Throughout our history there have been many causes of inflation, but two of them have been persistent and are in conflict with each other. First, wealthier persons create inflation when they buy large amounts of our nation’s resources, products and services. Secondly, low- and middle-income persons create inflation when they make more money and buy more things.
These are the causes of inflation that Congress has controlled in the past through tax and labor legislation, and by the Federal Reserve controlling the money supply. A growing economy always has inflation, and everyone — rich, poor and middle class — is hurt by it. But those who cause it benefit far more than they lose.
President Donald Trump’s 2017 Tax Cuts and Jobs Act had an especially bad inflationary effect during a pandemic. It gave huge tax cuts for corporations and the rich, and token small tax cuts for workers. Of course, those whose incomes weren’t high enough to pay taxes got no benefits. Those on the lower end of the economic scale were, and still are, the ones most devastated by inflation.
Congress, not the Federal Reserve. Needs to reverse this growing inflationary trend, It is a money distribution issue, not a money quantity issue. Billionaires and millionaires can easily pay cash for houses to rent to those who can’t afford to buy them and also pay the mortgage rates that the Fed has already increased.
We now need wage inflation, given the economic desperation of those in the bottom half of the wealth scale,. The bad effects of inflation on the middle class and poor will get worse as long as our nation’s wealth and income disparity between the well-off and everyone else continues.
This disparity happens at all economic levels. Spending by upper levels increases inflation for those at lower levels. Billionaires price mere millionaires out of the markets for chateaus in France, rare paintings by famous artists, mega-yachts with helicopter pads, and joy rides to outer space.
Millionaires purchase houses to rent to bankrupted former owners who could no longer pay their mortgages. This decreases the number of houses for sale, which increases their investment value and prices lower income persons out of the housing market.
Congress should progressively raise taxes on corporations and the wealthy, who will continue to do well, and thus reduce the inflation they cause. The increased tax revenue would pay for infrastructure and government programs that create higher-paid jobs.
That’s how the US built the world’s greatest and most vibrant middle class in the world. From 1933 to 1980 political leaders managed our capitalist system in ways that improved the living standards of workers, the middle class and poor, and reduced the growing wealth disparity between the rich and everyone else.
They raised progressive taxes to the highest level in our history on incomes, estates and corporations. During WWII we had an excess profits tax. Workers had the right and power to unionize, even during wartime. They made enough money to not only afford a decent lifestyle, but also to pay taxes.
A well-financed government addressed problems that businesses ignored. Despite higher progressive taxes, the wealthy continued to get wealthier, but not nearly as much as they did during the “Roaring Twenties.”
When workers made more money, along with the wealthy, everything got more expensive. In 1980 many politicians concluded that workers were benefiting too much from the economy. Unions were too strong, wages were too high, and corporate profits weren’t high enough. To them, a good economy was when rising stock and real estate markets caused inflation, not that dreaded “wage inflation.”
That’s still true today. Listen to business news commentators debate whether or not the Federal Reserve should raise interest rates to cool down the economy. The number one criterion for judging is, are wages going up too much—not is the stock market going up too much. Everyone is concerned about the skyrocketing prices of real estate, but too many politicians don’t want to do anything about house or rent increases.
Of course, we’re always going to have inflation in a growing economy, and those on fixed or low incomes are hurting no matter what the source of inflation. The Federal Government has to make economic adjustments, like pegging benefits of programs like Social Security, minimum wage standards, unemployment insurance, and food supplement programs to the inflation rate.
Chuck Kelly lives in Fairview and is the author of “The Destructive Achiever: Power and Ethics in the American Corporation” and “Why capitalism thrives — and how it self-destructs.”