James Galbraith: What Inflation Means For The Left

James K. Galbraith: There is no compelling reason to raise interest rates, now or later.

By James K. Galbraith, The Nation

In stating recently that “inflation is the Fed’s job,” President Biden gave compact expression to three radically false and politically suicidal propositions: 1. The past year’s price increases are part of a process that must be suppressed. 2. Anti-inflation policies are the preserve of the central bank. 3. The Federal Reserve can suppress inflation without also wrecking the economy, the president’s own program, his party, and his political prospects.

Let me offer three counter-propositions: 1. There is no compelling reason to raise interest rates, now or later. 2. Nevertheless, future price pressures are inevitable. 3. A progressive anti-inflation strategy is possible and necessary—one that supports jobs and living standards and doesn’t involve the Federal Reserve.

What the left needs to know about inflation

Why have prices risen this year? First of all, because world oil prices jumped in the spring of 2021, while supply chain troubles hit new car production and drove up used-car prices. Those were the big items. They were onetime hits, in the case of oil largely over by July, which make new headlines every month only because the government reports price changes 12 months later. Though some effects will linger, these big shifts will drop from the news reports automatically as 2022 moves along.

Wages are also rising, finally—a bit. Since most American jobs are in services, those wages are also prices. And they are prices that are paid—this should be an obvious point—by people wealthier than those who are getting paid. Suppressing wage increases for low-wage American workers is reactionary. And it’s a result that can be achieved only by gouging those workers and their families on their debts and then cutting off their bargaining power over their jobs.