Skip to main content

Sign up for our newsletter.

Quality journalism. Progressive values. Direct to your inbox.

federal_reserve

Construction workers outside the Marriner S. Eccles Federal Reserve Building, photographed on Wednesday, July 27, 2022 in Washington, DC. (Photo: Kent Nishimura / Los Angeles Times via Getty Images)

Throwing Millions Out of Work Won't Address the Root Causes of Rising Prices

We can have a strong job market and lower inflation—and we don't need more painful interest rate hikes to do it.

Dr. Rakeen Mabud

 by OtherWords

From groceries to rent, prices are rising on just about everything these days—and those with already-stretched budgets are feeling the pinch.

Bringing prices down must be a top priority for lawmakers, but Washington's default tool for dealing with inflation—aggressive interest rate hikes—only makes life harder for these families.  That's because aggressive interest rate hikes work by increasing unemployment and slowing down wage growth, a "cure" far worse than the disease.

Former Treasury Secretary Larry Summers is a longtime advocate of this cruel approach. Earlier this summer, Summers cheered the idea of throwing millions out of work when he suggested that the Fed should "raise interest rates enough that the economy will slip into recession." More recently, he doubled down: "My worst fear would be that the Fed will continue to be suggesting that it can have it all in terms of low inflation, low unemployment, and a healthy economy."

In other words, Summers has consistently argued that cooling inflation matters more than taking care of people. According to him, we should do what we must to bring prices down, even if it means throwing millions out of work.

But the data is in: We can have a strong job market and lower inflation—and we don't need further aggressive and painful interest rate hikes to do it.

The labor market added 528,000 jobs in July, far exceeding expectations. In fact, we've averaged over 500,000 new jobs a month for the past year—an astounding number for a recovery period. We also saw 0 percent inflation in July, and annual inflation is subsiding as well. While inflation-adjusted wages are down roughly 3 percent annually, the most recent jobs report showed real wages ticking up slightly since June.

It's worth taking a closer look at Summer's prescriptions so we don't fall for this bad advice going forward. In June, Summers suggested that "we need five years of unemployment above 5 percent to contain inflation"—or even "or one year of 10 percent unemployment." That would push some 10.5 million people out of work, with the worst impacts on poor communities and people of color who already suffer higher unemployment rates. And these numbers don't even take into account the long-term scarring that comes with unemployment spells.

What's more, throwing millions out of work would do little to address the root causes of rising prices: outsized corporate power, supply chain shortages, and the war in Ukraine. As Federal Reserve Chair Jerome Powell admitted in June, raising interest rates "can't affect… all the supply-side things that are still pushing upward" on gas and grocery prices. Rate hikes also won't break up the megacorporations that Powell conceded could be "raising prices because they can."

Thankfully, there are real solutions on the table. The Biden administration's Inflation Reduction Act tackles health care costs and makes critical investments in clean energy that will start to untether us from our reliance on fossil fuels which the war in Ukraine shows can be volatile and unpredictable.

In June, President Biden also signed the Ocean Shipping Reform Act. This bill increased regulation of the deeply concentrated ocean shipping industry—a sector that has contributed significantly to supply chain bottlenecks and inflation. And policymakers have introduced legislation that would hold corporations accountable by taxing windfall profits and prohibiting price gouging.

We can't "save" the economy if people are struggling. After all, we are the economy. When we do well, that's when our economy thrives. It's time for our leaders to finally hit the mute button on Larry Summers' inflation advice—or we will all pay the price.


This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Screen Shot

Dr. Rakeen Mabud

Dr. Rakeen Mabud is the Chief Economist and Managing Director of Policy and Research at the Groundwork Collaborative. This op-ed was distributed by OtherWords.org.

We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.

House Committee to Investigate Alito Leak, Right-Wing Lobbying at Supreme Court

"It's clear that some of these justices are simply incapable of behaving ethically or putting the law before politics, and the court is unwilling or unable to police itself," said one court watchdog.

Julia Conley ·


Fetterman Taps Person Who Literally Wrote the Book on Killing Senate Filibuster as Chief of Staff

"It will be invaluable to have a veteran of the Senate and a veteran of state politics in these key positions as we serve the people of Pennsylvania," said the Senator-elect about two key hires for his new staff.

Jon Queally ·


Climate Activists Tell Macron to Stop Using Trade Rules to Thwart Clean Energy

"Governments should be empowered to fight climate change and support the clean energy transition without fear of being undermined by antiquated trade rules," said one advocate.

Kenny Stancil ·


Biden Urged to Sign Executive Order Guaranteeing Rail Workers Paid Sick Leave

After the president brokered a compulsory contract without a single paid day off for illness, one labor advocate implored him to "put up or shut up about how you really want them to have sick leave!"

Brett Wilkins ·


Campaigners Demand Deep Cuts to Plastic Production as Global Treaty Negotiations Ramp UpjuliaDec 1, 2022
Plastic pollution
"The scale of the problem is mind-boggling," said one advocate. "Plastic is in our blood. It's in fetuses. It's really encroaching on every aspect of human existence."
Common Dreams Logo