Fiscal policy should be the mechanism for the United States to help manage inflation as we enjoy sovereign fiat currency. Monetary policy decisions from Voelker and OPEC oil price spikes were main causes of inflation and stagflation. Under effective fiscal policy, the Fed could eliminate monetary policy altogether and focus primarily on inflationary trends based on real resource and build in automatic stabilizers like a job guarantee for any citizen who wants to work. Unfortunately FFOTUS and this feckless maga-Congress leadership could never imagine such a solution. I recommend the Bulwark interview Dr. Stephanie Kelton for a superb macroeconomic discussion our audience could easily consume. Thanks.
The Supreme Court will give Trump control of every other federal agency, but not the Fed. Why? Because a Fed that is not independent would harm the economy, and that would affect the Justices' personal economic situation.
I posted this elsewhere, but this is my weak attempt at making it go viral......
We should start a campaign to send homemade trophies, medals, etc to the White House (1600 Pennsylvania Avenue NW, Washington, DC 20500) en masse. Make them out of yogurt lids, carpet swatches, papier matchet, old cat toys, CDs, etc etc. Have "Make Trump a Prize" craft parties. See how many he takes seriously and displays in the Oval.
In reading some of the comments. this monk is amused by the ranting of left wings who clearly don't even understand econ1 basics. And, why did communism fail? Can left wing nuts even honestly say that they took any econ classes in college? Or, it could be that they don't get English, because their logic is so much gibberish. 😊
This monk is from the hood. He is lucky to know the perspectives of a wide range of friends: from the formerly homeless folks to the folks, whose lineage started with maybe the Mayflower? What this monk learned is that share-croppers and tenant farmers are not "rich folks. And yet, this monk learned that real happiness come from within.
This monk figured that many folks are unhappy due to their own insecurity? Not a psychologist, though it seems that many folks are in this "fight or flight" mode 24/7. Alas, humans have evolved to survive by having the "fight or flight" gene. The monk hopes that these people with "extreme views", left or right, find a path to peace. This monk is very lucky. We are all in this together.🙏
We are all lucky to be in America, in this monk's very humble opinion.
I'm SO tired of our economic woes being covered up by smoke-and-mirrors neoliberal-apology articles like the one I just read. Its sins are legion. It assumes that we should just accept artificial scarcity because well, we just should, there's really nothing to do about it, while of course the filthy rich keep getting filthily richer and richer. Neoliberalism should be absolutely KRYPTONITE for any politician who embraces it.
FIRST, the Democrats have hit a winning note by making this about AFFORDABILITY and not inflation. There is a difference between inflation in luxury, high-end items, and basic necessities of life, which is always glossed over by "inflation hawks". I don't care if the price for a luxury high-rise condo in NYC and the price for a luxury cruise and the price to eat out at a five-star increase by 5X, or 10X. I, like most Americans, just care about being able to afford my very modest place where I live. Even though price increases in both figure into "inflation". Moreover, the real issue is PURCHASING POWER, not what some numbers in a spreadsheet or bank statement are. If they are 10X more, or 10X less, I really don't care. What I do care about is what I can do with it. And of course, what neoliberals won't touch with a ten-foot pole is why, despite massively increased productivity, real wages have declined, declined, and declined more.
SECOND, the affordability crisis is caused by a lack of supply. Period. That's it. It's caused by not enough productive efforts going to produce the basic necessities of life. Because the profit margin is so much bigger on many other things. And that's what we ALWAYS get hit with. "How can you complain when you can now buy an iPhone, etc., for so little comparatively today, when not that long ago these things didn't exist, or would have been prohibitively expensive?" Yeah, but that's NOT the point. IPhones don't help if you have nowhere to live and nothing to eat. Let's just do a little thought experiment shall we? Yes, the numbers are back-of-the-envelope I well know but deal with it. If we just take Apple, Microsoft, and Oracle, combined 2024 net income was over $200B. If the cost of building a new home is $200K then this would be enough to build 1 million new homes, which would double the amount of new homes being built. I'm not saying of course that these companies should change their business models but it puts things in perspective. But what CAN happen is that government can and should become a supplier for basic necessities, increasing supply and driving prices down.
