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      Britain’s Still Got It

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      Since Brexit in 2016, the United Kingdom’s growth rate has been poor. Inflation is at its highest rate in 30 years. In December 2021, it had risen to 5.4%. Wages have failed to keep up and, when we factor in housing or childcare costs, the cost of living has been rising relentlessly.

      COVID-19 has not been kind to the economy. Rising energy prices are putting further pressure on stretched household budgets. To stave off inflation, the Bank of England is finally raising interest rates, bringing an end to the era of cheap money. Payroll taxes are supposed to go up in April to repair public finances.

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      The Resolution Foundation is predicting that “spiralling energy prices will turn the UK’s cost-of-living crisis into a catastrophe” by spring. The UK’s 2022 budget deficit will be larger than all its G-7 peers except the US. The beleaguered Boris Johnson government finds itself in a bind. At a time of global inflation, it has to limit both public borrowing and taxes. Unsurprisingly, there is much doom and gloom in the air.

      We Have Seen This Movie Before

      Since the end of World War II, the UK has experienced many crises of confidence. One of the authors move to the country in 1977. Back then, the Labour Party was in power. James Callaghan was prime minister, having succeeded Harold Wilson a year earlier. The British economy was the fifth-largest in the world but was buffeted by crises. In 1976, the government had approached the International Monetary Fund (IMF) when, in the words of Richard Roberts, “Britain went bust.”

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      From 1964 to 1967, the United Kingdom experienced “a continuous sterling crisis.” In fact, the UK was “the heaviest user of IMF resources” from the mid-1940s to the mid-1970s. The 1973 oil crisis spiked energy costs worldwide and pushed the UK into a balance of payments crisis. Ironically, it was not the Conservatives led by Margaret Thatcher but Labour led by Callaghan that declared an end to the postwar interpretation of Keynesian economics.

      In his first speech as prime minister and party leader at the Labour Party conference at Blackpool, Callaghan declared: “We used to think you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour, that option no longer exists.” After this speech, the Callaghan government started imposing austerity measures.

      Workers and unions protested, demanding pay rises. From November 1978 to February 1979, strikes broke out across the UK even as the country experienced its coldest winter in 16 years. This period has come to be known as the Winter of Discontent, a time “when the dead lay unburied” as per popular myth because even gravediggers went on strike.

      In 1979, Thatcher won a historic election and soon instituted economic policies inspired by Friedrich von Hayek, the Austrian rival of the legendary John Maynard Keynes. Thatcher’s victory did not immediately bring a dramatic economic turnaround. One major industry after another continued to collapse. Coal mines closed despite a historic strike in 1984-85. Coal, which gave work to nearly 1.2 million miners in 1920 employed just 1,000 a century later.

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      Throughout the 1970s, the UK was dubbed “the sick man of Europe.” People forget now that a key reason the UK joined the European Economic Community (EEC) in 1973 was to make the economy more competitive. Between 1939 and the early 1990s, London lost a quarter of its population. Yet London and indeed the UK recovered from a period of crisis to emerge as a dynamic economy. Some credit Thatcher but there were larger forces at play.

      There Is Life in the Old Dog Yet

      Last week, one of the authors met an upcoming politician of India’s ruling Bharatiya Janata Party (BJP). A strong nationalist, he spoke about the importance of Hindi, improving India’s defense and boosting industrial production. When the conversation turned to his daughter, he said that he was sending her to London to do her A-levels at a top British school.

      This BJP leader is not atypical. Thousands of students from around the world flock to the UK’s schools and universities. British universities are world-class and train their students for a wide variety of roles. Note that the University of Oxford and AstraZeneca were able to develop a COVID-19 vaccine with impressive speed. This vaccine has since been released to more than 170 countries. This is hardly surprising: Britain has four of the top 20 universities in the world — only the US has a better record.

      Not only students but also capital flocks to the UK. As a stable democracy with strong rule of law, the United Kingdom is a safe haven for those seeking stability. It is not just the likes of Indian billionaires, Middle Eastern sheikhs and Russian oligarchs who put their wealth into the country. Numerous middle-class professionals choose the UK as a place to live, work and do business in. Entrepreneurs with a good idea don’t have to look far to get funding. Despite residual racism and discrimination, Britain’s cities have become accustomed to and comfortable with their ethnic minorities.

