Today’s urgent challenges, inequality, deprivation, marginalization, mobility, housing, ecological, and care crises, cannot be addressed through a narrow conception of markets. These are phenomena that unfold over time and in contexts (processes). They are shaped by power, subordination, vested interests, and even predation (hierarchies of domination). They affect people’s bodies, lives, communities, and ecosystems (provisioning and deprivations of life).

 SturgTo address the seriousness of current realities and to make sense of multidimensional crises, economics needs to build on broader and deeper foundations. Instead of organizing analysis around machine-like conceptions of individual and collective interactions, and universalizing behavior and goals, three concepts serve as a shared orientation towards addressing system-wide economic problems: processes, provisioning for life, and hierarchies of domination.

1. Processes. Economies are ongoing processes unfolding in historical time with cumulative results and harms.
2. Provisioning. The economy is a system of social provisioning - how societies sustain and deprive life.
3. Hierarchies. Economic systems are structured by hierarchies that shape value, power, and distribution of means to life, knowledge, incomes, and wealth.

Processes are not mechanisms or subjective complexities. Provisioning is not just about markets, exchange, and scarcity choices. Hierarchies are not only unequal outcomes or conflicts resolved in strategic games.

These concepts reflect a long tradition in political economy and continue to animate various strands of contemporary economic research, often broadly referred to as “heterodox economics”.

On the other hand, a supply-demand mechanistic interaction describes aspects of markets but falls short as a foundation for a theory of distribution and for explaining the actual conditions of economic life. Further, reducing the economy to an exchange-based choice and strategic games that resolve narrowly construed conflicts molds a narrow scope and a shallow view of systems and economic relations.

1. The Economy as a Process of Life, not Mechanisms

Thinking in terms of unfolding process means recognizing two essential features of economic life: historical emergence, cumulative causation, and impacts over time. Both entail recognizing the centrality of bodies and ecosystems in analyzing economic activities and outcomes.

Historical emergence: Economic activities' outcomes and phenomena are products of particular histories and social organization. Also, it takes time to sustain lives through care and to develop resources and (re)build economies and networks.

Cumulative causation and effects: Economic decisions and outcomes build on one another in a cumulative manner (snowballing, positive feedback, systemic effects). There is also irreversibility in living systems, such as in the impacts of economic outcomes on human bodies and lives. Environmental degradation, lost skills from long-term unemployment, depleted savings from lost income, or chronic illness caused by economic stress cannot be entirely undone.

Consequently, conceptions of equilibrating and balancing markets, and of individual and group strategic conflict resolution, exclude crucial aspects of economies. For example, access to essentials like housing cannot be fully addressed by re-balancing supply when there are cumulative effects of social stratification and unequal incomes and wealth. Instead, opening economic analysis leads to a multitude of actions, rather than extrapolating on one aspect of a problem.

2. The Economy as Social Provisioning: Sustaining and Depriving Lives

The economy is an evolving set of social processes through which societies support populations, but also limits the means of living and institutionalizes enduring processes of deprivation. Viewing the economy as a system of social provisioning has three implications.

First, it bases the analysis of the economy on society and nature. Production, care, distribution, consumption, and development of resources and tools are socially organized, dependent on, and impactful to ecosystems. This embeddedness has a broader meaning than just resolving conflicts through individual choices and collective norms. This is evident in long-term processes such as oppression, care provision, and environmental degradation.

Second, the concept of social provisioning broadens what counts as economic activity to include activities outside markets, such as unpaid care and community work. Care is the most basic economic activity, essential to any economy's functioning. It appears in many forms and is provided in various ways. In any case, care is unquestionably more important to economic life and produces more information in the shared pool of knowledge than, for example, asset trading or gambling in prediction markets. Still, care as an economic activity has long been neglected in economics.

Third, the social provisioning view of the economy avoids mixing private, public, and community-based provision. This means that these economic activities are recognized and appreciated as being driven by different logic, goals, and measures of effectiveness

In this broader view of the economy, market exchange is just one type of economic relationship. Other diverse economic interactions across areas of life include gift-giving, reciprocity, obligation, sacrifice, tribute, and debt, which people experience and rely on in their everyday lives.

This broader perspective also shifts economic priorities. Instead of framing most questions around how to allocate fixed resources, more systemic questions emerge: What hinders the development and availability of resources? What are the impacts on ecosystems? Is care adequately supported? How can we reduce deprivation and expand human capabilities, community strength, and autonomy? How do we live within ecosystems and act in ways that honor humanity and everyone's essential needs? Are resources being directed toward long-term well-being? What does a democratic organization of work look like? How can we achieve democratic environmental adaptation?

3. Hierarchies and Powers

Economic systems are not neutral or harmonious spaces where everyone participates equally by exchanging their “endowed factors” through choices. Instead, they are organized by hierarchies of class, race, gender, nationality, and ownership, which influence who benefits, who has mobility, who lacks autonomy, who bears risks and how, who participates, and whose work and contributions are valued.

