Everyone is worried about inflation these days. But politicians blame government benefits instead of rising inequality and corporate profits.
By Sonali Kolhatkar
“Inflation” is the new buzzword of the year. This is why the Federal Reserve interest rate hikes aimed at increasing the cost of certain loans. This is the excuse given against the renewal of enlargement child tax credit program that briefly lifted millions of American families out of poverty. It’s the name of one of the key pieces of legislation that could save President Joe Biden’s first term: the Inflation Reduction Act. And this is the basis of Republican Complaints against Democrats heading into midterm elections this fall.
With all the worries about inflation, one wonders why so little attention has been paid to another “i” word: inequality.
For decades, government officials, media pundits, mainstream economists, politicians and others were content to allow and even allow money to flow upwards, enriching the already wealthy. They paid little attention to growing inequality, beyond shrugging their shoulders and lamenting the unfairness of it all.
For fiscally conservative politicians, inflation seems like trouble, but inequality is perfectly tolerable.
Senate Minority Leader Mitch McConnell (R-KY) last year decided that inflation was the result of the government “flooding the country with money”, via modest benefits to low-income Americans. Interestingly, he didn’t see his party massive tax cuts in 2017 targeting the wealthy as also being responsible for releasing excess wealth.
For years, wages stagnated, and the federal government reacted little. The last time Congress raised the federal minimum wage was over 13 years ago. The Economic Policy Institute in a recent analysis found this, “[a]Given the price increases in June, the current federal minimum wage of $7.25 an hour is now worth less than at any time since February 1956.”
According to EPI, “a $15 national minimum wage would boost incomes for tens of millions of workers, including servers in restaurants, grocery store workers and essential healthcare workers.” But if politicians insist that more money in people’s pockets is the cause of inflation, raising the minimum wage may be the last thing they want.
The has There has been state intervention to address inequality, particularly since the onset of the COVID-19 pandemic. After two years of a devastating pandemic in which millions of Americans suffered in terms of health and wealth, many were able to make ends meet thanks to policies such as unemployment benefits through the CARES Act from 2020, monthly checks from 2021 expanded child tax credit legislationlimit student loan forgivenessand a temporary pause in student loan repayments.
Rising food and gasoline prices undermined these very modest gains. Inflation is indeed a serious problem, precisely because it it hurts those with the lowest incomes the most difficult—not because they may have had a modest excess of cash for a minute.
Politicians and pundits, attributing inflation to the small increase in people’s financial well-being, are now making that extra money worth even less by raising interest rates. The Federal Reserve just raised the national base interest rate by three-quarters of a percent to a range of 2.25 percent to 2.5 percent.
It is not hyperbole to suggest that such policies are designed to keep people poor. For example, a New York Times story earlier this year, titled “How Higher Interest Rates Lower Inflation?” made it clear how “the Fed triggers a ripple effect” by raising rates. This means that “directly or indirectly, a number of borrowing costs for consumers are increasing”.
In real terms, the document offered examples of how “consumers can expect to pay more on any revolving debt.” In addition, “[c]lending rates are expected to rise” and “[p]Private student loan borrowers should also expect to pay more.
If more money in the pockets of the poor is supposed to be the reason for inflation, why isn’t more money in the pockets of the rich an incriminating factor? In reality, some feared in 2017 that Trump’s tax cuts could spur inflation.
Fiscal conservatives like to see inflation as the natural and predictable result of reducing wealth inequality – “too much money in the hands of the plebs!” – rather than increasing it. The conventional economic view is that when people suddenly have more money to spend, prices rise (like magic!). But it’s the manufacturers and distributors who set the prices and take advantage of that excess cash in people’s hands to inflate their profits.
According ENP“already excessive corporate power has been channeled into raising prices rather than the more traditional form it has taken in recent decades: wage suppression.”
Mainstream economists are hesitant about the link between inflation and excess corporate profits. For example, economists from Federal Reserve Bank of New York website wrote, “Market watchers and journalists have wondered whether companies have taken advantage of high inflation to boost corporate profits.” After a detailed analysis that repeatedly confirmed the aforementioned link, they dissuaded themselves, concluding that “increments in earnings may not be followed by further increases in earnings”.
Government intervention to reduce inequality works, as pandemic-era benefits like unemployment checks and child tax credits have proven. And a similar intervention to ease inflation can also work, if it targets the right culprits: corporate profiteers. And politicians know it.
In the Inflation Reduction Act of 2022, most of which is unrelated to inflation but likely allows Sen. Joe Manchin (D-WV) to save face and explain his U-turn on the bill—there is a provision that alludes to the government’s power to intervene in inflation: drug price controls.
Over the past few years, drug prices have skyrocketed. According to Kaiser Family Foundation, “Price increases outpaced inflation for half of all Medicare-covered drugs in 2020.” The Inflation Reduction Act, according to a Washington Post analysis of the bill, “caps Medicare drug costs for seniors at $2,000 a year, requires drug companies to pay a rebate if they raise prices faster than the rate of inflation, and provides free vaccines to the elderly”.
This type of government intervention tacitly recognizes that corporations can afford to continue manufacturing drugs even when faced with controls on their excessive profits.
If prices go up, stop the price setters from doing so, it’s as simple as that. If such a thing can apply to the prices of medicines, why not food, gasoline and other necessities?
Economists and mainstream politicians rely on public confusion about what is fueling inflation. Excess money flowing up the wealth pyramid, not down, is the real culprit.
Sonali Kolhatkar is the founder, host and executive producer of “Rise with Sonali”, a TV and radio show aired on Free Speech TV and Pacifica stations. She is in charge of writing for the Economy for all project at the Independent Media Institute.