article on the increase in commodity prices following the Russian invasion of Ukraine is headlined “Putin’s War Is Damaging the Developing World.”
We are glad to have you as our guest. Democracy Now! Professor Ghosh, there’s a lot of news in America about inflation. Yesterday’s numbers were the worst in 40-years. It would be great if you could talk about it and then place it in context of the rest of the world.
JAYATI GHOSH: Yes, absolutely. There’s no doubt that it is high inflation, and it’s much higher inflation, I think, than many people, including in the administration, expected. It’s driven really by the fuel prices. And food prices matter, but to a much much lesser extent in the U.S. It’s dominantly the price of oil that is driving this. There are also supply chain problems in smaller areas like automobiles and other products. This is called cost-push inflation by economists. It’s the rise in costs of fuel, which is something that is used in everything else. It’s used in the production of many, many other goods and services. It’s used in transport. And so it doesn’t just affect the prices at the pump, it actually affects all the other prices in the economy.
The problem is that then governments say, “Oh, well, what we have to do is to get the central bank to tighten monetary policy, to raise the interest rates.” That’s not the problem, because that’s not the solution. That doesn’t affect the cause of the inflation. In this case, you need to think of other options.
JUAN GONZÁLEZ: Which parts of the rising inflation or what percentage do you attribute to Russia’s invasion, and subsequent sanctions, and which part to structural problems in the world economy?
JAYATI GHOSH: This is a very interesting question, because we know that both these prices — food and fuel — were rising even before the Ukraine war. What followed was a dramatic and sharp increase in fuel prices, which is much higher than the increase we were already seeing. Before the Ukraine war, fuel prices accounted roughly 30% of the rise in U.S. inflation. Now it’s more like half of the proportion of inflation that it’s determining. The actual impact of inflation on supply means that prices have gone up more than you might expect.
It’s absolutely true that, you know, Russia is a major exporter of oil and natural gas. But, hey, its volumes of exports haven’t fallen that much. They’ve just been diverted to other countries. It’s also true that both Ukraine and Russia are major suppliers of food grain. Ukraine also produces oil seeds and wheat. They also supply fertilizer. All of these factors have an impact on global food production. However, the prices have risen far beyond what you would expect due to a decline in supply.
And that’s because there’s been very feverish speculative activity in what are called the commodity futures markets. These markets predict the price one, three, and six months in advance. These prices have gone crazy in the last six months due to speculative activity, and then a decline in them as they rush from one commodity to another. The current spot market price is also being affected by speculation on the futures markets.
JUAN GONZÁLEZ: There has been an economic effect on the Global South from inflation and, as you said, the after-effects of war. But there’s also been — and this hasn’t been noted too much in the media coverage in the West — a sharp divergence in public opinion in the Global South about this war versus the public opinion in the West. Countries like Indonesia, which is home to some of the most populous countries in the world, Pakistan and Brazil, China, have a much greater sympathy for the Russians than they are for Ukraine. This is certainly more than the West. I’m wondering why you think that is happening?
JAYATI GHOSH: Well, let me take your second question first. I think what is really striking — and I don’t people in the West realize it — is the extent to which the hypocrisy in the sort of moral double standards are evident in this Ukraine war. Yes, it is terrible. It is a brutal and unjustified invasion. People are being killed and suffering. However, Yemen has seen an increase in deaths in the past three months due to U.S.-provided arms and very brutal attacks. U.S. policy is causing children to starve in Yemen and Afghanistan. And so, you know, everyone else in the world is saying, “How come it’s only when there are white Europeans who are affected that you care at all?” I think the — you know, really, I don’t think people in the West realize the extent to which they have absolutely lost moral legitimacy in terms of the very, very different reaction they have exposed in this war to white European lives and all other lives in the rest of the world. This is not lost on anyone in the developing countries. There is a strong reaction.
