By HADAS THIER In These Times
The conventional medicine for fighting inflation is to make workers pay. And that is what the Federal Reserve, with Joe Biden’s approval, is planning to do.
The price of a dozen eggs hit an average of $2.70 in June, up from $1.64 last June. A gallon of gas, meanwhile, has been hovering around $5, pricing the average commute at about $30 per week. According to the most recent data released by the Labor Department, price inflation of everyday goods and services reached 9.1% this June — the highest level in more than four decades. At the top of the list of goods with the biggest price hikes are the bare necessities: rent, food and fuel.
Because wages haven’t kept pace with rising costs (they’ve grown at only half the rate of inflation), and lower-income households spend over three-quarters of their income on necessities, the pain of inflation falls mostly on poor and working people, and disproportionately impacts people of color. This follows a well-worn historical pattern. As economist Diane Schanzenbach told the New York Times: “Low-income workers, workers with low levels of education, Black and brown workers are the first to lose their jobs and the last to get them back.”
Getting inflation under control has become a top priority for President Joe Biden, whose approval ratings recently hit their lowest point yet: just 36% as of July 6 — rivaling Donald Trump’s lows. Even among Democrats, approval for Biden’s presidency dipped to 69%, down significantly from 85% last summer. The economy has remained the number one concern for 43 weeks running.
But Biden is relying on the Federal Reserve to choke inflation, rather than instituting any policies to protect workers’ pockets. According to Politico, “Biden declared his ‘laser focus’ on inflation while meeting at the White House with Fed Chair Jerome Powell… and backed the central bank’s aggressive interest rate hikes, which are aimed at cooling the economy by any means necessary, including inducing a possible recession.”
The medicine the Fed has on offer is the same toxic elixir it’s had on its shelf for decades — hiking interest rates to “cool” the economy. This approach is a case of medicine that is worse than the disease. Cooling off the economy is a euphemism for scaling back investment in the economy, thereby driving up unemployment and decreasing workers’ bargaining power. Interest rate hikes have the power to “cool” the economy, because they make it more costly to borrow money, and therefore discourage investment in production. This, in turn, leads to reduced productive capacity, fewer available jobs, and an increase in unemployment.
Categories: Economics/Class Relations