These hierarchies are embedded in institutions and everyday practices, as well as in individual behavior and decision-making. They influence wages, occupational status, access to credit, exposure to environmental harm, and political voice. They also contribute to cultural ideas about worth, wealth, productivity, belonging, efficiency, and success.

Social hierarchies form as economies grow capable of producing more than needed for basic survival, creating a surplus. Hierarchies of domination get reinforced through ongoing processes such as invidious distinction (acting out of a sense of superiority), centralization of decision-making, violence, exploitation, surveillance, ceremonial authority (mis-attribution or over-attribution of value), and ideology. These hierarchies influence not only income distribution but also dignity, safety, access to education, and opportunities. Therefore, examining and challenging the endurance of hierarchies of dominance is at the very heart of relevant economics.

While hierarchies entail the exercise of power, power is not solely about domination and subordination. Power also pertains to (collectively) challenging hierarchical processes and the effects of hierarchy-based economic decisions and outcomes that hinder democracy, human development, and full participation in the economy.

Why These Concepts Matter, Now?

It is hard to deny that today’s crises are deeply interconnected. Environmental, financial, employment, energy, infrastructure, social, housing, political, displacement, health, and care provision cannot be tackled alone.

Analyzing these problems requires: 1) a process perspective to understand how patterns develop and reinforce themselves; 2) a provisioning perspective to assess whether economic activity sustains life and ecosystems or favors vested interests; 3) a focus on hierarchies to see how benefits and burdens are distributed and to shift powers away from market central planning and concentration of economic decision-making.

We face the increasing centralization of market activities and decision-making due to the concentration of production, retail, information, technology, financial markets, and wealth, as well as to corporate-style governance and the growing fragmentation of nature. This means exponential growth in private central planning of production, consumption, recreation, and other areas of economic life, such as education and citizenship.

Reconnecting economics with the questions that originally motivated political economy - the system of production and distribution, and socialized individuals - is crucial for addressing global and social stratification, environmental degradation, authoritarian pressures, and a changing technological, business, and public landscapes.

Economic language is often used loosely in public discourse and even in academic discussions and publications. Sometimes, economic terms use the same or similar words but refer to different conceptual frameworks. For this reason, clarity in conceptual focus avoids confusion about the scope, meanings, and goals of economics and counteracts demagogy.

Focusing economics around processes, social provisioning, and hierarchies does not eliminate theoretical disagreements and variation in economic analyses, which is what inquiry is about after all.

Many economists work with all or some of those concepts in mind. However, there needs to be greater conceptual clarity in discussions and a broader shared orientation towards living systems, rather than doctrinal, mechanical premises that are not relevant or helpful for the lives of most people.

Without clear conceptual reframing and understanding, many economic analyses and recommendations would keep justifying harmful outcomes and providing underwhelming or even fake solutions.

We need to treat economic outcomes as historical artifacts of social systems structured by entrenched hierarchies that impede democratic economic life. We cannot address persistent harmful trends with narrow or trivializing economic foundations.

Suggested Readings: 

Routledge Handbook of Heterodox Economics, 2nd edition, edited by Tae-Hee Jo, Lynne Chester, and Carlo D’Ippoliti. London and New York: Routledge. 2026.
 
“In Memoriam: Robert L Heilbroner - the Continuing Relevance of The Worldly Philosophy” by Mathew Forstater. Economic Issues, Vol. 10, Part 1, March 2005.
 
“Social Provisioning as a Starting Point for Feminist Economics” by Marilyn Power. Feminist Economics, vol. 10, no. 3, 2004, pp. 3-21. https://doi.org/10.1080/1354570042000267608
 
Doughnut Economics – 7 Ways to Think Like a 21st Century Economist, by Kate Raworth. Chelsea Green Publishing. 2017.

“What Are the Questions?” by Joan Robinson.  Journal of Economic Literature, vol. 15, no. 4, 1977, pp. 1318–39.

Institutional Economics: Theory & Practice by James Sturgeon. Polity. 2025

“Processes, Social Provisioning, and Invidious Distinction: Central Concepts in Heterodox Economics” by Zdravka Todorova. Brazilian Keynesian Review (forthcoming, 2026).

The Theory of the Leisure Class by Thorstein Veblen. 1899. 
 

Inflation is not just a matter of disequilibrium in supply and demand and too much money in the economy. There are structural processes that drive the price level changes over time. The effects of inflationary pressures are exacerbated by the restrictive and unequal provision of necessities, which explains affordability crises.

1. Structural Processes of Inflation
Technological change, distribution, and environmental factors structure the economy and build inflationary tendencies simultaneously through supply and demand. It is more helpful to think about structural processes rather than supply and demand factors of inflation.

1.1. Technology of Production and Consumption
Accelerating technological change deserves more attention as a potential driver of inflationary pressures in the future. There are false hopes that new technology would be a controlling factor for inflationary pressures. Technological improvements increase labor productivity and functional operation and reduce costs for businesses. This does not mean lower price levels.

Presently there are wide efforts and significant resources directed towards investment in capacity expansion of the production of semiconductors, batteries, and related products. These are costly and long-term projects undertaken within multiple economies. Expensive capital-intensive investment in capacity expansion for high-tech production needs to be validated - expected to be paid for and to generate profits in the long run. This will come out in the form of price level increases.

