Edward Quince’s Wisdom Bites: The Unseen Costs of Inflation—A Tax on Conflict-Averse People

We all know inflation is painful. Prices go up, and our money buys less. But a deeper look reveals a hidden, psychological cost that standard economic models often miss. A fascinating paper by economist Jonathon Hazell argues that high inflation acts as a "tax on conflict-averse people who are bad at negotiating".

The core idea is that employers don't automatically grant raises to match rising prices. Instead, workers have to fight for them, placing them in direct conflict with their employers. This process is inherently difficult and stressful, imposing an unmeasured "conflict cost" on employees. The recent surge in labor strikes since the post-pandemic inflation spike serves as a real-world example of this dynamic in action.

This insight helps explain the "vibecession" puzzle—why so many people feel bad about the economy even when headline data like GDP and unemployment look strong. Fed Governor Lisa Cook has noted that Americans may be pessimistic because they aren’t just looking for slower inflation, but for prices to return to pre-pandemic levels. The anger isn't just about numbers on a page; it's about the daily battle to maintain one's standard of living, a struggle that feels dishonest and arbitrary as it creates winners and losers.

The Takeaway: Recognize that the true burden of inflation goes beyond simple purchasing power. It strains social trust, forces uncomfortable confrontations, and can leave people feeling like they are constantly falling behind, even if their wages eventually catch up. As investor Mark Higgins noted, history warns that failing to extinguish the "embers" of inflation risks reigniting these painful dynamics. This perspective reminds us why price stability is not just an abstract economic goal, but a cornerstone of social and psychological well-being.