THIRD, of course there's a way to get lots of money into the economy doing socially beneficial things without causing runaway inflation. Because we have a fiat currency and the government can print however much it needs, and this is what REALLY happens anyway despite the spin put on it. (Yes, this is MMT.) How to prevent inflation? TAX THE RICH and sufficiently contract the money supply. The point of taxation is not to "raise revenue" so that government can operate, but to contract the money supply sufficiently to counteract inflation, without overdoing it and causing deflation. But it also, and more importantly, puts capital to use where it should be (producing sufficient supply of necessities of life so they are affordable) and prevents it, at least to some extent, to putting it where it should not be (like buying islands in Hawaii or a 5th yacht).
Excellent piece! I remember the 70s stagflation period well, as I was a recent college graduate looking for a decent job and had to settle for a low wage one to start paying back my student loans which came due regardless of my employment status. My husband’s brother bought his first house with partner friends at 18% interest. It was a stressful time economically for many. I would hate to see the country backslide into a chaotic economic era that the Fed has learned to even out through hard lessons over many decades. But it seems Trump and his sycophants are determined to take us there. That’s a recipe for even more political instability.
What else, you ask, could affect the economy? What about the drastic cutback on immigrants?
Last week, the United States halted immigration applications from 19 countries. Shortly after, the administration announced an expanded travel ban covering more than 30 countries. Wouldn't
this cutback cause labor shortages--and therefore higher prices--in many sectors of the economy?
Immigrants revitalize cities because they are more entrepreneurial than native Americans.
In a book I wrote about New York I talked about how immigrants have revitalized large parts of Brooklyn, Queens, and even the Bronx.
Regarding inflation: if fiat money (via the Fed) is ever used to purchase government securities (debt), yes you get inflation. Lower interest rates, I believe, are not necessarily inflationary. The Fed influences short-term rates. But we don't borrow from the Fed: we borrow from private banks who make decisions based upon credit-worthiness. Where inflationary risk comes from today is the constant pressure the federal spending puts on the dollar. Financing that debt, even indirectly by the Fed encouraging private purchases of Treasury debt, is spiking the money supply with fiat money.
My eyes usually glaze over when talk veers into economics, and I often can't bring myself to pay attention, but this article was a good read. Thank you.
Just a housekeeping note for The Bulwark technicals; I love having footnotes but find scrolling to them and back difficult and time consuming. Would it be possible to link the footnote to the text and vice versa?
Inflation by rate cuts is one way Hassett can destroy the economy, well covered by this article. Another one, as I understand it, is just the public perception that grownups are no longer in charge of US monetary policy. Loss of investor confidence in American sanity and stability raises the interest the federal government has to pay on US bonds (which are auctioned to the highest bidder, not sold at a fixed price). This makes the national debt crisis come faster and harder.
And the effects won't be limited to just the bond market. If the SEC is rendered toothless, who is going to trust the accounting reports issued by major US corporations (as they will suffer no penalties for lying)?
The market depends on stability and rule of law, and this administration is destroying both. If the US government behaves like a banana republic, expect our stocks will eventually be priced at emerging markets levels.
I understand that this is a big reason why Europe has been so reluctant to fully confiscate those frozen Russian funds in their banks and transfer them to Ukraine. A lot of people online seem to think it's a no-brainer to go ahead and do this, but that violation of the rule of law would make foreign investors more wary of Europe, costing Europe a lot of future capital.
I can understand their concern, but I don’t think it will be that great a problem, because this is a fairly unique case, as Russia clearly decided to launch an unprovoked war of aggression. (Well, it was a unique case before the US decided that Russia is a nation whose behavior we should emulate!)
That is what is so frustrating about this whole situation: the safety and prosperity of not just the US but the entire world has been deliberately put at risk by idiots who simply do not appreciate what the post war Pax Americana has enabled, and thus see no reason not to destroy it.
I fear I'm dragging us off topic here, but how much of that money is the property of individual Russian citizens, rather than the Russian central bank? That would be where this issue gets thorny. Your money is safe in our country, unless your government does something we don't like and we think you probably had sympathy for it. Then we might confiscate your investment...
I agree that that is where things get thorny. Only in this case I would swap out the words “something we don’t like“ to “something blatantly illegal under international law.” I think that’s it is a distinction that matters (and I say that as someone who has foreign investments which could potentially be confiscated in exactly the same way if the US continues to behave like a rogue nation state).
Catherine, thanks for including Drechsel's paper. Thanks also for bringing up the issue of stagflation, the scariest time economically in my life. I'm a little more than a year older than Powell, so contemporaries. He stayed in school. I left school to work on the railroad in Chicago. I was tired of being poor all my life and wanted to make some money quickly, get back and finish school. It took me four and a half years, and the money I eventually used to pay for school and life didn't come from wages.
