Power dynamics, the free market, and inflation

Spencer over at Angry Bear notes that inflationary pressures were driving prices higher in Asia and correctly pointed out that it was showing up in US import prices. Yet, he notes in a puzzled voice, U.S. retail prices are not rising. What's the deal with that, he asks.

One of the interesting areas in which anarchy theorists have been operating is that of power dynamics. Basically, when you have a huge monolith which dominates your sales, like Wal-Mart, it has a higher place on the power spectrum compared to, say, the individual owner-operator delivering a widget to Wal-Mart Store 101 or an individual wholesaler importing a widget to sell to Wal-Mart. Thus things like fuel price increases or source widget price increases will tend to get pushed down upon that individual owner-operator or importer until he is bleeding red ink and eventually either forced to cease operation or Wal-Mart notices that having him cease operation is not in their best interests and beneficiently gives him a pay raise just large enough to keep him in thrall to them. In anarchy theory, the most powerful entity in any economic relationship will be the last to feel any economic distress. All economic distress will be forced down upon those lower in the power hierarchy first.

Now, the solution the anarchists recommend is of course the abolition of hierarchical systems that give rise to power inequalities. Given that monkeys are hierarchical animals and humans are monkeys with bad hair and delusions of grandeur, that seems as sensible as prohibiting fish from swimming. It does give lie to the traditional neoliberal conception of economic passthrough though, the same misconception that is also used against things like, e.g., mandating that employers provide health insurance to their employees, minimum wages, etc. Said misconception being that wages and prices are set by supply and demand. That utterly ignores the power relationships involved, which would argue that a multi-billion dollar corporation which controls a quarter of the retail sales in America has the ability to dictate terms to individually powerless employees because it also has the power to pretty much dictate terms to the rest of retailers (the other retailers can't raise their wages or provide insurance because then they can't compete with Wal-mart anymore). In other words, the most powerful entity in a sector has the ability to set wages and benefits in a way independent of the market for labor if it controls a sufficiently large amount of the sector, assuming a sufficient supply of workers in the sector (in areas where workers are scarce -- such as, say, competent computer geeks -- this is not as feasible). This is not something that traditional supply-and-demand theorists want to consider, because it throws a monkey wrench into their pie-in-the-sky silliness and, like all theorists, they prefer their theory to reality. So it goes...

-- Badtux the not-anarchist Penguin
(But always good to examine everybody's intellectual backing to see how it stands)

Cross-posted at the Medley