Government expenditures are only a validating fraction of the planned capacity expenditure and flowing private investment into semiconductors, batteries, energy, and mining.

Investment costs are validated also by building expectations for expanded and restructured future demand for end products across all spheres of society and geographies. Technological advancement and capacity building develop together with plans for transformation in the consumption process.

Consumption, production, and social services are being strategically restructured so that planned capacity-building expenditures and finance are underwritten by assurances of wide and reasonably stable future demand.

Restructuring of demand does not only pertain to a greater level and scope but also to the method or technology of consumption. What would go in the consumption basket and how would people consume and engage in mobility, education, recreation, and all social activities?

Even if the prices of some devices go down, other more expensive products enter non-discretionary consumption. Other goods like cars and housing would continue to be more expensive.

In the changing technology of consumption, there will be moving away from ownership of durable goods (if you will, the means of consumption) towards renting and subscription to services. This allows continuity in locking in revenue streams, pricing power, and new markets, and helps companies through business cycle fluctuations.

1.2. Distribution
Higher computational requirements would lead to the consolidation of products into centralized data centers that enable remote access, upgrades, and continuity of consumer use. This would expand the supply of incremental services and consumer financial commitments. Supplementing high-tech devices and durable goods with service offerings based on subscription delivery and upgrades is an example of creating a revenue stream.

This business model would likely create a greater susceptibility to pricing strategies that rely on increasing mark-ups, as well as on covering costs including capacity expansion. Business concentration and market power would be a factor, but so would the change in consumption baskets of highly capital-intensive non-discretionary goods and services and dependencies in daily activities.

In other words, I am arguing that occasions of “sellers’ inflation” that were described by Weber and Wasner (2023), as observed during the pandemic, could be exacerbated by this change in the technology of consumption.

This is because workers’ living costs would be increasingly tied to consuming and using high-tech goods and services. Of importance here is that this happens under restrictive conditions of access to basics such as healthcare, nutrition, care, housing, and opportunities for wealth-building.

In the face of automation, two likely sources of dependency could finance or fund the data-generating household consumption – consumer borrowing and government transfers for basic incomes. Both will support the concentrating business and finance enterprise and wealth and will tie down people. In this scenario, displaced workers likely will be something like influencers for AI models.

Controlling inflation then is not about cooling cyclical aggregate demand exceeding supply. It is about exercising democratic powers over market conditions and ownership, under which new streams of revenues in profit and rents are created. 

1.3. Environment and Land
Environmental disruptions have become structural factors of inflation for globalized production, as explained by Alla Semenova (2023). Increased heatwaves, droughts, floods, soil erosion, water shortages, and pollution are not occasional disaster events. They are expected to continue contributing to shortages, uncertainty, and higher costs, as evidenced in multiple key sectors.

To connect this to technological change, building capacity in high-tech production has a lengthy timeline and is likely to be disrupted by environmental and geopolitical factors. This increases the expected costs of capacity expansion in semiconductor, battery, and other high-tech production. and reinforces greenfield investment in multiple regions.

High-tech expansion depends on the significant growth of minerals extraction the expansion of the metals and mining sectors, and the extraction of critical minerals and metals, including lithium, nickel, and cobalt needed in battery production. Ecological and social disruptions inevitably follow land usage and fragmentation, waste processing, and absorption.

Global reorganization of land use, work, and disruption of culture and habitats would accommodate the desire for capacity building of the new machine process. In that, absentee land ownership and new rent income streams are of increasing importance, not only in food and energy production but also for expanding high-tech production.
 
2. The Strings of Provision
These pressures highlight the importance of the existing systems of provisioning for necessities. Food, housing, utilities, mobility, health, care, wealth building, and retirement are vital areas. How are those systems of provision affected by inflationary pressures, and to what extent does their current organization help or exacerbate affordability?
 
2.1. Food and Water Systems
A more concentrated food system could experience strain because of environmental deterioration, wars, and rising costs of production, including energy, irrigation, fertilizers, and pesticides.

In addition, there is more competition for water and land because of high-tech production and mining of lithium and other resources to expand battery production. Semiconductor production requires clean water and large spaces.  Making space for industrial mega-sites potentially could help restrict farmland.
Agriculture will become even more capital-intensive, with greater reliance on computation power and data. As this might enable more intensive production, it would also contribute to the trend of greater control and centralization of food systems and land.

The strains of this centralization are in addition to the destruction of people, their reproduction, housing, and lands, and the degradation of ecosystems through war and authoritarianism.

2.2. Housing
In the USA, housing wealth – the market value of a home minus outstanding loans secured by the home – grew between 2019 and 2022 (Alandagady et. al. 2023). However, transitioning from rent into homeownership is more difficult with the higher costs of homeownership, including higher mortgage rates.

Investors have been buying houses – presently representing 18.5% of US sold homes, and 26 % of the lowest-cost single homes (Katz, 2024). Most of these investments tend to be in inexpensive single-family starter homes in growing US metro areas that could be rented out, as homeownership has become more unaffordable for new buyers.

