(Photo: Tom Williams/CQ-Roll Call, Inc via Getty Images)
Jul 28, 2022
As new government data on Thursday stoked fears of a looming recession--and even led to some claims that the nation is already experiencing one--progressives renewed calls for the Federal Reserve to stop hiking interest rates and policymakers to take on the corporate profiteering driving inflation.
"Reining in corporate greed is the key to bringing down costs for families and kickstarting economic growth."
The Bureau of Economic Analysis at the U.S. Department of Commerce released gross domestic product (GDP) figures that show two consecutive quarters of negative growth, which prompted some Republican lawmakers--hopeful to regain control of Congress later this year--to declare that "America is in a recession" and it is the Democrats' fault.
While two straight quarters of negative growth is often seen as a signal of recession, it is not that simple. Harvard University economist Jason Furman pointed out on Twitter Thursday there is "well over a 50% chance that Q1 and/or Q2 gets revised to positive."
"That's part of why NBER doesn't rely on advance GDP to call recessions," Furman added, referring to the National Bureau of Economic Research.
\u201cWrong way to think about it. You're looking at the latest estimates which have been heavily revised from what was first published.\n\nWell over a 50% chance that Q1 and/or Q2 gets revised to positive.\n\nThat's part of why NBER doesn't rely on advance GDP to call recessions.\u201d— Jason Furman (@Jason Furman) 1659014718
Alex Durante, an economist with the Tax Foundation think tank, toldThe Hill that "there's this perception, and people are not wrong to have it--it's probably even in my economics textbook from college--that it's two negative quarters of GDP that NBER uses to determine if there's a recession. That's actually not completely true. It actually looks at a wide variety of economic indicators to make that designation."
"They'll look at employment, personal income, durable goods, housing permits, so the GDP is certainly part of it, but they're looking at other indicators, as well," Durante explained.
As Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research (CEPR), detailed Thursday:
The modest drop in GDP reported for the quarter is not good news, but it was hardly a surprise. It also was entirely due to inventory quirks, which will not be repeated in future quarters. Consumption is still growing at a respectable pace, as is investment.
The Fed has been raising interest rates ostensibly out of concern that the economy was growing too fast, causing inflation. This report should help to stem those fears. While people are apparently not so concerned about a recession to keep themselves from taking trips and going to restaurants, they are still not spending down their pandemic savings. The sharp drop in the inflation rate reported in the core [Personal Consumption Expenditures] deflator should also alleviate concerns about a wage-price spiral.
CEPR co-founder and co-director Mark Weisbrot argued in a Thursday opinion piece for MarketWatch that the Fed--which on Wednesday hiked interest rates for the second straight month--will be to blame if there is a recession.
"As many economists have noted, the vast majority of the increase in inflation that we have seen over the past 18 months has been a result of external shocks, most important the war in Ukraine, which has raised food and energy prices (the CPI energy index rose 41.6% over the past year from June); and the economic disruptions caused by the pandemic," Weisbrot wrote.
"Some of these prices have begun to reverse; and in any case it's difficult to see how the Fed's interest rate hikes are going to lower these prices, as Fed Chair Jerome Powell stated last month," he continued.
\u201c2 quarters of a shrinking economy might not be a \u201crecession,\u201d technically speaking, but should sure as hell stop the Fed from slowing the economy any further.\u201d— Robert Reich (@Robert Reich) 1659036909
Critics of the Fed's interest rate hikes--from Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) to economists who formerly served in the federal government like Robert Reich and Claudia Sahm--have called on the central bank to rethink its approach, and some have taken aim at Powell.
Rakeen Mabud, chief economist and managing director of research and policy at the Groundwork Collaborative, said Thursday that the "GDP report makes it crystal clear that Jerome Powell is willing to push millions out of work and throw away our economic recovery in the name of an arbitrary 2% inflation target he doesn't even believe he can hit."
"We can all agree that fighting inflation should be a top priority," she added, "but asking the workers and families who have been hit hardest by rising prices to also bear the brunt of a potential recession is not just cruel--it's bad policy."
\u201cThe Fed's overzealous rate hikes have not yet slowed inflation because they can't tackle the root causes of inflation: supply chain disruptions, war & plain old profiteering by monopolies. \n\nTake, for example, Shell's record $11.5 billion profit \u2b07\ufe0f\nhttps://t.co/uy5kJTo1my\u201d— Groundwork Collaborative (@Groundwork Collaborative) 1659041040
The GDP report came less than 24 hours after Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.) announced the Inflation Reduction Act, compromise legislation on climate, healthcare, and taxes. While some progressives have concerns about the specifics on climate, others called on congressional Democrats to swiftly pass the budget reconciliation package, which follows months of obstruction by Manchin.
"Sky-high inflation is a major contributor to the economic slowdown, and nothing is driving up costs more on everyday families than corporate greed," said Kyle Herrig, president of the government watchdog Accountable.US, in a statement Thursday.
"Across industries, we've seen major corporations continue to post record high profits and approve billions of dollars in shareholder giveaways while disingenuously claiming to have no choice but to raise prices so high," he noted. "As Americans stare down the abyss of a potential recession, Fortune 500 c-suite executives are doing better than ever, averaging over $18 million in compensation while their workers' wages have severely lagged behind."
According to Herrig:
Reining in corporate greed is the key to bringing down costs for families and kickstarting economic growth, and fortunately Congress has the opportunity [to] do it. Passing the Inflation Reduction Act will ensure corporations will finally begin to pay their fair share in taxes. This bill will put billions of dollars more into the pockets of Americans by reducing the leverage Big Oil, health insurance, and drug companies have to charge whatever they please--all while creating thousands of new jobs. Congress must not squander the best opportunity they may have for years to create an economy that works for everyone, not just billionaires and greedy corporations.
Unrig Our Economy campaign director Sarah Baron similarly asserted that the legislation "is a significant step towards combating corporate greed and making an economy that works for working people," highlighting the same provisions as Herrig.
"The vast majority of Americans rightly blame corporate greed for driving inflation, so it is heartening to see Democrats unite around a bill that addresses the issue at its source," Baron said. "As the bill is considered by Congress, Unrig Our Economy urges all members to decide where they stand--with corporations or with the hardworking constituents they were elected to represent."
Groundwork Collaborative executive director Lindsay Owens also backed the bill, saying that "the Inflation Reduction Act gets it exactly right: We bring down costs for families by making needed public investments, not pulling back on spending when we need it most."
"We bring down energy costs when we invest in clean energy and lessen our dependence on Big Oil profiteers. We bring down healthcare costs when we use public power to counter Big Pharma and get a fair price for seniors. And we strengthen our democracy and our economy when the largest corporations contribute to these investments, instead of buying politicians to oppose them," she added. "Congress should send the Inflation Reduction Act to the president's desk as quickly as possible."
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