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The world has entered an age of overlapping emergencies. Climate change is a reality in the here and now. Extreme weather events are occurring with greater frequency and intensity and are more likely to affect multiple world regions at once. This has potentially far-reaching consequences for economic activity, for example reducing agricultural yields and disrupting transportation and energy systems. At the same time, the geopolitical order is becoming increasingly unstable. In 2023, the Global Peace Index deteriorated for the ninth consecutive year. In this global constellation, supply shocks become frequent.
Isabella Weber is Assistant Professor of Economics at the University of Massachusetts, Amherst.
Merle Schulken is a PhD student at the University of Massachusetts, Amherst.
The experience since the COVID-19 pandemic demonstrates that if shocks hit systemically important sectors like energy, food, transportation, or housing they can trigger sellers’ inflation. Price and profit spikes in upstream sectors like commodities, energy, and shipping are cost shocks to downstream firms. These cost shocks coordinate price hikes as firms seek to protect their profit margins. It is this pricing behaviour of sellers that translates local shocks into a generalized inflation that is for the larger part accounted for by profits.
For now, the neoliberal policy of interest rate hikes has been the predominant if not exclusive policy response to inflation. But even believers in the neoliberal stabilization paradigm will have to eventually concede that frequent shocks to systemically important sectors cannot be addressed with a proverbial “cold turkey” every time. In fact, rich countries have already complemented the neoliberal playbook with fiscal expansion (US) and various forms of energy price controls (Europe). For the worlds’ poorest countries rate hikes are devastating and they lack the fiscal and policy space for such complementary measures.
Neoliberalism became hegemonic first as a new stabilization regime. Post-neoliberalism will require an alternative approach to stabilization. In this new study commissioned by the Heinrich Böll Foundation, the Rosa Luxemburg Foundation, and TMC Research, Isabella Weber and Merle Schulken argue that in an age of overlapping emergencies such a new paradigm requires a refocusing on stabilization policies for essential sectors that have the potential to unleash systemic instabilities when hit by shocks. They revisit the classic case for public buffer stock systems of Keynes, Kaldor, Graham, and others.
The buffer stock question in their analysis is not just a tool but provides an alternative theoretical perspective. The classic case holds that commodity markets are inherently unstable and hence inefficient even when perfectly competitive. They see public storage to dampen price and quantity fluctuations at the sectoral level as key to global macro stabilization. This study shows that at the critical 1970s juncture, such buffer stocks were part of the New International Economic Order agenda and presented a real alternative to the neoliberal road but were ultimately questioned by neoclassical welfare analysis and crushed by the Federal Reserve’s sharp interest rate hike in 1979 (the so-called “Volcker Shock”), and the market fundamentalist liberalization and privatization conditionalities of the Washington Consensus.
Weber and Schulken argue that the neoliberal policy paradigm centred on free prices left people and economies unprepared for the mega-shocks of overlapping emergencies in recent years, while benefitting gigantic corporations. To illustrate this point, they present the case of food. Using the reasoning of the classic case for buffer stocks and drawing on 25 interviews with businesses and unions in the food sector, agricultural policy experts, food bank representatives, and academic food system experts from Global South and Global North countries, they argue that food price spikes are inefficient and lead to devastating humanitarian and macroeconomic outcomes. In closing, they present a case for a multi-layered and internationally coordinated public buffer stock system for food staples as a first important step towards a post-neoliberal stabilization paradigm.