Meanwhile, 49% of renter-occupied units in 2021 spent 30 % or more for housing out of their budgets. Even small increases in expenditures and prices can contribute to household budget fragility or housing insecurity. No state has an adequate supply of rental housing affordable and available for extremely low-income households, who account for 25 % of renter households in the USA (National Low Income Housing Coalition, 2024).

Pressures on land values in areas that expect growth due to new industrial development would likely exacerbate the problem of housing availability, affordability, and housing wealth-building.
 
2.3. Utilities
Access to affordable quality housing is related to utility bills. Households who were energy insecure were billed $ 0.20 more per square foot than the national average. Energy insecurity is defined as receiving a disconnection notice, having reduced or forgone necessities to pay energy bills, keeping unsafe temperatures because of cost, or being unable to repair equipment because of cost (U.S. Energy Information Administration).

Higher energy costs for lower-income households are a function of rents, the quality of housing, insulation, and the efficiency of appliances, and are exacerbated by inflation. Energy price increases find people in housing conditions that are difficult to alter, especially at low levels of income. Utility costs affect health, and have a long-term impact on credit scores, moving into home ownership, and thus wealth-building.
 
2.4. Mobility
Similarly to housing, ownership will be less accessible, and more demand for the creation of rental markets.

US Households in the lowest income quintiles spent 30.2 % on transportation out of their after-tax income compared to 11 % of the highest income quintile in 2022 (Bureau of Transportation Statistics, 2022).

Car-dependent, commuting working households are affected not only by the price of fuel but also by the price of new and used cars and the increasing costs of their maintenance and insurance. This is not an issue that is going to be resolved through electric cars because of the price range.

Ownership of cars has become more expensive. Some factors are new built-in technology, costly repairs, software subscriptions, and upgrades, amid shrinking inventories of used cars.

Car ownership will continue to be costlier and the new business model of mobility will be restructured around rent and share. This demand will be created through investment and validating the capacity expansion discussed above. Eventually, this is to be facilitated by the implementation of connected and autonomous vehicles.

This transition away from private car ownership could also continue to restrict people’s mobility if affordable quality public transportation systems are not developed.
 
2.5. Care
Care is the core of the economy. Care is a social process that encompasses multiple paid and unpaid activities and interpersonal relations. For that reason, deprivations in care are multifaceted. For example, in addition to higher costs for paid care, unpaid care is impacted by the budgets and deprivations in necessities, as well as by available time.

One problem is the availability and affordability of childcare centers, particularly for infant and toddler care. The costs of childcare have become untenable for many households, while at the same time childcare providers are some of the lowest-paid workers (Landivar, 2023). Unavailability in lower-income neighborhoods also means more difficulty in access because of distance, transportation, cost, and less predictable work schedules.

There is a shortage of childcare centers and closures. Disruptions in the operation and availability of childcare centers have not recovered after the pandemic, but also this is the legacy of inequities and ignoring care as a macroeconomic policy issue.
 
2.6. Health
All of the above systems of provision directly factor into health. One issue is that in the USA healthcare insurance is largely tied to employment and occupational status. With technological job displacement, part-time work, and more informal, this is going to be even a bigger problem.

Deprivations and cost increases inhibit access to preventative healthcare. Prevention however, cannot be addressed only through access to electronic bio-monitoring – there needs to be access to actual treatments.

Public health vulnerabilities also compound when ecosystems are disrupted and people’s immunity is weak because of living conditions. As observed, in itself, the pandemic contributed to inflationary pressures. Factors reducing healthcare costs and improving health include environmental justice, ecosystem restoration, equitable housing and utilities, nutrition and clean water, quality care, public mobility, and access to nature and recreation (see Robinson et al. 2022).

All of those aspects of living conditions are impacted by racial and other injustices with long-lasting consequences (Townsley and Andres, 2021).
 
3. Beyond Strings of Provision

While the rate of inflation has decreased, the undertaken processes of investment and planned restructuring of consumption would bring new inflationary pressures. Those would be difficult to characterize as either supply or demand factors. It is not sufficient to fix the supply chains. Also households and social services are fundamentally limited in their ability to control costs.

It is a good idea to improve quality access to vital areas of economic life. Policy support for expanding care, housing, and nutrition is a positive move. There are too many deprivations that need to be addressed, and these would be worsening in the transition period of technological change.

Also, it is not at all clear that those deprivations will be addressed or won’t worsen when production and consumption restructure under the new business models and technology.

At the very least, each area of basic provision proactively needs public commitment to alternatives that are decentralized and democratic (rather than only technocratic and business-driven). Those additional alternatives need to be based on principles like food solidarity, participation, human rights, ecosystem restoration and justice, care, home- and job guarantee through public service, and common public spaces and mobility.

