Today's jobs report should cause alarm
Central bankers and fiscal hawks are about to hurt average working people
I know I already wrote today about tenacity and avoiding burnout, but I felt the latest jobs report merited an additional post. Thanks for reading, and commenting.
Today’s jobs report from the Labor Department is a warning sign about the economy. It should cause widespread concern about the Fed’s plans to raise interest rates to control inflation. And it should cause policy makers to rethink ending government supports such as extended unemployment insurance and the child tax credit. These will soon be needed to keep millions of families afloat.
Employers added only 199,000 jobs in December. That’s the fewest new jobs added in any month last year. In November, employers added 249,000. The average for 2021 was 537,000 jobs per month. Note also that the December survey was done in mid-December, before the latest surge in the Omicron variant of COVID has caused millions of people to stay home.
But the Fed is focused on the fact that average hourly wages climbed 4.7 percent over the year. Central bankers believe those wage increases have been pushing up prices. They also believe the United States is nearing “full employment” – the maximum rate of employment possible without igniting even more inflation.
As a result, the Fed is about to prescribe the wrong medicine. It’s going to raise interest rates to slow the economy – even though millions of former workers have yet to return to the job market, and even though job growth is slowing sharply. Higher interest rates will cause more job losses. Slowing the economy will make it harder for workers to get real wage increases. And it will put millions of Americans at risk.
The Fed has it backwards. Wage increases have not caused prices to rise. Price increases have caused real wages (what wages can actually purchase) to fall. Prices are increasing at the rate of 6.8 percent annually but wages are growing only between 3-4 percent.
The most important cause of inflation is corporate power to raise prices.
Yes, supply bottlenecks have caused the costs of some components and materials to rise. But large corporations have been using these rising costs to justify increasing their own prices when there’s no reason for them to do so.
Corporate profits are at a record high. If corporations faced tough competition, they would not pass those wage increases on to customers in the form of higher prices. They’d absorb them and cut their profits.
But they don’t have to do this because most industries are now oligopolies composed of a handful of major producers that coordinate price increases.
Yes, employers have felt compelled to raise nominal wages to keep and attract workers. But that’s only because employers cannot find and keep workers at the lower nominal wages they’d been offering. They would have no problem finding and retaining workers if they raised wages in real terms – that is, over the rate of inflation they themselves are creating.
Astonishingly, some lawmakers and economists continue to worry that the government is contributing to inflation by providing too much help to working people. A few (including some Democrats like Joe Manchin and Kyrsten Sinema) are unwilling to support Biden’s “Build Back Better” package because they fear additional government spending will fuel inflation.
Here again, the reality is exactly the opposite. The economy is in imminent danger of slowing, as the December job numbers (collected before the Omicron surge) reveal.
Many Americans will soon need additional help since they can no longer count on extra unemployment benefits, stimulus payments, or additional child tax credits. This is hardly the time to put on the fiscal brakes.
Policymakers at the Fed and in Congress continue to disregard the elephant in the room – the power of large corporations to raise prices. As a result, they’re on the way to hurting the people who have been taking it on the chin for decades – average working people.
Paul Krugman writing today in the New York Times makes a case that supports Robert Reich's. Here is my take:
Why do major corporations raise prices? Because they can. I noted several dog whistles recently in the financial press from CEOs of major corporations to their shareholders about taking advantage of supply chain disruptions to raise prices. Corporate America is now as consolidated and uncompetitive as it has ever been. More efficient IT makes that possible, and so does a doting regulatory environment. Corporations are using supply disruptions that they themselves caused by their own ill advised offshoring, to excuse price increases and make windfall profits.
And the Fed's proposed cure for this? Punish wage earners whose incomes are not even going up fast enough to keep up with corporate price increases? Yes, a wage-price spiral IS theoretically possible. But we don't have unions anymore except in the public sector. Workers don't have the bargaining power they did back in the 1970s Wage-push inflation isn't the cause of current inflation, and stomping on workers is the wrong cure. Why does the Fed always do this?
I like one thing I just heard Biden calling back to from yesterday's briefing: "Capitalism without competition is not capitalism. It's exploitation." Just sayin'.