Throwing out our job people is not the way to ‘fix’ the economy

Everything from groceries to rent is getting more expensive these days.

Lowering prices should be a top priority for lawmakers, but aggressive rate hikes, Washington’s default tool for combating inflation, will only make life more difficult for these families. That’s because aggressive rate hikes work by increasing unemployment and slowing wage growth, a far worse “cure” than the disease.

Former Treasury Secretary Larry Summers has long championed this brutal approach. Earlier this summer, Summers welcomed the idea of ​​putting millions out of work when he suggested the Fed should “raise interest rates enough to send the economy into recession.” More recently, he said, “My worst fear is that the Fed will continue to suggest that we can have low inflation, low unemployment and a healthy economy.”

In other words, Summers has consistently argued that keeping inflation under control is more important than taking care of people. You should do whatever is necessary to bring the price down.

But here is the data: We can have a strong job market and low inflation. There is no need for more aggressive and painful rate hikes to do so.

The labor market added 528,000 jobs in July, well above expectations. In fact, over the past year he averaged over 500,000 new jobs per month. This is a staggering number for a recovery period. In addition, July inflation is 0%, which is also a declining yearly inflation rate. Inflation-adjusted wages have fallen by about 3% annually, but the latest employment figures show that real wages have risen slightly since his June.

In the future, it’s worth taking a closer look at Summer’s prescription to avoid being fooled by this bad advice. Summers suggested in June that “five years of unemployment above 5%” or even “10% unemployment for a year” would keep inflation under control. That would put about 10.5 million people out of work, with the worst impact on poor neighborhoods and people of color who already suffer from high unemployment. And these numbers don’t even take into account the long-term scars that come with periods of unemployment.

Moreover, putting millions out of work does little to address the root causes of rising prices. Huge corporate power, lack of supply his chain, war in Ukraine and so on. As Federal Reserve Chairman Jerome Powell admitted in June, interest rate hikes would affect gas and food prices “all on the supply side, which is still rising.” We can’t.” A rate hike also won’t dismantle the megacorporations that Chairman Powell has admitted may “raise prices because they can.”

Thankfully, the table has a real solution. The Biden Administration’s Inflation Reduction Act addresses health care costs and makes critical investments in clean energy. This will begin to free us from our dependence on fossil fuels, which shows that war in Ukraine can be volatile and unpredictable.

In June, President Biden also signed the Shipping Reform Act. The bill tightened regulation of the deeply concentrated shipping industry, which has been a major contributor to supply chain bottlenecks and inflation. Policy makers have also introduced laws to hold companies accountable by taxing casual profits and prohibiting price gouging.

You can’t “save” the economy if people are suffering. in the end, we that is Economy. When we do well, that’s when our economy thrives.It’s time for our leaders to finally press the mute button on Larry Summers’ advice on inflation.

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