Cite this Blog:

Todorova, Zdravka. (April 6, 2024). “Structural Processes of Inflation and Restrictive Strings of Provision.” Econ Notes & Knots, Blog # 3, www.ztodorova.net

References

Aladangady, Aditya, Andrew C. Chang, and Jacob Krimmel et al. Oct. 18, 2023. “Greater Wealth, Greater Uncertainty: Changes in Racial Inequality in the Survey of Consumer Finances” Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/econres/notes/feds-notes/greater-wealth-greater-uncertainty-changes-in-racial-inequality-in-the-survey-of-consumer-finances-20231018.html

Bureau of Transportation Statistics. 2022. “Household Spending on Transportation: Average Household Spending.” US Department of Transportation. https://data.bts.gov/stories/s/Transportation-Economic-Trends-Transportation-Spen/ida7-k95k/

Center for American Progress. 2020. Childcare Deserts. https://childcaredeserts.org/

Davidson, Kate and Dirk Vander Hart. April 4, 2023. “Meet the Farmers Who Want to Grow Semiconductors, and Their Neighbors Who Don’t.” Oregon Public Broadcasting. https://www.opb.org/article/2023/04/04/hillsboro-oregon-portland-development-urban-growth-boundary-ugb-farmers-land-use/

Katz, Lily. Feb 14, 2024. “Investors Bought 26% of the Country’s Most Affordable Homes in the Fourth Quarter—the Highest Share on Record.” Redfin. https://www.redfin.com/news/investor-home-purchases-q4-2023/

Landivar, Christin. Jan 24, 2023. “New Childcare Data Shows Prices Are Untenable for Families.” US Department of Labor. https://blog.dol.gov/2023/01/24/new-childcare-data-shows-prices-are-untenable-for-families

National Low Income Housing Coalition. 2024. “The Gap: A Shortage of Affordable Homes.”  https://nlihc.org/gap

PBS Newshour. Jan 25, 2024. “How Demand for Lithium Batteries could Drain America’s Water Resources.” https://www.pbs.org/newshour/show/water-domestic-lithium-mining
 
Robinson et al. 2022. “Ecosystem Restoration is Integral to Humanity’s Recovery from COVID-19.” The Lancet 6. https://www.thelancet.com/journals/lanplh/article/PIIS2542-5196(22)00171-1/fulltext

Semenova, Alla. 2023. “Rising Temperatures and Rising Prices: The Inflationary Impacts of Climate Change and the Need for Degrowth-Based Solutions to the Ecological Crisis.” Globalizations, 12:  1–18. https://doi.org/10.1080/14747731.2023.2222482

Townsley, Jeramy and Unai Miguel Andres. June 24, 2021. “The Lasting Impacts of Segregation and Redlining” https://www.savi.org/lasting-impacts-of-segregation/. SAVI.

U.S. Energy Information Administration. May 30, 2023. “U.S. Energy Insecure Households were Billed More for Energy than other Households.” https://www.eia.gov/todayinenergy/detail.php?id=56640

Weber, Isabella M., and Evan Wasner. 2023. “Sellers’ Inflation, Profits and Conflict: Why Can Large Firms Hike Prices in an Emergency?” Review of Keynesian Economics 11 (2): 183–213. https://doi.org/10.4337/roke.2023.02.05.

Zhong, Raymond and Amy Chang Chien. April 8, 2021. “Drought in Taiwan Pits Chip Makers Against Farmers” The New York Times. https://www.nytimes.com/2021/04/08/technology/taiwan-drought-tsmc-semiconductors.html

  

Capacity expansion in the production of semiconductors goes together with strategic restructuring of demand. There is a greater dependency on capital-intensive reproducible inputs and products and more non-discretionary consumption. This creates a potential for structural inflationary pressures.

Expanding innovations in AI, autonomous vehicles, cloud computing, and connectivity networks, require more memory and processing power. This grows the need for more capacity expansion, larger investments, and demand for microchips. This new “machine process” creates the potential for structural inflation and greater vulnerability of people to upward price level pressures.
 
From Shortages to New Prices and Restructuring Demand

The economy of 2020-2022 was affected by semiconductor shortages and showed the effect of disturbances across complex global supply chains and crises like the pandemic. During 2020-2021 shortages in the automaker industry showed that repurposing capacity to respond to changing demand for different types of microchips is difficult (Listen to Beyond the Valley, Oct. 7, 2021.).

This was reflected in the inventory of cars on lots and in final prices, as consumers did not get discounts, and there were fewer choices. This affected also the higher prices of used cars, putting a burden on car-dependent and lower-income households.

The microchip shortage was followed by an overall increase in car prices that is now structural to the consumer market. Even with expanding supply and more discounts, car prices have increased to a higher level.

Consumers will pay higher prices for cars and their maintenance. There are multiple factors for that higher price level, but we should not ignore strategic investment and expanded implementation of semiconductors. There is an expansion in demand for microchips in the auto industry, which designs vehicles with more electronic features.

Cars are now more expensive to repair due to several factors, but the presence of electronics throughout the vehicle is an important one. This puts additional budgetary pressures, especially on small businesses and car-dependent working and lower-income households. Higher repair costs are now structural to these units’ budgets.

