Raise taxes on the rich, not interest rates on workers to fight inflation

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Raising interest rates is a harsh tool to curb inflation. It will do little to dampen “demand” for basic necessities like food and fuel – the main source of difficulty for Americans – but will make it more difficult to buy or sell a first home, a major driver of our economy. dependent on consumer spending © Karen Rubin/news -photos-features.com

By Karen Rubin, News-Photos-Features.com

Inflation, inflation, inflation.

The word “I” is a constant refrain, serving its purpose of inciting anger and resentment.

High gas prices? But they’ve been falling for 7 straight weeks thanks to Biden’s actions, while Big Oil posted record profits, tripling their 2n/a quarterly earnings and Republicans blocked price gouging legislation, so why aren’t voters mad at them?

High food prices? It also has a lot to do with soaring prices, near-monopoly control of meatpacking companies, as well as Russia’s brutal war on Ukraine, weather disasters, COVID impacts on the supply chain and rising fuel costs from a fuel-dependent food industry. .

But at least Americans have food and fuel, even at a higher cost – much of the world is experiencing much higher levels of inflation but also a dangerous shortage.

“Countries would like to have our level of inflation,” said Jason Furman, a former cChairman of the Council of Economic Advisers. “Our economy is the envy of the world.

But what people are really upset about, but fail to articulate, is the “A” word – affordability. Affordability of homes, rent, college, cars, health care, prescription drugs — an issue for decades, but more recently, reflecting accelerating income inequality. The very fact that billionaires have added trillions to their value during the pandemic and could drive up the prices of just about anything, certainly housing.

And because of that, the Federal Reserve’s blunt use of its hammer – raising interest rates – will only make ordinary families’ suffering worse, while doing little to address what has spurred the crisis. inflation in what economists agree are extraordinary times – essentially beyond the control of any administration – Ukraine, COVID, weather disasters.

Tell me how paying higher interest on mortgages and credit cards – the Federal Reserve’s “if all you’ve got is a hammer, every problem is a nail” solution – eases pain for families who have to pay a lot more for food and fuel?

Or rather, does it add to it, making it even harder for people to buy their first home or move into a bigger one to accommodate a growing family, or for a retiree to sell a house, his main nest egg, to have money to live his life? How does spending more interest on credit cards to buy groceries, gas, clothes, and other necessities lessen the pain of inflation?

And who benefits from higher interest rates? Not the grocery store owner, the gas station retailer, or the landlord, and especially not the municipalities who will find it more expensive to issue bonds to improve infrastructure, climate resilience, and the transition to energy conservation clean and renewable.

You know how they charge “inflation is a tax”? Much higher interest is a tax, but instead of that extra expense going to a municipality to be invested in the future and improving the quality of life for residents, it goes into the pockets of financiers – financial institutions, card companies credit.

Rising interest rates have already pushed the affordability of owning a home – for most people, their main asset, their nest egg, their ticket to middle-class mobility and community stability – out of reach. But it also has a ripple effect on the economy. Housing is a key driver of the economy, two-thirds of which comes from consumer spending. When people buy a house, they spend money to move, renovate, repair, improve, furnish. Housing starts, after four interest rate hikes this year by the Fed, fell 2%, while mortgage rates doubled to almost 6%, again. Again, not an extra dollar goes to the door-to-door seller, but to the banks.

Meanwhile, while demand has fallen, construction costs (which actually contribute to inflation) have not come down – labor and supplies are still scarce and demand high. But construction companies as well as small businesses now also have the highest costs for loans.

If chicken costs $1 more a pound and gas $1.50 more, there are ways to cope and compensate in order to stay on a budget – people are already changing their habits to save gas (a good thing!) and can replace pasta with meat. meals, choose another vacation destination. And these imbalances are transitory.

But doubling the cost of a home loan adds tens of thousands of dollars to the cost of a home, is a 15, 20, or 30 year albatross, and for many puts home ownership out of reach.

Indeed, it is not so much an inflation problem that we have as an “affordability” problem (as Ezra Klein noted recently in the New York Times). Health care and college tuition have been rising 3-6 times the rate of inflation for decades and, remarkably, no one has done the same Big Megillah as the extra $1/gallon of gas .

But rising interest rates can and almost certainly trigger a recession – particularly because of the impact on small businesses who will find credit and loans much more expensive, even if they lose customers, and will therefore have to dismiss workers.

Biden, who consistently acknowledges the pain of inflation and has said it is his priority for economic policy, is more constructive in addressing the real issue: affordability as well as job creation.

It deserves bragging rights for the Inflation Reduction Act of 2022 (a reconciliation replacement for Build Back Better that nonetheless has many of the same goals):

Among the features: Allowing Medicare to negotiate lower prices would reduce prescription drug costs and health insurance costs for 13 million Americans by an average of $800 a year for families covered by law on affordable care; break Big Oil’s slavery by offering tax credits and investments in clean, renewable energy, which would also create thousands of new jobs and reduce energy costs.

The Inflation Reduction Act would also fight inflation by cutting the deficit beyond Biden’s already record $1.7 trillion, and it would all be paid for by making big business pay their fair share of taxes, with no tax increase for families earning less than $400,000. a year.

As former Labor Secretary Robert Reich tweeted, “Remember: one of the best ways to reduce inflation is not to cut government spending, but to raise taxes on the rich and on corporations. When you think about it, it’s a much fairer way to curb demand, without adding to the pressures on workers.

Meanwhile, if raising interest rates is supposed to impact consumer demand, it works, so why is it surprising (horror!) that there have been two quarters of falling GDP ( mainly because of unsold inventory). Republicans are already shouting that this is a recession. Although not yet a recession – jobs, wages and consumer spending are still strong – recessions are an inevitable part of the business cycle; one will occur, the task of a competent administration is to make any recession as short and painless as possible. Better still, Biden is trying to structure sustainable economic growth.

But the Republicans are doing everything they can to keep inflation and recession fears high hoping they can convince people of their own economic malaise to win back Congress and nobody notices that they’ve turned the women as second-class citizens; blocked assault weapons bans, climate action, voting rights; voted against capping the cost of insulin at $35 and reducing the supply of infant formula; and if they get control, intend to put Medicare and Social Security on life support and give Republican legislatures responsibility for selecting a president.

At what price do you value your freedom, autonomy, self-determination, health and safety? $1 a gallon?

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