U.S. inflation has been on a tear, hitting a near four-decade high of 7 percent in December, with prices spiking as the economy re-opened amid optimism that the coronavirus vaccine rollout would bring the two-year-long pandemic to an end.
Elevated inflation is creating new political and economic hurdles for the Biden administration, leaving it with fewer options on how to tame consumer prices.
Low-income households bear the brunt of the fast-rising prices, with prices on items such as used cars skyrocketing 37 percent. Workers with low incomes are more likely to be Black and Hispanic, so they are also more likely to take the impact of inflation.
The U.S. Federal Reserve has signaled that it will cut back on covid stimulus programs sooner than planned and raise interest rates in 2022, possibly as soon as March. Not all economists think this is a good idea if the goal is to prevent an economic crisis.
Black economists Darrick Hamilton and William Spriggs shared with The Washington Post their recommendations on the options the Fed can take to stem an economic crisis. Hamilton is a professor of economics and urban policy at the New School, and Spriggs is a professor of economics at Howard University and a possible candidate to join the Federal Reserve.
“We are nowhere near an inflation crisis. The real pain families are feeling from price increases today is not a result of stimulus spending,” Hamilton said in a comment he co-authored with Demond Drummer, managing director for equitable economy at PolicyLink.
“For the past two years we’ve endured an unprecedented public health crisis and answered an unprecedented economic downturn with an unprecedented stimulus. It is not extraordinary to have inflation after deploying fiscal stimulus to lift our economy out of a downturn,” the economists said.
Hamilton further said that it would be “simply disingenuous and irresponsible” to blame the rise in consumer prices on the fiscal stimulus measure undertaken during the pandemic. He recommended that focus shift elsewhere, like the likely housing crisis, and that more stimulus would be needed to avoid a real crisis.
“We should be looking at the looming eviction crisis and concluding that our stimulus hasn’t gone far enough,” Hamilton said.
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William Spriggs recommended that the Fed takes measures to “increase the supply of goods and target price inflation”, rather than hiking interest rates to tame inflation.
“One way to do so would be to raise capital gains taxes on investors and levy new taxes on income from stock dividends,” said Spriggs, a former assistant secretary for policy at the Labor Department.
Taxing the rich heavily would, according to Spriggs, reign in the “top-heavy” consumption pattern of the U.S. economy.
The richest 10 percent in America consume as much as the bottom 40 percent combined, according to the Bureau of Labor Statistics.
“Instead of taking measures that would hurt growth and cost jobs, policymakers could temper demand amid massive supply chain disruptions by slowing down the consumption of those at the very top with modest taxes on the rich,” Spriggs added.