Auto-industry strategic investment in increased connectivity, entertainment, and electric vehicles (Hoecker et al. 2024), as well as in autonomous vehicles and “software-defined vehicles” (Autology 2024), contribute to the sector’s growing share in demand for semiconductors. These investments would further restructure future demand, including greater implementation of consumer subscriptions.

The ever-higher cost of individual vehicle ownership eventually would help validate investments in new future business models based on rent and share, rather than ownership of vehicles. As high-tech developments in automobiles create profitable opportunities and rents, they also enable the absentee ownership of mobility, and subject users to new prices in the form of subscription costs and rent.

Automobiles and mobility are only one area of expansion. Industry, consumer electronics, communication, computers, government, housing, and healthcare, are other areas of restructuring demand.  Because building capacity in semiconductor production is costly, there must be viable expectations for expanding demand and vast opportunities for value from continuous high-tech upgrades.

Continuous expansion of high-tech capacity requires functional effectiveness, which needs more standardized management. This could lead to more concentration and market power. That is one potential area for structural inflationary pressures, especially since an increasing array of rents would be incorporated into wider demand.
 
Expanding Capacity - Growing Wider Demand

After the overall shortage of chips, the decline in demand for consumer electronics made space for microchip producers to add capacity, building up semiconductor inventories along the chains in 2022-2023. Now there is a strategic building of capacity in the semiconductor industry, estimated at $ 1 trillion (Crawford et al. 2023). In addition, governments like the USA, EU, South Korea, Japan, China, Taiwan, and India have provided subsidies, tax credits, and investments to expand capacity and secure a skilled labor force (Semiconductor Industry Association 2023).

Building capacity in semiconductor production is expensive and it takes a longer time (2-5 years). New facilities, especially for chips supporting technology that relies on high computational power, require larger and more sophisticated building shells, improved power delivery, access to ultra-pure water, and environmental compliance. The production also requires a greater number of manufacturing steps, more complex tools, and greater environmental compliance (Gaurav et al. 2023).

Investment in capacity building is validated by expectations for expanding demand for semiconductors. That means wider demand and transformation within many social processes – mobility, education, consumption, labor, recreation, care, surveillance, war, and resource direction.

As Corry Doctrow (2023) puts it, modern car producers “… redesigned our cars to be mobile surveillance platforms stuffed full of anti-repair digital locks, which means that cars need dozens of chips just to function.”

The multiplication of this trend and the creation of profit value in other areas would justify expanding capacity, and more demand to absorb that capacity. This could lead to more obsolescence and associated waste. In addition, it could mean higher costs for users in multiple areas where it could be more and more difficult to opt out.

Restructuring future demand by widening the end-use markets is a long-term strategy. Building and maintaining costly overcapacity could become part of that process because it would be expected that overcapacity would be absorbed.
 
Expanded Non-discretionary Consumption

Restructuring demand means changing consumption patterns and what constitutes needs - including more devices and subscriptions for usage. The array of goods that represent consumption expenditures that have to occur would increase.

This means that consumption expenditures independent of changes in income would probably increase. Consequently, even if incomes do not grow, those expenditures need to happen to get by and succeed. This might mean an expansion of borrowing. Households might be subjected also to continuously increasing prices for the usage of those products even under a business cycle decline in employment and wages.

Further, during a business cycle downturn, consumers might have less discretion to drop those goods and services. The result could be increased financial obligations and borrowing for consumers, especially during business cycle downturns.

While expanded newly structured demand for microchips is an automatic stabilizer for capital-intensive production, it puts more pressure on households. On the other hand, from the industry’s point of view, growing the areas of demand means diversification. If there is a decline in demand due to business cycle fluctuation there is availability of less affected markets.

Expanded and less discretionary demand validates planning for overcapacity which is expected to be absorbed and is safer for business than lack of capacity.
 
Disruptions and More Capacity

Capacity building is planned globally to diversify locations. Still, the supply chains are complex with different chips and geopolitical uncertainty (Hoecker et al. 2024). Several factors could lead to inflationary pressures during crises like pandemics, ongoing wars, and natural disasters.

First, plans for building capacity can be disrupted, which opens vulnerability to shortages, and potential price effects. Second, the operation requires gases and water, and depends on commodity extraction, transportation, and is affected by commodity prices. Third, the complexities of the production processes and uncertainties might necessitate building overcapacity.

In addition, growing ecological instability and climate change bring inflationary pressures globally, especially in combination with business pricing powers and geopolitical instability (Semenova 2023). We can add to that structural factor of inflation, expansion in microchip production. First, we have the issue of disruption in capacity building and possible shortages amidst an expansion of demand. Second, these ecological uncertainties and disasters might result in an incentive to maintain overcapacity as part of business. Third, there is pressure on ecosystems, including sourcing, extraction, transportation, and waste of commodities, which might worsen inflationary pressures.

Due to land and water utilization, increasing capacity can be disruptive locally and push up price levels, especially in the regions where mega-sites are built. Disruptions in price level can occur in food production, water consumption, infrastructure, public infrastructure, social services, and real estate.