Railroads are interesting places. They foretell the short run economic future by what they're carrying or not carrying. From 1974 through much of 1976 many rail cars were empty. In some sectors, most cars were empty, auto racks, for example. By late 1976, cars were being made and shipped again. But prices of everything kept going up.
Fast forward to the early '80s. I'd been offered a job in DC, and after the third offer, I took it. A couple guys I worked with had mortgages in the high teens and 20 percent. Volker's and the Fed's strategy was to crush inflation by letting interest rates get as high as necessary to crush inflation.
I had two very young kids. I was afraid of not being able to buy food and clothes. I was about sure I'd never own a home. I was terrified to take a mortgage. I did, in 1985, at 12.5 %. Then it was re-fi city for the next 6 years or so.
Your discussion about a return of stagflation is spot on. We're getting close. That's the main reason Trump and his gang are refusing to get timely with BLS data. Firms, especially small ones, are failing under the burden of Trump's tariff-taxes, which are nothing but taxes. New jobs numbers are down. We're nibbling at the edges of stagflation now. All Trump does is lie.
"Regular" people are getting scared. Notwithstanding Trump's lies, people can see costs for everything (inflation) rising. For people 40 and under, we're getting back to the fear of 40 years ago. Although, if Trump gets away with any greater control over the Fed, he'll drive the cost of money to near zero. The US will be looking for bailouts from Argentina. I think the fear of stagflation can be framed in socio-economic stories from those of us who lived through it. I don't know if you see yourself as a storyteller.
Exactly, we were so fearful of the economy we rented until autumn 1992, when we were both a couple months from turning 40 years of age. And stagflation was still our major fear.
So tired of hearing how boomers have it so great, we lived through economic inequity in that time of our lives too. It’s how the economy is regulated and rigged, it’s rich vs poor NOT generation vs generation.
Well said and mirrors what I experienced in the 80's. I bought a house and used my VA benefit and the interest rate? 15 3/4%. We must not let this insanity continue.
Fiscal policy should be the mechanism for the United States to help manage inflation as we enjoy sovereign fiat currency. Monetary policy decisions from Voelker and OPEC oil price spikes were main causes of inflation and stagflation. Under effective fiscal policy, the Fed could eliminate monetary policy altogether and focus primarily on inflationary trends based on real resource and build in automatic stabilizers like a job guarantee for any citizen who wants to work. Unfortunately FFOTUS and this feckless maga-Congress leadership could never imagine such a solution. I recommend the Bulwark interview Dr. Stephanie Kelton for a superb macroeconomic discussion our audience could easily consume. Thanks.
The Supreme Court will give Trump control of every other federal agency, but not the Fed. Why? Because a Fed that is not independent would harm the economy, and that would affect the Justices' personal economic situation.
I posted this elsewhere, but this is my weak attempt at making it go viral......
We should start a campaign to send homemade trophies, medals, etc to the White House (1600 Pennsylvania Avenue NW, Washington, DC 20500) en masse. Make them out of yogurt lids, carpet swatches, papier matchet, old cat toys, CDs, etc etc. Have "Make Trump a Prize" craft parties. See how many he takes seriously and displays in the Oval.
Hassett probably has the most punchable face in the administration.
Great article. Thanks Catherine.
In reading some of the comments. this monk is amused by the ranting of left wings who clearly don't even understand econ1 basics. And, why did communism fail? Can left wing nuts even honestly say that they took any econ classes in college? Or, it could be that they don't get English, because their logic is so much gibberish. 😊
This monk is from the hood. He is lucky to know the perspectives of a wide range of friends: from the formerly homeless folks to the folks, whose lineage started with maybe the Mayflower? What this monk learned is that share-croppers and tenant farmers are not "rich folks. And yet, this monk learned that real happiness come from within.
This monk figured that many folks are unhappy due to their own insecurity? Not a psychologist, though it seems that many folks are in this "fight or flight" mode 24/7. Alas, humans have evolved to survive by having the "fight or flight" gene. The monk hopes that these people with "extreme views", left or right, find a path to peace. This monk is very lucky. We are all in this together.🙏
We are all lucky to be in America, in this monk's very humble opinion.
I'm SO tired of our economic woes being covered up by smoke-and-mirrors neoliberal-apology articles like the one I just read. Its sins are legion. It assumes that we should just accept artificial scarcity because well, we just should, there's really nothing to do about it, while of course the filthy rich keep getting filthily richer and richer. Neoliberalism should be absolutely KRYPTONITE for any politician who embraces it.