      Alumni from top universities and skilled immigrants have skills that allow the UK to lead in many sectors. Despite Brexit, the City of London still rivals Wall Street as a financial center. Companies in aerospace, chemical and high-end cars still make the UK their home. British theater, comedy, television, news media and, above all, football continue to attract global attention.

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      Napoleon Bonaparte once purportedly called the UK “a nation of shopkeepers.” There is an element of truth to this stereotype. The British are a commercially savvy, entrepreneurial and business-friendly bunch. One author knows a dealer who trades exclusively in antique fans and a friend who specializes in drinks that you can have after a heavy night. The other has a friend who sells rare Scotch whiskey around the world and an acquaintance who is running a multibillion insurance company in India. Many such businesses in numerous niches give the British economy a dynamism and resilience that is often underrated. Everything from video gaming (a £7-billion-a-year industry) to something as esoteric as antique fan dealing continues to thrive.

      The UK also has the lingering advantage of both the Industrial Revolution and the British Empire. Infrastructure and assets from over 200 years ago limit the need for massive capital investment that countries like Vietnam or Poland need. Furthermore, the UK has built up managerial experience over multiple generations. Thanks to the empire, English is the global lingua franca and enables the University of Cambridge to make money through its International English Language Testing System. Barristers and solicitors continue to do well thanks to the empire’s export of common law. Even more significantly, British judges have a reputation for impartiality and independence: they cannot be bribed or coerced. As a result, the UK is the premier location for settling international commercial disputes.

      In 1977, the UK was the world’s fifth-largest economy. In 2022, 45 years later, it is still fifth, although India is projected to overtake it soon. The doom and gloom of the 1970s proved premature. The same may prove true in the 2020s. The economy faces a crisis, but it has the strength and track record to bounce back. The UK still remains a jolly good place to study, work, invest and live in.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Share the Profits! Why US business must return to rewarding workers properly | Robert Reich

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      Share the profits! Why US businesses must return to rewarding workers properlyRobert ReichThe economy is booming and corporate profits are huge, but American wages still stagnate. History provides the answer According to this week’s release from the commerce department, the US economy has been growing at its fastest pace in almost 40 years. Corporate profits are their highest in 70 years. And the stock market, although gyrating wildly of late, is still scoring record gains.Where egos dare: Manchin and Sinema show how Senate spotlight corrupts | Robert ReichRead moreSo why do most Americans remain gloomy about the economy? Mainly because their real (inflation-adjusted) wages continue to go nowhere.Steeply-rising profits, economic growth and stock market highs – coupled with near-stagnant wages – has been the story of the American economy for decades. Most economic gains have gone to the top.So why not share the profits?Profit-sharing was tried with great success in the early decades of the 20th century but is now all but forgotten. In 1916, Sears, Roebuck & Co, then one of America’s largest corporations with more than 30,000 employees, announced it would begin to share profits with its employees, giving workers shares of stock and thereby making them part-owners.The idea caught on. Other companies that joined the profit-sharing bandwagon included Procter & Gamble, Pillsbury, Kodak and US Steel.The Bureau of Labor Statistics suggested profit-sharing as a means of reducing “frequent and often violent disputes” between employers and workers. Profit-sharing gave workers an incentive to be more productive, since the success of the company meant higher profits would be shared. It also reduced the need for layoffs during recessions because payroll costs dropped as profits did.By the 1950s, Sears workers had accumulated enough stock that they owned a quarter of the company. And by 1968, the typical Sears salesperson could retire with a nest egg worth well over $1m, in today’s dollars.The downside was that when profits went down, workers’ paychecks would shrink. And if a company went bankrupt, workers would lose all their investments in it. The best profit-sharing plans took the form of cash bonuses that employees could invest however they wish, on top of predictable wages.But profit-sharing with regular employees all but disappeared in large US corporations. Ever since the early 1980s when corporate “raiders” (now private-equity managers) began demanding high returns, corporations stopped granting employees shares of stock, presumably because they didn’t want to dilute share prices. Sears phased out its profit-sharing plan in the 1970s.Yet, just as profit-sharing with regular employees disappeared, profit-sharing with top executives took off, as big Wall Street banks, hedge funds, private equity funds and high-tech companies began doling out huge wads of stock and stock options to their MVPs.The result? Share prices and chief executive pay (composed increasingly of shares of stock and options to buy stock) have gone into the stratosphere, while the wages of the typical worker have barely risen.Researchers have found that before the 1980s, almost all the increases in share prices on the US stock market could be accounted for by overall economic growth. But since then, a large portion of the increases have come out of what used to go into wages.Jeff Bezos, who now owns around 10% of Amazon’s shares, is worth $170.4bn. Other top Amazon executives hold hundreds of millions of dollars of shares. But most of Amazon’s employees, such as warehouse workers, haven’t shared in the bounty.Amazon used to give out stock to hundreds of thousands of its employees. But in 2018 it stopped the practice and instead raised its minimum hourly wage to $15. The wage raise got headlines and was good PR – Amazon is still touting it – but the decision to end stock awards was more significant. It hurt employees far more than the increased minimum helped them.Corporate sedition is more damaging to America than the Capitol attack | Robert ReichRead moreIf Amazon’s 1.2 million employees together owned the same proportion of Amazon’s stock as Sears workers did in the 1950s – a quarter of the company – each Amazon worker would now own shares worth an average of more than $350,000.America’s trend toward higher profits, higher share prices, mounting executive pay but near stagnant wages is unsustainable, economically and politically.Profit-sharing is one answer. But how can it be encouraged? Reduce corporate taxes on companies that share profits with all their workers, and increase taxes on those that do not.Sharing profits with all workers is a logical and necessary step to making the system work for the many, not the few.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      West Virginians scramble to get by after Manchin kills child tax credits