Democratic Public Powers

There can be several public policies to counter the negative effects of the above scenarios. I will mention three main directions that pertain to inflationary concerns. There are many other issues regarding people, education, and democracy.

One set of policies would have to do with ensuring the public direction of resources for public access, for example in mobility. Public goods like public transportation are an important part of the economy and need clear public commitment and expansion.

Another set of policies would have to address market power, especially in the pricing of consumer goods and services and in stifling human autonomy.

Finally, it is very important to create a floor of living wage with social benefits through a centrally funded job guarantee policy that employs people at the local level in democratically designed public service jobs.

There are often worries that the job guarantee policy would be inflationary since anybody who seeks a job at local employment offices would be employed at a living wage providing needed community work.
The worry is that this lifts the wage floor and contributes to local well-being and social reproduction, rather than producing widgets for sale. Now is a good time to point to the inflationary pressures of current technological implementations, and to argue that lifting the wage floor with public service and expanded public social sector are good ideas.

How to cite this blog:

Todorova, Zdravka. March 25, 2024. “Chips and the Potential for Structural Inflationary Pressures,” Econ Notes & Knots, blog # 2, www.ztodorova.net
 
 References:

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Large businesses manage inflationary pressures by implementing high-tech improvements to reduce costs and maintain profits. Working households cannot cut costs by adding more high-tech consumption, and are constrained by social systems of provision.

Households are stuck coping with structural inflationary pressures and shocks. Recognizing the fundamental differences between working households and large businesses is important for a better price-stability policy.

Businesses Cutting Costs

During the pandemic, key companies with market power could maintain prices and generate windfall profits (Weber and Wasner 2023). Those high prices persisted after the pandemic and affected the costs of other businesses and households. Workers' share of corporate-sector income has not recovered since the pandemic recession (EPI).

However, pricing is not the only method to manage inflation. Now, large businesses seek to implement cost reductions through high-tech implementations. Industries and businesses that produce such implementations, particularly automation technology, are seen as having investment potential (Morgan Stanley, 2022). Businesses that can utilize such technology, seek to increase labor productivity (output per worker), direct labor, and ultimately become less dependent on workers.

In that way, companies can maintain profits even if they reduce mark-ups over costs, as part of their pricing strategy. They can keep market shares and goodwill, especially amidst inflation-weary consumers. Further, they build resiliency for potential labor shortages, that tend to affect smaller businesses and lower tech production.

Expansion of semiconductors in production and in end-use goods means greater demand for semiconductors in wider areas  (Semiconductor Industry Association 2023). To accommodate that expansion in production, businesses want to secure access to a trained and available labor force. Educational resources and public higher education will be redirected toward that end, focusing on producing more associate degrees in engineering technology, to facilitate the transition to even more capital-intensive production.

By adopting more labor-augmenting and labor-saving technology, businesses seek less dependency on workers and their labor supply. Further, through their daily activities and labor, people provide the data companies use in pricing, sales, production operations, and machine learning for future automation.

At the same time working households are more dependent on high-tech capital-intensive production and consumption. When households add new technology required for their daily activities – they undertake new costs and get exposed to inflationary pressures. This is the opposite of large companies, who implement technology to cut costs and preserve profits even under inflationary pressures.

Some of those inflationary pressures could become structurally built-into a system that increasingly depends on continuous capacity expansion in semiconductor production and consumption.

Additional structural inflationary pressures come out of wars, reoccurring environmental disruptions, and related supply shortages (Semenova 2023). To what extent high-footprint high-tech mega sites would contribute to, or alleviate those inflationary effects, is an open question.

The issue is that there are more uncertainties about inflation in the system and a growing divergence in the ability to cope with those structural pressures.
 
Households’ Difficulties in Cutting Costs

Working households can’t manage inflation by cutting costs like large business enterprises do. For one, the adoption of high-tech appliances increases their cost commitments and future dependence.

Buying more and more new tech devices contributes to household cost commitments, even if the unit price of electronic consumer goods decreases. There are new categories of expenditures. Products cannot be repaired, they need replacement, additional upgrades, and the purchase of an increasing number of related products. This increases households’ dependence on large producers and capital.  

The proliferation of high-tech in all spheres of households’ lives and the planned obsolescence in the production and consumption of those goods and services exposes households to price shocks and shortages. These have to do with centralized production in high-tech, problems of capacity, as well as any negative effects of continuously expanding capacity for semiconductor production.

In addition, household costs can’t be easily cut. There are living needs and related financial obligations that are impossible or difficult to cut. Housing, transportation, food, insurance and pensions, healthcare, and care are major budget items (Meyers, Paulin, and Thiel, BLS, 2022). These are affected by inflationary pressures, the particular composition and needs of households, as well as by the established systems of provisioning of goods and services.  

Further, some costs of services that are highly demanded by households, cannot be cut. For example, the cost for two-child households exceeded the annual average rent payments, even as the inflation of center-based child care is lower than the overall inflation rate. The average annual wage of a childcare center worker in the USA is in the magnitude of $ 28,520 and this exceeds the wages of some care workers. Care workers are underpaid. We also cringe at the prospect of “decreasing costs” through high-tech automation in the childcare “industry.” Childcare costs are rising for households and there is not enough supply.

