If Democrats refuse to call out corporate greed, they’re certain to lose the inflation debate
If Democrats refuse to call out corporate greed, they’re certain to lose the inflation debate
"The message can and must be that inflation is a function of corporate greed, and the wealthy must pay the costs of their avarice." Guest column from Marquette professor Sam Harshner.
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Guest column from Sam Harshner. Harshner is an instructor in Political Science and History at Marquette University. Prior to that, he worked for fifteen years as a budget and policy analyst for the State of Wisconsin and federal Department of Health and Human Services.
In just under a month, the Democratic contenders in the Wisconsin primary race for U.S. Senate will take the stage in Milwaukee for a debate. The debate will likely focus on who is most likely to defeat Republican Sen. Ron Johnson in the fall. The answer to that question will turn in large part on how the candidates deal with inflationary economic trends not seen in more than 40 years.
The problem for Democrats is that pundits tend to treat rising prices not as a matter of political choices at all. Instead, the typical news segment treats inflation as a conflict-free natural process, as natural as the tide or the phases of the moon. In this politics-free zone, Republicans decry inflation as a “tax on everyone" and blame excess government spending. By contrast, Democrats cede the necessity of the Federal Reserve’s interest-rate hikes, but aim for short-term palliative spending to ease the burden on the unemployed.
Treating the solutions to inflation as essentially apolitical heavily benefits Republicans going into the midterm elections, and Wisconsin’s pivotal Senate contest is emblematic. While Senator Ron Johnson defines inflation as a “democrat Tax on all Americans,” the major Democratic contenders have focused their discussions to the supply chain, middle class tax cuts, and increasing the minimum wage.
While these are fine ideas, they miss a fundamental aspect of the debate over inflation. Inflation is not just a technical issue. It is a political issue that will have winners and losers. While Johnson rails against irresponsible government spending, Democrats’ focus on policy fails to clearly identify the culprit at the root of the crisis. Failure to present a plausible narrative of why inflation is happening and who is to blame makes it likely that Johnson will win reelection and the costs of this crisis will continue to fall on the backs of an already overburdened working class.
In recent days, Federal Reserve Chairman Jerome Powell announced a series of policies that are aimed at decelerating the growth of the American economy and bringing an end to an inflationary cycle unseen since the 1970s. These include a 0.75% increase in interest rates, the largest since 1994, and also announced plans to begin divesting itself of the $9 trillion in assets acquired through the Fed’s “quantitative easing program.” Both policies are aimed at driving down prices, and if the immediate response from global markets and the New York Stock Exchange is any indication, investors are heeding the signal. Despite this, Powell asserted that the Fed would continue to use every tool at its disposal until “financial conditions are in an appropriate place [and] we see inflation coming down.”
Despite Powell’s assurances that “there are a number of plausible paths to have a…softish landing,” the likelihood of a recession in these conditions is high. Wages are expected to decrease, exacerbating an environment in which workers already experienced a 2.4% decrease in real wages during 2021. Unemployment also threatens to increase, and despite Powell’s contention that we would “still have a strong labor market if unemployment were to move up a few ticks” we can and should be worried about the impact of these moves on ordinary Americans.
All of this would be worrisome even if we could tie inflation directly to purported increases in wages, but a recent report by the Economic Policy Institute throws a great deal of doubt on this theory. According to economist Josh Bivens, very little of the current increase in prices can be attributed to growing wages. Indeed, his analysis shows that between the second quarter of 2020, when the COVID-19 recession reached its nadir, and the end of 2021, only 8% of the increase in prices in the Nonfinancial Corporate Sector (which makes up 75% of the economy) was associated with increased labor costs. Conversely, 54% of the increase was the result of increased corporate profits, and 38% with “nonlabor input costs” associated with problems like COVID supply chain disruptions.
This data makes the Fed’s approach to the current crisis more than curious. Why place all the emphasis on a factor that accounts for only 8% of the current problem, when it would be more efficient to begin fixing bottlenecks in the supply chain or passing tax policies that would place a limit on corporate profits? After all, as leading European Central Bank economist Isabel Schnabel recently stated, “so far, workers are bearing the brunt of the inflationary shock.” Asking these same workers to bear the costs of halting this inflationary moment is adding insult to injury.
Alternatives exist. One is to limit the temptation to maximize corporate profits by establishing taxes that limit these profits and push wealth downward in the income distribution. While this could decrease private investment, revenues could be used for socially beneficial production to address problems like the housing crisis or climate change, an approach all the more attractive in an economy which drives firms to chase ponzi schemes like Bitcoin before investing in productive enterprises that could produce jobs and alleviate the sluggishness of our global supply chain. Another approach could be to strengthen the hand of organized labor through passage of legislation like the PRO Act. A reinvigorated labor movement could negotiate a more equitable distribution of economic profits, ensure family sustaining incomes, provide safer conditions, and establish more job stability for American workers. These options are almost certainly more beneficial to the majority of the American public than a policy that staves off inflation via the suffering of ordinary workers. The question remains, why would policy makers cede their judgment to the Fed on this issue?
The answer is that inflation is an inherently political issue. It is not a natural phenomenon, it is not caused by forces beyond our control, and there remain numerous ways to respond to the problems it creates. How we respond to recession or inflation determines who pays the price for getting the American economic locomotive back on the track, and our current system creates a structural bias that favors those already in the upper echelons of wealth and income.
A deflationary policy predicated on taxes, public investment, and strengthening labor requires navigating the clunky and sputtering halls of Congress. An institution that has proven incapable of addressing, let alone solving, fundamental crises ranging from climate change to racial justice is unlikely to find the initiative to fundamentally remake our approach to taxes and economic development.
Candidates and policy makers have the opportunity to shift the discussion on inflation, but only if policy is couched in a genuine politics of conflict. Gov. Evers recently signed an executive order to prohibit price gouging on gas, and President Biden’s current legislative priority is a gas tax holiday. While both policies signal concern for American consumers, they largely fail to identify who is at fault for this predicament. We need more politicians to take the lead of those like Wisconsin Senator Tammy Baldwin, who in a recent statement on “Price Gouging Prevention Act of 2022” asserted that, “we can lower costs for families across Wisconsin if we take on big corporations who are using a crisis to jack up prices for consumers.” Ultimately, someone will have to pay the price for stopping inflation, and if the political left does not insist that this price be paid by the economic elites who have grown fat on 40 years of neoliberal policy, then people will accept Johnson’s blunt scapegoating of government profligacy.
The message can and must be that inflation is a function of corporate greed, and the wealthy must pay the costs of their avarice. Fortunately, it is a narrative that actually represents reality, unlike the claims of the political right.
Our institutions remain sclerotic, and unlike monetary fixes to inflation, policies that focus on taxes and spending require navigating Congress. The key to this shift is the construction of a genuinely democratic politics that places the levers of fiscal and monetary policy in the hands of elected officials and doesn’t cede the hard decisions to appointed doyens insulated from the political claims of the electorate. It requires mass politics grounded in the material interests of the American people, and it requires politicians willing to mobilize the righteous anger of the majority against the power of the one percent.
What seems clear is that if this does not happen, the belt tightening and pain necessary to steady our crisis-ridden economic system will always be foisted upon the working Americans least capable of bearing it.
Guest column from Sam Harshner. Harshner is an instructor in Political Science and History at Marquette University. Prior to that, he worked for fifteen years as a budget and policy analyst for the State of Wisconsin and federal Department of Health and Human Services.
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