This will have a wide range of consequences. It’s going to affect the possibilities for multilateralism. It’s going to affect whether G7 has any standing at all to ask countries to do anything. And it’s going to affect whether people go along with the U.S. and Europe in doing sanctions when the U.S. and Europe wants to do it, but not for other equally terrible acts that they themselves are party to. I believe that the West must wake up to the fact that their very limited view of morality and ethics has been damaged. The rest of the world is clearly aware of what is happening.
AMY GOODMAN: I’m wondering, Professor Ghosh, if you can talk about the actual corporations, if you could name names of the large corporations that are making a killing off of what’s happening right now, that are making huge profits. I mean, we know when it comes to, for example, gas, and many in the United States have asked — they would say, “Well, people are paying $5 or $6 because of the war, Russia’s war in Ukraine.” But it turns out that ExxonMobil and BP — all these oil companies are making more money right now than ever in their history. You can also talk about the same thing when it comes to inflation and food costs.
JAYATI GHOSH: This is the main issue. Companies see an increase in prices as a way to quickly make additional profits. They raise their prices higher than they should. So, yes, there is, as I have mentioned, this cost-push element, but what you’re also getting is profiteering, plain and simple. Companies in the oil and food sectors, as well as companies in many other sectors, are raising prices far more than is necessary to cover increased costs. And they can do this because there’s a whole atmosphere of inflation expectation. And this enables them to — there are no limits.
This is a time when you really need to have public policy that regulates companies like these. And it’s possible that governments can do it. Companies that are profiteering openly must be regulated. You need to regulate the prices of essentials. These prices will then be included in all other prices. One of those is fuel. It is essential that you ensure that prices are set and controlled. So, the notion of this free market is completely false, because these are big fat companies — oligopolies — that can control the market. You must ensure that prices are controlled by governments.
The same applies internationally. We are seeing the major players in agribusiness raise the prices of basic grains and food well beyond what is necessary to justify the increased costs. People in the developing world are already worse off than those in America and Europe. They already suffered the pandemic more severely due to their decline in employment, declining livelihoods, and falling wages. They haven’t had a recovery. Their governments haven’t had the money to spend, that has been spent in the U.S. and Europe. They are still at a far lower level of employment than they were before the pandemic. And now they’re facing these huge increases in food prices and fuel prices that really are just going to make massive increases in poverty and hunger globally.
We need to address the root cause of the problem. This is how prices are structured. Companies that profit from crisis situations can be allowed to continue doing so.
JUAN GONZÁLEZ: Talking of protests that have been developing, especially in the developing world. In Sri Lanka, there was a massive protest over the high cost of essential goods. On Tuesday, the country stopped paying its international debts, effectively defaulting. Do you see a possible debt crisis in the developing countries as a result these inflationary forces are causing?
JAYATI GHOSH: Yes, absolutely. This is something we predicted a year before the Ukraine war. The problem has been exacerbated by the Ukraine war. But it’s not just economists like me. The IMF has predicted this, that if you don’t do something about, first of all, the huge overhang of debt that already a lot of countries had, then the knee-jerk response of countries in the North, U.S. and Europe, to raise interest rates, so capital — all the capital comes back to these countries, and then you get massive volatility and capital flight from all the developing countries, you’re going to get massive debt crises. This is only the beginning. This is, if possible, the first step to the abyss.
AMY GOODMAN: I wanted to ask you about the inquiry that you’re taking part in today with Progressive International, which was founded by, among others, the independent Vermont Senator Bernie Sanders, as well as Yanis Varoufakis of Greece. Could you please talk about the inquiry into IMF and how that relates to what we’re talking about?
JAYATI GHOSH: You know, many people in this inquiry will be arguing that the IMF I was guilty of many sins of commission or omission. I think the sins of commission are very important, but they’re well known. Let me quickly highlight. Let me quickly highlight. IMF goes into countries that are in deep crisis, and says, “Cut public spending.” And it’s part of the way they are supposed to somehow bring these countries back into balance, by saying, “You reduce government spending, you impose austerity, and investors will feel more confident. Private investors will then come flocking in.” That rarely happens. This is only temporary. The problem becomes much, much worse.
