Opinion: Cause of inflation by rich, powerful or by farmers, workers and middle class?
Pundits are debating whether the U.S. is going to have a mild or a serious recession. That’s not our biggest concern today. Millions of Americans are already in a depression, and at a time when billionaires and multimillionaires are proliferating and getting wealthier.
Those who lost jobs and incomes during the pandemic now find that they can no longer afford to pay the increasing rents in the cities they live in. Others have lost the homes for which they can no longer pay the mortgages. Potential new buyers can’t afford the rapidly increasing cost of a house and higher mortgage rates.
How did that happen, and how are we going to change it? It’s all about the causes and results of two kinds of inflation. Are the rich and powerful causing inflation or are farmers, workers, small businesses, the middle class and poor causing it? Or, some combination of the two?
The classic illustrative case is today’s housing market. Billionaires, millionaires and investment groups get wealthier when they pay cash to buy parts of neighborhoods. The housing supply dwindles, demand increases, and prices go up for everyone.
Donald Trump’s 2017 Tax Cuts and Jobs Act is an example of what Congress should not do. It had an especially bad inflationary effect during a pandemic. It gave huge tax cuts for corporations and the rich, and small token tax cuts for workers. 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.
Wealthy people increase their inflationary impact when Congress cuts their taxes. On the other hand, raising progressive taxes on them reduces it, like it did between 1933 and 1980 when our nation created the greatest middle class in history. We had the highest progressive taxes on corporations, incomes and inheritances. We even had an excess corporate profits tax during WWII.
The Supreme Court also made conditions worse when it overturned Roe vs. Wade. It eliminated federal protections of abortion rights, which hurt women who already had trouble supporting their families, and could no longer limit their size via abortion. Also, as we’re seeing repeatedly, doctors in many states can't perform abortions they feel are necessary to protect a woman’s future health and even her life itself. It’s hard to imagine a more depressing situation, not only for the women with serious pregnancy problems, but also for the medical staff who want to do what’s best for them.
When the Fed raises interest rates, it makes it harder on farmers, small businesses, workers, the middle class and poor. They are the ones who have to borrow money to buy what they need.
Raising interest rates also does nothing to stop today’s biggest cause of inflation: rising costs in all countries due to the war in Ukraine, the pandemic, supply chain failures and climate change. Fortunately, international inflation isn’t as bad for the U.S. as it is for other countries.
When the Fed raises the interest rates it doesn’t reduce the major cause of nationally caused inflation. Billionaires and millionaires don’t have to borrow the money they need to buy what they want. They pay cash for houses to rent to those who are already struggling to make ends meet.
Our economy’s greatest problem is the rapidly increasing disparity in wealth and income at all levels. Spending by upper levels always increases inflation for those at lower levels. Billionaires are pricing mere millionaires out of the markets for chateaus in France, castles in England, mega-yachts with helicopter pads, and joy rides to outer space.
Even everyday consumers who are financially comfortable enough to buy what they want decrease the supply of products and services available to those who have to borrow money to buy what they must have.
Those who still have decent incomes and saved money during the pandemic are not in a recession yet. But the number of those who can’t buy some of the things they need—for housing, food, medicines, and so on — is rapidly increasing.
For them, that’s a depression.
Fairview’s Chuck Kelly is author of "The Destructive Achiever; power and ethics in the American corporation and Why Capitalism Thrives—and how it Self-Destructs." Email: kellycm2@bellsouth.net
This article originally appeared on Asheville Citizen Times: Opinion: Who is the cause of inflation? Rich, powerful or the half?
