Most Price Increases from Inflation Have Gone to Corporate Profits | Max B. Sawicky | excerpt of article published May 3, 2022, CEPR

On the policy front, we have two problems. One is a further indication of misfeasance from the Biden administration, in the form of new blather about the success of deficit reduction. It’s one thing to be blocked from worthwhile reforms like Build Back Better by a couple of intransigent Democratic senators. It’s another to celebrate the results.

This is very much a replay of the Obama 2010 playbook, when his administration failed to cobble together a congressional majority to support its initiatives, failed to note the shortcomings of what had been enacted, and failed to talk about what should have been done instead. Then, in the 2010 midterms, the Democrats, as Obama said, got ​“shellacked” and lost their majorities in Congress.

Bringing employment back to nearly its pre-pandemic level in a year’s time was a great achievement, but we can do better. Employment should keep up with population growth — and that means 2022 population, not 2020 population.

The other policy issue is the posture of the Federal Reserve, using the hammer it has while defining everything as a nail. By pushing up interest rates in pursuit of inflation reduction, the Fed will end up pushing down employment and GDP growth, while possibly worsening supply-chain difficulties.

European Central Bank It’s not news that the stock market has also taken a dive this year, especially this past month, which further retards consumer spending. People feel, and are, less rich — and they spend less as a result.

Even the European Central Bank has pointed out the gap between the incoming Fed bombardment and the problem it is held to address:

“Higher interest rates won’t solve the imbalance between supply and demand, energy prices and base effects that are currently pushing up prices: they won’t make more shipping containers available or boost the supplies of semiconductors and fuel.”

The pandemic relief has been a huge success. Supply-chain disruptions cannot be attributed to the White House, nor repaired by the Fed’s jack-up of interest rates. The economy’s inflation problem is being misdiagnosed and mistreated. All this adds up to a terrible political situation in the run-up to the midterm elections that puts our entire democracy at risk.

Max B. Sawicky’s full article: Most Price Increases from Inflation Have Gone to Corporate Profits