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      West Virginians scramble to get by after Manchin kills child tax credits Without those monthly checks 50,000 children in the state the centrist senator represents could sink into deep povertyLast fall, Krista Greene missed a week of work after her sons were exposed to Covid and could not return to school. Greene, who manages a tutoring center and yoga studio in Charleston, West Virginia, does not receive any paid time off. Normally, she would have been worried about this loss of income. But the Greene family’s budget had recently become a little more flexible, thanks to the monthly child tax credit payments that began in July 2021.“The first thing I said to my husband was, ‘The Biden bucks are coming next week, so I won’t miss any bills,’” Greene said.It was nice while it lasted.Families probably received their final monthly payments in December after Congress failed to pass the Build Back Better Act. The legislation, the cornerstone of the Biden administration’s domestic policy, would have made the payments permanent. But one Democrat stood in the way – Greene’s senator, Joe Manchin.A week before Christmas, Manchin appeared on Fox & Friends and announced he would not vote for the Build Back Better Act, effectively poleaxing Biden’s plans in a Senate evenly divided between Democrats and Republicans.“I have always said, ‘If I can’t go back home and explain it, I can’t vote for it,’” Manchin said in a press release after the television appearance. “Despite my best efforts, I cannot explain the sweeping Build Back Better Act in West Virginia and I cannot vote to move forward on this mammoth piece of legislation.”The announcement came after months of negotiations between Manchin and the White House, some of which involved the child tax credit. Manchin wanted to limit the credit to families making $60,000 or less annually. He has also said he will not support a permanent credit unless it includes a work requirement.The child tax credit was one of a number of Biden proposals that were surprisingly popular in the deeply Republican state of West Virginia – not least because Manchin’s constituents have benefited from it more than most.Ninety-three per cent of West Virginia children – about 346,000 in all – qualified for the credit payments. That extra $250 to $300 per child a month lifted about 50,000 of those children above the poverty line, according to the West Virginia Center for Budget and Policy (WVCBP).Now that the credits have vanished, so will those advancements. The timing could not be worse. Like the rest of the country, West Virginia is suffering a surge in inflation unseen in decades, a surge that disproportionately affects the poor.“The checks aren’t coming on,” said the WVCBP executive director, Kelly Allen. “Fifty thousand kids in West Virginia are at risk are dropping into deep poverty.”America got more expensive in 2021. Who is really paying the price? – a visual explainerRead moreQueentia Ellis is a single mother with three daughters, ages seven, three and two. For a while, she supported her family with a minimum wage job but found she was always coming up short. “It’s impossible to take care of three kids on a minimum wage job,” Ellis said.She decided to get a college education. The monthly child tax credit payments, along with child support and Temporary Assistance for Needy Families (TANF), allowed her to stay home with her kids while taking classes full-time.“It helped me pay my bills and buy things for my kids that they needed,” said Ellis, who hopes to someday start her own business.With the monthly payments ended, Ellis said she will probably have to return to a minimum-wage job, which means it will take longer to complete her college degree. She will also have to find childcare for her daughters, which will cost up to $100 a month for each child, even with help from a state childcare assistance program.“That takes a toll on the income, especially if you’re working an hourly minimum wage job,” Ellis said. “I have to figure out what and how I’m going to go about making things possible. But where there’s a will there’s a way.”After announcing he would not support the Build Back Better Act, reports surfaced that Manchin was concerned parents were using the child tax credit to buy drugs.Bar chart showing most Child Tax Credit recipients spent their money on food, rent/mortgage and utilities.But the evidence shows that in West Virginia and across the country the money was spent on necessities – 91% of low-income families used the money for basic needs like rent, groceries, school supplies and medicine, according to the Center on Budget and Policy Priorities’ analysis of US census data.“Families know what they need. In some cases, that’s putting food on the tables. In some cases, that’s paying rent. In some cases, it’s allowing mom to stay home for a few months, or paying for childcare because mom needs to go to work,” Allen of the West Virginia Center for Budget and Policy said.Hunter Starks is a single parent with a four-year-old daughter. Theypreviously worked as a social worker, while also working part-time as a political organizer, often logging more than 50 hours in a week.But things changed in 2021.“I’ve worked since I was 15, usually multiple jobs. And I’ve never had a hard time finding work like I did this year,” they said.Starks had difficulty finding employment because they could only take jobs with hours that aligned with their child’s daycare hours.“Service jobs and fast food don’t need folks during those hours,” they said.Starks said the $300 child tax credit payments were “the difference between getting by or not”.“And I still had to ask multiple folks for help,” Starks said.Starks said January’s budget will be tight without the tax credit payment, “but it’s been tight”.They will soon start a new full-time job as a paralegal, in addition to their part-time organizing work. While that will help their bank account, Starks said it will mean less time with their daughter.“I kind of hate the fact that I’m going to go back to working multiple jobs and spending less time with my daughter,” they said. “Even though I’ve struggled financially, I’ve appreciated having that time with her.”While Manchin has balked at the child tax credit’s price tag – about $100bn a year – the credits pumped $470m into West Virginia between July and December 2021 alone. Allen said that money was probably immediately reinvested in the state’s economy, since low- and middle-income families typically spend tax refunds as soon as they receive them.Yoga studio manager Krista Greene said that’s why it was so important the payments arrived monthly instead of once a year, at tax time.“It became part of your monthly income,” she said. “If a hospital bill comes around, I can’t say, ‘Can you wait four or five months until I get my income tax?’”Allen also said the money would have long-term positive effects on the state’s economy as well. Living in poverty has a deleterious impact on children’s health, education and future earnings.“If kids are lifted out of poverty and have access to more economic security, it pays for itself in the long term,” Allen said.Manchin’s office declined the Guardian’s request for comment.TopicsWest VirginiaJoe ManchinChildcareChildrenEconomicsUS politicsfeaturesReuse this content More

