U.S. Profs Say Fed Inflation Policy Batters Workers

Two economists from the University of Massachusetts at Amherst (UMass-Amherst), Gerald Epstein and Robert Pollin, agree that the interest increases imposed by the Fed have battered American workers, C. J. Polychroniou reported for Truthout recently.

Photo Insert: It is argued that the Fed’s 2% inflation target has been a means of keeping workers’ bargaining power weak and enabling profits and CEO pay to explode.

Epstein and Pollin are also co-directors of the Political Economy Research Institute (PERI) at UMass-Amherst, which has convened an international conference to explore the causes of inflation and what can be done about it.

Pollin said sharply rising inflation rates emerged throughout the world coming out of the 2020-2021 COVID lockdown.

The IMF said the average inflation rate for the global economy rose from 3.8% in 2019, the year prior to the COVID pandemic onset, to 6.4% in 2021 and 9.1% as of October 2022. For G7 economies, inflation rose from 1.6% in 2019 to 5.6% in 2021 and to 6.8% as of October 2022.

The figures for the US economy specifically are 2.1% in 2019, 7.4% in 2021 and 6.4% as of October 2022.

Right-wing commentators like to claim that large government spending levels caused inflation. Government spending levels to counteract the COVID lockdown were unprecedented, amounting to between 15% and 30% of all economic activities.

These were spending levels equal to, if not greater than, World War II. They led to a global floor on demand as people still had money in their pockets and in the banks even while unemployment was spiking with the lockdown.

Pollin said the Fed’s 2% inflation target has been a means of keeping workers’ bargaining power weak and enabling profits and CEO pay to explode.

The alternative would have resulted in the absence of these government spending injections — i.e., “too little money and too many goods.” That would have produced a major deflation — i.e., falling prices, wages and incomes, along with huge increases in mass unemployment, bankruptcies and a global depression.

Epstein said the Fed should act as the implementor of monetary policy but also as a financial regulator and not as the “lender of last resort” or more accurately, as the “bailor-in-chief.”

To bail out these banks and markets, the Fed tries to keep interest rates very low so they can borrow money cheaply. This also gives banks and wealthy financiers the opportunity to buy and trade financial assets, leading to massive increases in their financial wealth but no solution to inflation in the cost of goods and services.

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