From households’ point of view, cutting their childcare costs means unpaid household care, which in itself needs support, as it means not working for pay. Reducing households' costs on social services requires expanding transfer income programs.
 
Households’ Institutional Constraints

Households face institutional constraints in the ways that care, health, housing, transportation, food, and other necessary goods and services, and financial commitments are organized. The cumulative effects of these institutional arrangements contribute to inequities and financial fragility of households over time and limit many households’ abilities to cope with inflationary pressures.

Sectors of vital importance to households and their financial obligations and wealth are characterized by historical inequities. They are structured by employment, social group position, and geographical location. For example, household wealth-building is tied to homeownership, which still bears the historical imprints of segregation and redlining (CET and ThinkTV). Healthcare insurance is largely tied to employment. Societal care arrangements lag behind the pressures of paid work and depend on unsupported unpaid household labor.

These institutional arrangements constrain some households more than others during inflationary pressures. In addition, households face higher or lower costs for goods and services, depending on the availability of public goods, quality of housing, and access to infrastructure. 

The organization of transportation and food production places constraints on households, who have to adjust their budgets and time to fit into the established systems of provision. It is not that households can readily switch methods of mobility and obtaining nutrition to control their costs. Autonomy is going to decrease further with the wider implementation of high-tech consumption.

We are still to see the impacts of building more mega-sites for fabricating semiconductors, batteries, electric cars, and other high-tech production as part of deals offered by localities to subsidized businesses. How would those developments affect local resources, access to necessities and social services, environment, and costs to households?

Institutional arrangements mixed with accelerated technological change are serious constraints to households’ ability to manage inflation. Price-stability policies should focus on removing these institutional constraints and on preventing and addressing the impacts of technological change and the expansion of big business.

People, not Widgets

In price-stability policy, aggregate demand is an extremely broad variable, and the interest rate is a very narrow tool. The differences between large businesses and working households seem lost. It is time to implement price stability policies that address broader concerns of lives.

But, wait, perhaps business cost efficiencies from high-tech implementations would trickle down to alleviate price pressures in the sectors vital for households. Even as innovations bring benefits, hopes for curtailing inflation through technological implementations such as AI, are misplaced. A business strategy of increasing labor productivity is one thing – the macroeconomy - including the effects on households, is another matter. Technology-driven cost reduction addresses inflation from the point of view of large business concerns.

Let us not forget that on the other side of the economic balance sheet of high-tech-led cost-control are households’ balance sheets and lives. Labor displacement through automation and the direction of time is a real problem ahead. Expectations for high-tech “deflationary” effects on business costs are expectations for managing labor more akin to machines.

Similarly, when inflation is approached with monetary policy of interest rate management, people are assumed to be widgets. Given the institutional constraints and inequities, there is no “soft landing” for everybody in contractionary times of higher interest rates. Yet, interest rate cuts are insufficient to address structural and institutional factors of inflation.

Much has been made of demand-related inflationary pressures due to government transfers to households. Aggregate demand expanded after the pandemic and some households built a bit more savings. Those transfers added transitory flexibility to households’ budgets, which are still needed by many.

When we recognize households' labor contribution in the form of care, these transfers can be understood also as supporting future aggregate supply. The economy is supported by unpaid household labor, including, but not limited to child care. We can think of the expansion of government transfers during the pandemic as payments for some of that labor. As to labor shortages, these are largely problems of working conditions and wages. The disadvantage of small businesses and their competitiveness are issues for industrial and regional policies.

Commitment to full employment and access to public goods and assets are even more important with rapid technological advancements and their vast implementation in production and business.  Forward-looking policies include a job guarantee federal program with locally designed public service jobs (see Tcherneva 2021) at living wages. This creates a floor for working conditions and is complementary to expanded public services. A job guarantee program is important also because it supports valuable non-market activities, the environment, local needs, and democratic participation (Todorova 2022).

These are future-oriented policies that will grant more choice to households when it comes to dealing with structurally produced inflationary factors and increasingly centralized business production.


How to Cite this Blog

Todorova, Zdravka. (March 2024). “Managing Inflation in the High-Tech Economy: Vital Differences between Large Business and Working Households.” Econ Notes & Knots, Blog # 1, www.ztodorova.net

References

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Child Care Aware of America. 2024. “Annual Price of Care (2022)”. https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care-2022/#PriceofCare
 
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Meyers, Shane, Geoffrey D. Paulin, and Kristen Thiel. 2023. “Consumer Expenditures in 2022.” Bureau of Labor Statistics Reports # 1107. https://www.bls.gov/opub/reports/consumer-expenditures/2022/home.htm

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Semenova, Alla. 2023. “Too Hot to Handle: Why Climate Change Means that Inflation won’t Boil over?” Monetary Institute Blog, # 83, June 12, 2023. https://medium.com/@monetarypolicyinstitute/too-hot-to-handle-why-climate-change-means-inflation-wont-boil-over-9574b480156c

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