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      What Does the Future Success of the Euro Depend On?

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      The first euro banknotes and coins came into circulation 20 years ago. Although the exchange rates of almost all participating countries had already been fixed two years earlier, only the introduction of the euro marked Europe’s irreversible economic integration. For after the creation of the single monetary policy and the introduction of hundreds of tons of euro cash, a return to national currencies would have ended in disaster for the European Union and its member states.

      The global financial crisis and the euro crisis have shown that the single market would not function without the common currency, the euro — one reason being exchange rate differences. Even though the euro has not displaced the dollar from first place in the global monetary system, it protects the European economies from external shocks, that is, negative impacts from the global economy.

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      Moreover, monetary integration has shown its advantages during the COVID-19 pandemic. Without the euro, some member states would not only face a demand and supply crisis, but also a sharp weakening of their currency, which could even lead to a currency crisis. This would make it extremely difficult to fight the pandemic and support jobs with public money.

      The citizens of the EU seem to appreciate the stabilizing effect of the common currency. According to the May 2021 Eurobarometer survey, 80% of respondents believe that the euro is good for the EU; 70% believe that the euro is good for their own country.

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      Moreover, joining the euro area is seen as attractive: Croatia will most likely join the euro area in 2023. Bulgaria also aspires to join. Due to dwindling confidence in the currencies of Poland and Hungary, the introduction of the euro could become a realistic scenario in the event of a change of governments in these countries.

      A Long List of Reforms

      Despite these developments, many of the euro area’s problems remain unresolved 20 years after the currency changeover. The fundamental dilemma is between risk-sharing versus risk elimination. It is a question of how many more structural reforms individual member states need to undertake before deeper integration of the euro area, which implies greater risk-sharing among member states, can take place. In the banking sector, for example, the issue is to improve the financial health of banks — that is, among other measures to increase their capitalization and reduce the level of non-performing loans before a common deposit insurance scheme can be created.

