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In early 2024, NovaCorp's chief economist Mira noticed something alarming in the quarterly survey: 78% of the firm's 12,000 employees expected inflation to exceed 8% over the next year. Actual inflation sat at 4.2%, but that number was about to become irrelevant. By March, the union negotiator Kai presented demands for 9% wage increases across all divisions, citing the survey results and rising grocery costs. NovaCorp's board, facing a tight labor market, agreed to 7.5%. Within weeks, three competing manufacturers matched or exceeded that figure to retain talent. Mira watched the math cascade. NovaCorp's labor costs jumped $43 million annually. To preserve margins, the pricing team raised product prices by 6.8% in Q2. Suppliers, facing their own wage pressures, hiked input costs by 5.3%...
Popular framing: Workers demanded too much and companies had no choice but to raise prices — inflation is a labor cost story driven by unrealistic worker expectations that spiraled out of control.
Structural analysis: The spiral was a reflexivity loop operating within a structural context of tight labor markets, oligopolistic wage signaling, and profit-preserving pricing norms. Each actor's individually rational expected-value calculation — workers anchoring to expectations, firms matching competitors, suppliers passing costs — was a node in a system with no internal brake. The 'cause' cannot be isolated to any single actor because the loop is the cause. The 'reflexivity loop' is good but misses the 'Prisoner's Dilemma' — the spiral is a 'rational' outcome of a high-noise environment.
Attributing the spiral to worker expectations or union demands misses that the same beliefs in a slack labor market or a more competitive industry would not have propagated. The popular framing focuses on the match that lit the fire while ignoring the room full of accelerant — market structure, competitive dynamics, and the absence of coordination mechanisms that would have allowed collective restraint.
