Anyone who’s heard or read any news stories about inflation in the past few months can’t escape the pair of Delphic oracles, Larry Summers and Jason Furman. Summers is the former president of Harvard who once speculated that genetic differences may cause women to have a harder time competing for math and science jobs. Before that, he served as Bill Clinton’s Treasury secretary, and after that as director of the National Economic Council under Barack Obama. Furman, a Harvard economics professor, was chairman of the Council of Economic Advisers under Obama — after previously serving as Summers’ deputy at the NEC. Both of them have been permanent fixtures on cable news of late as resident doomsayers, acting as a Greek chorus urging the Federal Reserve to keep on raising interest rates, regardless of the impact tighter money will have on jobless rates and American families.
Furman has speculated that Joe Biden’s $1.9 trillion American Rescue Plan should have been smaller, and may have contributed to higher prices. Summers frets about a looming “wage-price spiral” caused by workers gaining some traction in a tight labor market. (Yes, you read that right: He’s concerned that wages may go up.)
To the average American, and certainly to delighted Republican politicians, it seems as if most economists agree on this harsh medicine. But they don’t, and it’s important that other voices get a chance to break through more often. A lot is riding on the theory that Federal Reserve chair Jerome Powell seems to be proposing: Just like in the 1980s, high interest rates can break the back of inflation, presumably without tanking the entire economy.
But have we really returned to the 1980s? Is this inflation the same as the inflation of yesteryear, and will it respond to the same harsh medicine?
Have we really returned to the 1980s? Is this inflation the same as the inflation of yesteryear, and will it respond to the same harsh medicine? The truth is, no one really knows.
Ask UC Berkeley professor and former labor secretary Robert Reich, whose progressive views have made him a TikTok star, although he has largely been ignored by legacy media. His “Know the Truth About Inflation” video should get an Emmy. Reich contends that higher prices have not been caused by the modest gains low-wage workers have achieved, nor by the Biden administration’s infusion of cash into the economy to blunt the devastating impact of the pandemic on American families.
He and other progressive policy experts put a large part of the blame on corporate greed, since corporate profits have reached historic highs this year, indicating that the higher prices many businesses have been charging don’t just cover their higher costs, but also fatten their bottom lines..
Furthermore, raising interest rates won’t necessarily work, some more progressive economists say, in part because inflation this time around arose from a unique set of circumstances: a global pandemic triggered huge supply-chain problems, such as a shortage of computer chips for new cars; the war in Ukraine brought on a global energy crisis; climate change and a shortage of fertilizer have wreaked havoc with the food supply.
Josh Bivens of the Economic Policy Institute notes that the U.S. economy is already contracting, with housing starts plummeting, which will cause construction jobs to decline. At the same time, the unusually strong dollar — at or around par with the euro for the first time in years — is reducing demand for U.S. exports. Continuing to raise rates could be “really damaging,” he says.
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Why is the progressive message on the economy not getting through? Partly it’s because journalists are so often slaves to conventional wisdom, and nobody stands for conventional wisdom like the sages at the Federal Reserve and their Harvard supporters. The other problem is that many reporters have no idea what the inflationary spiral was like in the 1980s: It had begun in the 1970s and soared ever higher over several years, with mortgage rates hitting 16% in 1981. They weren’t around to experience how Fed chair Paul Volcker’s tough medicine triggered a crippling recession. There were so many plant closings in Buffalo, New York, where I was a cub reporter at the time, that it essentially became my beat. Indeed, I ended up covering the death of my own newspaper.
Look, the real answer here is that nobody can be quite sure how the economy will behave or how big a problem the current rate of inflation really is. It’s crucial that we hear diverse opinions about what’s going on and how best to attack the problem. Is it Powell’s castor oil therapy or a minimum tax on corporations with billion-dollar profits, a provision that actually made it into the Democrats’ Inflation Reduction Act? How much are we willing to see unemployment rates rise in order to get inflation below 2% annually? What are the trade-offs, and are they justified?
A lot is riding on our willingness and ability to hear and discuss a diverse range of opinions on both the problem and the solution. We definitely need more than the bromides of Summers and Furman to see us through.
on inflation and the economy