      A second problem is the relationship between monetary and fiscal policy. Currently, the European Central Bank is the main stabilizer of the euro area public debt, which increased significantly as a result of the pandemic, and it will remain so by reinvesting its holdings of government bonds at least until 2024. However, an alternative solution is needed to stabilize the euro area debt market.

      Joint debt guarantees, as recently proposed by France and Italy, must be combined with incentives to modernize the economies, especially of the southern euro are countries. In this context, it is important to keep in mind the limits of fiscal policy, which is currently too often seen as the magic cure for all economic policy problems. Linked to fiscal policy are the questions of how many rules and how much flexibility are needed in the euro area.

      Heated discussions are to be expected this year on the corresponding changes to the fiscal rules. This is because there is a great deal of mistrust between the countries in the north and south of the euro area, which is mainly due to the different performance levels of the economies and the different views on economic policy. The persistent inflation and the problems with the implementation of the NextGenerationEU stimulus package, which is supposed to cushion coronavirus-related damage to the economy and society, could exacerbate the disparities in economic performance and thus also the disagreements within the euro area.

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      The euro crisis has shown that turbulence in one member state can have fatal consequences for the entire currency area. In the coming years, however, the biggest challenge for the euro area will not be the situation in small member states such as Greece, but in the largest of them. The economies of Italy, France, and Germany, which account for almost 65% of the eurozone’s gross domestic product, are difficult to reform with their complex territorial structures and increasing political fragmentation. At the same time, these economies lack real convergence.

      A decisive factor for the further development of the euro currency project will be whether the transformation of their economic models succeeds under the influence of the digital revolution, the climate crisis, and demographic change.

      *[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions relating to foreign and security policy.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The US jobs report was a warning sign – even before the Omicron surge | Robert Reich

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      The US jobs report was a warning sign – even before the Omicron surgeRobert ReichThe Fed wants to raise interest rates and coronavirus support programs are ending. Millions of families stand to suffer Friday’s jobs report from the Department of Labor was a warning sign about the US economy. It should cause widespread concern about the Fed’s plans to raise interest rates to control inflation. And it should cause policymakers 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.US workforce grows by just 199,000 in disappointing DecemberRead moreEmployers 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 caused millions of people to stay home.But the Fed is focused on the fact that average hourly wages climbed 4.7% over the year. Central bankers believe those wage increases have been pushing up prices. They also believe the US 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% annually but wages are growing only between 3-4%.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.Joe Biden needs to stand up and fight Manchin like our lives depend on it | Daniel SherrellRead moreHere 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.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      Democrats need to admit that inflation is real – or voters will turn on them | Andrew Gawthorpe

