If you’re following debates over inflation you’ve probably read contradictory things in recent weeks about the relationship between it and whether it is workers (labor) or their bosses (capital) who will be able to protect their incomes from rising prices.

For example, some well-known economists have mocked the idea that inflation is related to corporate profiteering. Yet, some of the world’s most influential policymakers have expressed concern that inflation could spark an outbreak of excessive wage growth. One of these policymakers essentially pled with workers to moderate their wage demands in coming months in the name of slowing inflation. Finally, a Nobel Prize-winning economist claimed not only that inflation has nothing to do with the distributional conflict between labor and capital, but that even raising the specter of this will make it harder for policymakers to tamp inflation back down.

So, what’s the real story about profits, wages, and inflation? Simply put, while changes in the relative bargaining power of labor versus capital are not the root cause of the inflationary shock in 2021, this relative bargaining power will crucially determine whether or not inflation sustains momentum throughout 2022 and requires more sharply contractionary macroeconomic policy to slow.

In turn, policy efforts (like, for example, transformative reform to labor law or ramping up anti-trust enforcement) to change the relative bargaining position of labor vis-à-vis capital would be highly desirable for lots of reasons—but they wouldn’t ‘t take effect quickly enough to be relevant to the current inflationary episode. Jawboning from policymakers is unlikely to stop any incipient wage-price spiral—but jawboning only workers and not capital-owners to stand down in the distributive conflict is particularly perverse.

Just about everybody agrees that the simple timing of the inflationary shock of 2021 argues against it being driven by distributive conflict—whether that’s corporate profiteering or opportunistic wage demands from workers in suddenly tight labor markets. This timing makes it similarly obvious that the inflationary shock was driven by the rapid reopening of economic sectors that were almost completely shuttered for a period by COVID, along with supply-side distortions remaining as the pandemic continues to roil around the world.

But everybody also agrees that how initial inflationary shocks propagate throughout the economy is hugely context-dependent. For example, in the early 1970s before the oil price shocks, gasoline consumption was well under 4% of consumption expenditures. Given this, the 200% increase in gas prices between 1972 and 1979 should’ve directly boosted inflation by 8% spread over seven years, or just over 1% per year. Yet inflation in those years accelerated much more than this, by about an average of 4-5% per year. The large initial inflationary shock was propagated by a specific economic context of the 1970s—including far more-balanced bargaining power between labor and capital than exists now.

This more-balanced bargaining power meant that workers could translate expectations of higher prices into effective demands for higher nominal wages in response. At the same time, firms who expected higher wages in the future could also protect profit margins from these higher wages by raising prices. The more-balanced labor market of the 1970s was not the only driver of that inflationary episode, but it was highly significant.

Relative to the situation in the 1970s, the 2021 inflationary shock is playing out in a context of highly unbalanced bargaining power between labor and capital. If that changes going into 2022 and workers are able to begin translating any expectations of longer-run price inflation into excessively fast nominal wage growth, then—and, really, only then—the inflationary shock could be amplified .

This is not just the view of the ignorant lay public, as Robert Shiller claims in his recent op-ed. Both Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen (also a former Fed chair) see it this way.

Recently Powell confirmed that whether or not the inflationary shock of 2021 starts getting amplified in the labor market is of prime concern to him and others at the Federal Reserve, saying “We are attentive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation.”

Another central banker, Andrew Bailey of the Bank of England, has taken this analysis of inflation being potentially amplified by distributive conflict to its logical (to too many central bankers anyhow) policy conclusion, asking asking British workers to show restraint in asking for wage increases in response to price inflation.

Somehow, the Bailey comments have received less blowback among elite economists than an effort to highlight that corporate profits have been the clear winner from inflationary pressures so far. There has been mockery of this effort by some leading economists, with a repeated claim that its proponents are arguing that fatter profit margins are the driver of inflationary pressures rather than a propagator. But the view linking corporate profiteering to inflation is just the mirror-image of the Bailey view—it’s a frank acknowledgement that how inflation plays out in 2022 will largely depend on the relative bargaining position of labor and capital. The only difference is that the Bailey view argues that it is workers who must bear the burden of the inflationary shock, whereas the anti-profiteering view argues that firms should bear it through thinner profit margins.

Given that inflation so far has been near-entirely associated with historically high profit margins rather than real wage growth running far above productivity, it seems like asking employers to stand down first in the distributive conflict actually makes more sense (even if it likely wouldn’t be all that effective)?

Some have claimed that the anti-profiteering view is actively harmful, as higher profit margins are a useful market signal that resources need to be deployed to specific sectors seeing a supply-demand imbalance. This strikes me as only true if we think the COVID- distorted shares of consumer spending will persist permanently—that US consumers will never return to face-to-face services and will continue to plough historically large shares of their income into durable goods. Since I don’t think that’s true, I’m not particularly worried that jawboning corporations to accept thinner profit margins in coming months will impede the US recovery.

An analogy is price-gouging after natural disasters. Nobody thinks it’s fair or useful for stores to charge desperate people $15 for a bottle of water after hurricanes. It’s obviously not fair and illegal in many states, and it’s not useful because nobody thinks the potable water shortage right after a hurricane is permanent and requires the incentive of higher prices to move a huge amount of new resources into providing it.

But while pressuring corporations into accepting thinner profit margins certainly wouldn’t harm recovery and could in theory reduce some inflationary pressure going forward, it also is likely to be ineffective in the near term to stem this pressure.

The current unbalanced bargaining positions of capital and labor took a long time and concerted pro-corporate policy efforts to develop, and it will take a long time and equally concerted pro-labor policy efforts to rebalance. If today’s jawboning about inflation helps propel these efforts forward, that seems fine to me.

Two last notes on how redistributive policy and today’s inflation intersect.

First, while most policy levers to restrict corporate profiteering wouldn’t work quickly enough to change profit margins or influence inflation, a one-time excess profits tax might. And if one agrees that such a tax wouldn’t impede the smart allocation of resources because we don’t need a big permanent re-allocation in the face of distortions caused by COVID-19, the case for such a tax might be strong. I don’t think this is a politically realistic short-term plan, but, it’s still worth mentioning.

Second, while the Bailey plea to workers is objectionable in many ways, it’s also just futile. The US labor market is made up of 150 million free agents. Of course, there is an institution that would allow for some greater degree of wage coordination: collective bargaining in the context of much-higher union density than we have today. The benefits of a strong labor movement in terms of providing a social partner that can actually engage macroeconomic policymakers in dialogue is often underrated, and just one more reason why policy efforts to guard the right to collective bargaining against all-out employer hostility are so crucial.