FIRST, the Democrats have hit a winning note by making this about AFFORDABILITY and not inflation. There is a difference between inflation in luxury, high-end items, and basic necessities of life, which is always glossed over by "inflation hawks". I don't care if the price for a luxury high-rise condo in NYC and the price for a luxury cruise and the price to eat out at a five-star increase by 5X, or 10X. I, like most Americans, just care about being able to afford my very modest place where I live. Even though price increases in both figure into "inflation". Moreover, the real issue is PURCHASING POWER, not what some numbers in a spreadsheet or bank statement are. If they are 10X more, or 10X less, I really don't care. What I do care about is what I can do with it. And of course, what neoliberals won't touch with a ten-foot pole is why, despite massively increased productivity, real wages have declined, declined, and declined more.
SECOND, the affordability crisis is caused by a lack of supply. Period. That's it. It's caused by not enough productive efforts going to produce the basic necessities of life. Because the profit margin is so much bigger on many other things. And that's what we ALWAYS get hit with. "How can you complain when you can now buy an iPhone, etc., for so little comparatively today, when not that long ago these things didn't exist, or would have been prohibitively expensive?" Yeah, but that's NOT the point. IPhones don't help if you have nowhere to live and nothing to eat. Let's just do a little thought experiment shall we? Yes, the numbers are back-of-the-envelope I well know but deal with it. If we just take Apple, Microsoft, and Oracle, combined 2024 net income was over $200B. If the cost of building a new home is $200K then this would be enough to build 1 million new homes, which would double the amount of new homes being built. I'm not saying of course that these companies should change their business models but it puts things in perspective. But what CAN happen is that government can and should become a supplier for basic necessities, increasing supply and driving prices down.
THIRD, of course there's a way to get lots of money into the economy doing socially beneficial things without causing runaway inflation. Because we have a fiat currency and the government can print however much it needs, and this is what REALLY happens anyway despite the spin put on it. (Yes, this is MMT.) How to prevent inflation? TAX THE RICH and sufficiently contract the money supply. The point of taxation is not to "raise revenue" so that government can operate, but to contract the money supply sufficiently to counteract inflation, without overdoing it and causing deflation. But it also, and more importantly, puts capital to use where it should be (producing sufficient supply of necessities of life so they are affordable) and prevents it, at least to some extent, to putting it where it should not be (like buying islands in Hawaii or a 5th yacht).
OK, rant over.
Excellent piece! I remember the 70s stagflation period well, as I was a recent college graduate looking for a decent job and had to settle for a low wage one to start paying back my student loans which came due regardless of my employment status. My husband’s brother bought his first house with partner friends at 18% interest. It was a stressful time economically for many. I would hate to see the country backslide into a chaotic economic era that the Fed has learned to even out through hard lessons over many decades. But it seems Trump and his sycophants are determined to take us there. That’s a recipe for even more political instability.
What else, you ask, could affect the economy? What about the drastic cutback on immigrants?
Last week, the United States halted immigration applications from 19 countries. Shortly after, the administration announced an expanded travel ban covering more than 30 countries. Wouldn't
this cutback cause labor shortages--and therefore higher prices--in many sectors of the economy?
Immigrants revitalize cities because they are more entrepreneurial than native Americans.
In a book I wrote about New York I talked about how immigrants have revitalized large parts of Brooklyn, Queens, and even the Bronx.
Regarding inflation: if fiat money (via the Fed) is ever used to purchase government securities (debt), yes you get inflation. Lower interest rates, I believe, are not necessarily inflationary. The Fed influences short-term rates. But we don't borrow from the Fed: we borrow from private banks who make decisions based upon credit-worthiness. Where inflationary risk comes from today is the constant pressure the federal spending puts on the dollar. Financing that debt, even indirectly by the Fed encouraging private purchases of Treasury debt, is spiking the money supply with fiat money.
Affable like a brown-nosing ignoramus.
My eyes usually glaze over when talk veers into economics, and I often can't bring myself to pay attention, but this article was a good read. Thank you.
Just a housekeeping note for The Bulwark technicals; I love having footnotes but find scrolling to them and back difficult and time consuming. Would it be possible to link the footnote to the text and vice versa?
Thank you Catherine. Another excellent report.