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      Democrats need to admit that inflation is real – or voters will turn on themAndrew GawthorpeInflation is an issue of real concern to many Americans. It’s also a chance for Democrats to name and shame price-gougers Inflation is rapidly becoming a problem for the Democratic party and President Joe Biden. They need to get a grip on it before it imperils their wider agenda and sinks their chances of keeping control of Congress in the midterm elections next year. As they think about how to address it, one thing is certain: what they’ve been doing so far isn’t working. A recent poll found that two-thirds of Americans disapprove of how Biden is handling inflation, and the same number consider the issue “very important” in their evaluations of his presidency. Among those Americans concerned about the state of the economy, nearly nine in 10 ranked inflation as a reason why. Clearly something has to change.But inflation, a complicated product of economics and mass psychology, is also devilishly difficult to understand, and even more difficult to control. Presidents have few tools to tame it, and the ones they do have can backfire. The inflation of the 1970s crippled Gerald Ford’s presidency and was doing the same to Jimmy Carter until he opted for an extreme cure – installing a chair of the Federal Reserve who dramatically raised interest rates, stopping inflation but also plunging the economy into a deep recession which handed the White House to Ronald Reagan. These experiences left inflation with a reputation as a presidency-killer, with either the disease itself or the medicine taken to combat it ultimately killing the patient.Despite this, Democratic party elites have been slow to take the latest round of inflation as seriously as they should. American policymakers have not had to deal with levels of inflation as high as this for 30 years, and it shows. Many latched on to the message that inflation was “transitory”, a temporary consequence of the economy revving back into high gear as the country emerged from the coronavirus pandemic. Some liberals have even lashed out at those warning about rising prices, characterizing their concerns as an attempt to undermine support for Democrats’ plans to spend more to advance social welfare and combat climate change.Whatever the economic merits of the argument – and many economists still expect inflation to start falling soon – this response has been politically toxic. Democrats risk appearing out of touch on an issue of profound concern to many Americans. In order to change tack, they need to communicate to voters that they feel their pain and that they’re fighting to make things better.There are already signs that Democrats from the president on down are starting to get it. Biden recently gave a speech on the topic and announced the release of 50m barrels of oil from the US strategic petroleum reserve, an attempt to bring down gas prices at the pump. He also pointed the finger at oil companies for charging consumers high prices even as the wholesale price of oil has dropped over the past few weeks.But Democrats should also be doing more to point the finger at the businesses who are helping to foment the problem. The Wall Street Journal reports that companies in many different sectors are using this inflationary spike as a cover to raise prices faster than their costs, essentially betting that consumers won’t object when they already see prices rising all around them. According to the report, nearly two out of three big, publicly traded US companies have seen larger profit margins this year than in the same period in 2019. Inflation might be hurting consumers, but it’s a boom year for corporate America.Democrats ought to use all the tools of government to highlight and combat these abuses. As Biden has been finding out, public anger over inflation tends to be directed towards the incumbent president – and the only way to survive might be to redirect it at a more appropriate target. The presidential bully pulpit can be used to highlight corporate abuses and regulatory investigations, such as the one already announced by the FTC into the oil and gas sector, can hold industries to account and combat potentially illegal practices. Nor should Democrats stop there. They control both houses of Congress and should consider holding congressional hearings to name and shame particularly egregious price-gougers.Whether any of these measures will actually serve to lower prices is an open question. But the only responsible thing to do is try. Corporate price rises risk kicking off an inflationary spiral in which the initial reasons for rising prices become secondary to a general feeding frenzy, and anything that can be done to discourage it is healthy. Administration actions might also serve to dampen consumers’ expectations of future inflation, which will reduce the risk of a spiral. Because the media narrative is driven by inflation that has already happened, reassurance remains important even after prices have begun to stabilize.But even if we shouldn’t hold our breath for these actions to actually slow the rate of price increases, it’s important to show leadership on this issue for the simple reason that it’s what worried voters want and deserve. To be seen to be acting and pointing a finger at those to blame is smart politics, especially if this bout of inflation does indeed prove to be transitory and prices begin to fall next year.Meanwhile, corporate America has to decide if it really wants to undermine the Democrats and risk handing stewardship of the economy back to the party of Donald Trump. With the modern Republican party increasingly the party of incompetence and ignorance, self-restraint might be the better option. As Democrats should seek to remind the price-gougers, profiting less now will help everyone mightily down the road.
      Andrew Gawthorpe is a historian of the United States at Leiden University, and host of the podcast America Explained
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      What is happening with inflation in the US, and how worried should you be?