There are many options for how to get the IMF has had a very double standard, again, in terms of the rich countries and the not-rich countries, the middle-income and low-income countries, because in the rich countries they say, “Yes, spend more. You must be countercyclical. You have to revive the economy.” In the middle- and low-income countries, they say, “Oh, you have to cut down on your spending, because you have to reduce your deficit. You have a lot of debt. You have to make sure you can somehow reduce that debt” — in the period of crisis. They then demand additional fees and commissions. Surcharges are imposed on countries that are least fortunate, which have to pay extra. IMF Loans for a longer term or take longer IMF This is absurd. It’s the IMF Profits made from a disaster in all these countries. These are the sins committed by commission. They are extremely serious and have had devastating effects all over the globe.
The sin of omission is, I would argue however, even more grave. The IMF The only multilateral agency that can handle global finance is the one we have today. It can also think of international financial arrangements to help with crises and to meet the challenges humanity faces. We don’t have any other structure. We now know, humanity. First, there was a pandemic. We know that there could well be more pandemics. There is also climate change, which we know is already upon us. This is affecting our agricultural supply, which affects coastal sea rises, and which is affecting livelihoods. This is causing already significant increase in environmental destruction, in hunger loss, in employment, displacement, and all sorts of other things.
You need to increase public spending. And the IMF This is the agency that can accomplish it. Is there anyone with the ambition to actually provide this minimum funding for the enormous climate challenges we face worldwide? And which, really, again, you can’t be nationalist about this. Climate doesn’t respect passports and visas. It’s not stopping to wait at the border. It’s going to affect everybody, if we don’t do something now. And the IMF has been remarkably unambitious, sluggish, I would say, really not doing the minimum that it’s supposed to do. It was established in the aftermath of the Second World War in a very different world. The U.S. can block everything and Europe controls 60% of the voting rights. But as a result, it really hasn’t moved to do the basic things that a multilateral organization that is in charge of global finance has to do — prevent private finance from —
JUAN GONZÁLEZ: And you were —
JAYATI GHOSH: — doing crazy — yes.
JUAN GONZÁLEZ: — talking about climate change. You mentioned climate change. How has the escalation of war affected efforts in different countries? Even in the United States, we’re seeing President Biden backtracking on some of his proposals in terms of reducing our carbon footprint. Could you speak about the effects of the war against climate change?
JAYATI GHOSH: It’s very unfortunate that the Ukraine war has shown that whenever there is any immediate crisis, governments across the world are going to not just backtrack, they’re going to reverse on all of the commitments in terms of carbon emissions, in terms of moving to greener energy, in terms of everything. So, even a war like this, which is, let’s face it, a limited war in one part of Europe, is causing everyone in the world to completely forget about all of their major promises and strategies, some countries going back to coal, some countries emphasizing the dirtier kinds of fuel, forgetting about all of the attempts — instead of saying, “Well, look, now let’s actually push for greener energy; because oil prices are high, let’s push for greener energy,” they’re saying, “No, no, quickly, grab all the possibilities for the dirtiest energy possible.” It’s the United States. It’s Europe. It’s India. It’s China. It’s everyone in the world. No country has actually — or, very few countries have actually said, “Let’s use this as an opportunity to move much more directly into green energy sources with public funding,” which is really what should be the response. This is terrifying, because it means today it’s the world, tomorrow it can be anything else. Governments are not committed. They’re not seeing the writing on the wall. They’re not recognizing the clear and present danger of a climate catastrophe.
AMY GOODMAN: Jayati Ghosh is an economics professor at University of Massachusetts Amherst. We want to thank her for being with us. Her recent article, we’ll link to, following the Russian invasion of Ukraine, headlined “Putin’s War Is Damaging the Developing World.”
Next up, speaking of economics, we get an update from the growing Starbucks union drive that’s spread to 200 stores in 30 states. We’ll be back in 30 seconds.