Thanks Catherine. Very informative. Your an econ Gem. I learned something from you. so, I guess an old dog can learn new tricks.
Inflation by rate cuts is one way Hassett can destroy the economy, well covered by this article. Another one, as I understand it, is just the public perception that grownups are no longer in charge of US monetary policy. Loss of investor confidence in American sanity and stability raises the interest the federal government has to pay on US bonds (which are auctioned to the highest bidder, not sold at a fixed price). This makes the national debt crisis come faster and harder.
And the effects won't be limited to just the bond market. If the SEC is rendered toothless, who is going to trust the accounting reports issued by major US corporations (as they will suffer no penalties for lying)?
The market depends on stability and rule of law, and this administration is destroying both. If the US government behaves like a banana republic, expect our stocks will eventually be priced at emerging markets levels.
I understand that this is a big reason why Europe has been so reluctant to fully confiscate those frozen Russian funds in their banks and transfer them to Ukraine. A lot of people online seem to think it's a no-brainer to go ahead and do this, but that violation of the rule of law would make foreign investors more wary of Europe, costing Europe a lot of future capital.
I can understand their concern, but I don’t think it will be that great a problem, because this is a fairly unique case, as Russia clearly decided to launch an unprovoked war of aggression. (Well, it was a unique case before the US decided that Russia is a nation whose behavior we should emulate!)
That is what is so frustrating about this whole situation: the safety and prosperity of not just the US but the entire world has been deliberately put at risk by idiots who simply do not appreciate what the post war Pax Americana has enabled, and thus see no reason not to destroy it.
I fear I'm dragging us off topic here, but how much of that money is the property of individual Russian citizens, rather than the Russian central bank? That would be where this issue gets thorny. Your money is safe in our country, unless your government does something we don't like and we think you probably had sympathy for it. Then we might confiscate your investment...
I agree that that is where things get thorny. Only in this case I would swap out the words “something we don’t like“ to “something blatantly illegal under international law.” I think that’s it is a distinction that matters (and I say that as someone who has foreign investments which could potentially be confiscated in exactly the same way if the US continues to behave like a rogue nation state).
Catherine, thanks for including Drechsel's paper. Thanks also for bringing up the issue of stagflation, the scariest time economically in my life. I'm a little more than a year older than Powell, so contemporaries. He stayed in school. I left school to work on the railroad in Chicago. I was tired of being poor all my life and wanted to make some money quickly, get back and finish school. It took me four and a half years, and the money I eventually used to pay for school and life didn't come from wages.
Railroads are interesting places. They foretell the short run economic future by what they're carrying or not carrying. From 1974 through much of 1976 many rail cars were empty. In some sectors, most cars were empty, auto racks, for example. By late 1976, cars were being made and shipped again. But prices of everything kept going up.
Fast forward to the early '80s. I'd been offered a job in DC, and after the third offer, I took it. A couple guys I worked with had mortgages in the high teens and 20 percent. Volker's and the Fed's strategy was to crush inflation by letting interest rates get as high as necessary to crush inflation.
I had two very young kids. I was afraid of not being able to buy food and clothes. I was about sure I'd never own a home. I was terrified to take a mortgage. I did, in 1985, at 12.5 %. Then it was re-fi city for the next 6 years or so.
Your discussion about a return of stagflation is spot on. We're getting close. That's the main reason Trump and his gang are refusing to get timely with BLS data. Firms, especially small ones, are failing under the burden of Trump's tariff-taxes, which are nothing but taxes. New jobs numbers are down. We're nibbling at the edges of stagflation now. All Trump does is lie.
"Regular" people are getting scared. Notwithstanding Trump's lies, people can see costs for everything (inflation) rising. For people 40 and under, we're getting back to the fear of 40 years ago. Although, if Trump gets away with any greater control over the Fed, he'll drive the cost of money to near zero. The US will be looking for bailouts from Argentina. I think the fear of stagflation can be framed in socio-economic stories from those of us who lived through it. I don't know if you see yourself as a storyteller.
Exactly, we were so fearful of the economy we rented until autumn 1992, when we were both a couple months from turning 40 years of age. And stagflation was still our major fear.
So tired of hearing how boomers have it so great, we lived through economic inequity in that time of our lives too. It’s how the economy is regulated and rigged, it’s rich vs poor NOT generation vs generation.
Well said and mirrors what I experienced in the 80's. I bought a house and used my VA benefit and the interest rate? 15 3/4%. We must not let this insanity continue.