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      What is happening with inflation in the US, and how worried should you be?Why prices are rising, how long this might last, and why inflation is a psychological as well as an economic phenomenon Jobs are coming back, wages are rising, stock markets are hitting record highs. In many ways, the US economy is booming. And yet as we officially enter the holiday season, consumer confidence is at its lowest level in a decade. The reason? Inflation.The US inflation rate in October was the highest it has been since the early 90s, when Nirvana released Smells Like Teen Spirit and the Gulf war was just beginning.But should we really be worried? The Federal Reserve, and the Biden administration, think rising prices are “transitory” – caused by the hangover from the pandemic. Their critics are less sure.Inflation, especially during a global pandemic, is complicated. Here is what we know about inflation in the US.What is inflation?Inflation describes a general rise in the level of prices of all consumer goods and services. It is not specific to a particular good or service; rather it is a measure of when, broadly, things are more expensive than they were before.There are a handful of ways inflation is measured, though the Consumer Price Index (CPI) measured by the US Bureau of Labor Statistics is the most common system used to gauge inflation. The index looks at the prices of goods and services in cities and suburbs across the country, weighted depending on the proportion a good or service has in overall consumption. For example, food and housing is weighted more than clothing in the index.What’s happening with inflation?According to CPI numbers released in mid-November, prices in the US rose 6.2% in October compared with where prices were the same time last year. US core inflation, which does not include goods like energy and food whose supply is susceptible to external events, was 4.6% in October, its highest since 1991.Prices broadly increased in energy, housing, food, used and new vehicles and recreation. Price decreases for airline fares and alcoholic beverages were among the few price declines seen last month.The US is not the only country experiencing inflation – the UK, China and Germany have all also reported rising inflation in the last few weeks.The Fed has already taken steps to reduce inflation, ending some of its stimulus programs that saw it buying bonds to stimulate the economy. But the central bank has held off on its main tool to control inflation – adjusting interest rates – probably because doing so runs a higher risk of starting an economic recession.How worried should Americans be about inflation?Some economists have been pointing out that the inflation we are seeing now is just one piece of the pandemic’s impact on the economy, which overall has not been terrible.“There’s a lot of uncertainty. We don’t know what happens next. The past two years have been unprecedented and painful,” said Claudia Sahm, a senior fellow at the Jain Family Institute and a former Federal Reserve economist. “We’re going to have a bumpy ride.”Even though inflation was high in October, other figures like the strong increase in jobs and the surge in retail sales point to an overall good month for the US economy.“My baseline scenario is that as the pandemic is contained, which is happening as we get more vaccines out there, we will see inflation move back down to something that is very close to before Covid,” Sahm said. “I don’t think Covid has changed the underlying structure of the US economy.“I do take a lot of comfort that many people have the money to weather this storm, at least for now,” she said, citing the direct aid Americans got through stimulus checks and the child tax credit. “It really is upsetting to pay more for your groceries, but it’s really upsetting not to be able to walk home with the groceries in your cart.”Why is inflation happening?The pandemic has touched every inch of the US economy and has affected every American in some form, so there is no single reason inflation is happening.“When you look under the hood of the top-line numbers, there are a lot of stories,” Sahm said.The supply chain crisis has led to a shortage of cars, clogged shipping ports and overstuffed warehouses. Meanwhile, consumer demand has surged after plummeting in the early days of the pandemic.For example, a shortage of microchips has led to a slowdown in car manufacturing, which increased the sales – and ultimately prices – of used cars, Sahm said. Housing prices have gone up because renters feel comfortable moving again and rental owners feel comfortable charging higher rents.Some companies have not been hesitant to reap the benefits of increased consumer spending during the pandemic, raising prices and paying record compensation for the country’s top chief executives.Throughout the pandemic, the federal government boosted the economy through multiple trillion-dollar stimulus packages that gave money directly to families and employers, and the Federal Reserve policy lowered the interest rates and purchased bonds.What are the effects of inflation?The most obvious impact is that Americans are seeing higher prices whenever they go to the store, make investments in a house or car or pay their medical expenses. Some economists believe that the higher prices mean that some households will start slowing their spending as goods take up a larger portion of their budget.Inflation’s impact on people’s budgets will depend on whether wages can keep up with the rate of inflation. So far, it seems that wages are not keeping up with inflation, though industries that are recovering from severe pandemic losses, like hospitality, are seeing wage increases on pace with inflation.Inflation can also have a profound impact on politics as voters tend to blame the party in power for rising prices. So far, Republicans have been eager to blame Joe Biden for inflation, condemning him for overspending on government aid.“It’s a direct result of flooding the country with money,” the Senate minority leader, Mitch McConnell, told reporters in October.Democrats have taken the defensive, emphasizing that experts at the Federal Reserve believe the inflation will be short-lived and that pandemic assistance was necessary for the health and wellbeing of Americans during a crisis.“We are making progress on our recovery. Jobs are up, wages are up, home values are up, personal debt is down and unemployment is down,” Biden said the day October’s inflation numbers were released. “There is no question the economy continues to recover and is in much better shape today than it was a year ago.”How will it end?That’s the big question. Earlier this month the Fed chair, Jerome Powell, conceded that inflation had been “longer lasting than anticipated” and it was “very difficult to predict the persistence of supply constraints or their effects on inflation”. Economists expect the central bank to start raising rates next year in an attempt to tamp down price rises.But inflation is a psychological as well as an economic phenomenon. Fear of rising prices is already affecting consumers and could, perversely, lead to more price rises as consumers snap up goods fearing yet more rises in a market that is still constrained by supply chain problems.We will probably continue to be haunted by inflationary fears unless the price hikes do prove “transitory”. As the old economist joke goes: the best rate of inflation is the one no one notices.TopicsInflationEconomicsUS politicsnewsReuse this content More