The Elites Couldn’t Care Less About Inflation
The nation is now plagued by inflation. The president, however, has placed the blame for inflation on Putin. After all, because sanctions on Russia in response to its invasion of Ukraine have resulted in less oil imports from Russia, prices for oil have increased. The problem with this narrative is that prices were rising before the current war. It is true that this war has exacerbated inflation, but inflation was already a problem, and one which the current administration contributed to.
The principal source of inflation has been the supply chain crisis due to the pandemic. In the absence of a plan for reopening an economy that was shut down, there were bound to be interruptions in the supply of goods to market, thereby resulting in a rise in prices. But when the Federal Reserve Board (FED) maintains a policy of easy money through practically negative interest rates, that too will contribute to rising prices.
Although the Biden administration has had no say on Fed policy, it has contributed to rising energy prices with its war on fossil fuels. Just to be the anti-Trump, Biden issued executive orders cancelling the Keystone XL pipeline among other things. Not only did this result in the loss of thousands of good paying union jobs, but it increased our dependence on others. Now without sufficient oil to import and our own ability to make up the difference, oil prices can be expected to rise.
This doesn’t just affect prices at the pump, but all prices. Rising energy prices result in higher production costs, rising home and office heating costs, increased costs for goods and services because it costs more to transport goods to market. Progressives who push for green energy myopically focus on transportation, which they believe should involve more mass transit systems and electric cars. They don’t often consider how rising energy costs affect the cost of virtually everything. Moreover, they couldn’t care less.
For elites who push green energy, the desire for cheap oil is misplaced and downright deplorable. That those hurt the most because of inflation are ordinary workers whose incomes are in the middle of the distribution, is immaterial. What they don’t understand is that the war on fossil fuels has been taken as a war on the middle class. After all, were it truly a matter of the public interest, then there would have been a transition period. Investments into green energy could have occurred alongside the continued production of fossil fuels.
Those among the elites who acknowledge that inflation is a problem see the solution, to the extent that they are willing to endorse one, in the Fed raising interest rates. Either way, ordinary workers get the shaft. The standard treatment for inflation is for the Fed to tighten the money supply, which means raising interest rates. This effectively makes it more expensive to borrow money. As a result, firms have less to invest in expanding their operations and job creation. On the contrary, a tightening of the money supply leads to a recession with higher unemployment.
So let us rehearse just what is going on here. With inflation, the price of goods often outstrips any increase in wages they may have received. Because inflation devalues money, the value of their wages has decreased. With inflation, especially when it is 7.9 percent — the highest in decades — workers have effectively taken a wage cut at a time they are forced to spend more on necessities like food and heating their homes. As the public complains about inflation, the Fed responds with interest rate hikes, thereby leading to a recession in which workers, whose wages were previously devalued, now lose their jobs.
Occasionally, some among the elites will decry minimum wage increases on the grounds they may lower employment, but the same voices are mysteriously silent when rate hikes to address inflation will also lower employment. Given all of this, it is hard to believe that the elites really care about ordinary workers.
Some of the elites are rumored to have said that it is hard for those earning less than $300,000 a year to withstand this type of inflation, but they could nevertheless offer some helpful hints. Among them, people should take the bus and instead of eating meat people should eat lentils. If this has an echo of Marie Antoinette saying that those who could not afford bread could always eat cake, this is exactly the same.
Still, they are doubling down on green energy with the attitude that if the price of gas at the pump becomes so expensive, then the masses will naturally have to alter their behavior. They want prices at the pump to rise because they want people to drive less. But for ordinary workers who don’t have a good public transit option, this isn’t viable. The wealthy either absorb higher prices at the pump or they purchase electric cars. Electric cars simply are not affordable to ordinary workers.
Like so many issues, the elites are out of touch with the masses on the topic of inflation. And yet, for those who are heavily invested in the market, inflation threatens their holdings. Why else would they demand the Fed take steps to curb inflation even if it means a recession and unemployment for many more? It is worth pointing out that historically and statutorily the Fed’s first obligation is to maintain the integrity of the banking system and maintain price stability. In other words, fighting inflation comes before fighting unemployment.
Congress relies on the Fed to manage the economy through monetary policy because it doesn’t want to be responsible for the consequences. Congress could accomplish the same objectives through fiscal policy. This would require raising taxes during inflation to curb demand and bring prices down, and lowering taxes during a recession so that people can increase demand. By relying on the Fed, Congress is absolved of all responsibility. But here is the key difference: The Fed is only supposed to serve the banking industry whereas Congress is supposed to represent all interests, including those of ordinary workers.
When the president of the United States blames Putin for inflation, it could be ignorance. But that is hardly the case given the economic advisors he keeps company with. Rather, he is deflecting attention from the hard reality that this administration specifically and progressives generally could not care less about the effects of inflation and how inflation affects the lives of ordinary workers.