View this email in your browser

**OCTOBER 4, 2021**

Kuttner on TAP

This Inflation Is Different-Beware Quack Diagnoses

The inflation rate is higher than expected. The Federal Reserve projects
that by the end of 2021, the year-over-year price increase will come in
at 4.2 percent.

This trend has given conservatives ammunition to call both for less
public investment (to reduce potentially excessive fiscal stimulus) and
for a faster reversion by the Fed to less monetary stimulus. Both
counsels are profoundly wrong because they misstate the source of the
inflation.

The prime cause is a series of supply bottlenecks, which create
shortages and cause temporary price hikes. These price increases tend to
spill over into near substitutes. For example, the shortage of
semiconductors creates a shortage of new cars. That then bids up the
price of used cars.

But this has nothing whatsoever to do with price inflation driven by
excessive demand. If anything, it cuts into demand because consumers are
compelled to pay higher prices for some products, which reduces their
purchasing power elsewhere. The cure for supply-chain bottlenecks is to
restore domestic production, as recommended by the landmark White House
report

on taking back supply chains.

Another major source of rising in the consumer price index is the
increase in housing prices. This is driven by a long-term shortage of
affordable homes at one end of the income distribution, and at the other
end by the very rich having more money than they know what to do with,
bidding up the price of trophy homes.

Once again, policies to douse the recovery to contain this sort of
inflation is the last thing the economy needs. It may seem a paradox,
but Biden's Build Back Better program addresses both of these
long-term challenges. It contains funds for reclaiming semiconductors
and other supply chains, as well as $80 billion for affordable housing.

Given floods and droughts, we may also see more price hikes in some
foods. Here again, this is a supply shock that has nothing to do with
overheated demand. And again, the long-term remedy is getting serious
about dealing with climate change. That also requires more public
investment, not less.

In the late 1970s, the U.S. had a severe bout of inflation driven by
supply shocks in energy, food, health care, and housing. The Fed's
perverse response was to push interest rates sky-high, creating a decade
of stagflation and Republican rule.

Let's not repeat that.

~ ROBERT KUTTNER

Follow Robert Kuttner on Twitter

Robert Kuttner's latest book is
The Stakes: 2020 and the Survival of American Democracy
.

[link removed]

USPS Begins Postal Banking Pilot Program

The test allows customers to cash business or payroll checks at the post
office and place them onto a gift card. BY DAVID DAYEN

The Corporate State of Delaware
The tiny
state has long been a hotbed for corporations. Can mounting public
pressure push the state to change its centuries-old ways? BY AMELIA
POLLARD

The Progressive Caucus Wields Power

In a rare moment in Congress, progressive Democrats held the line, for
now. BY DAVID DAYEN

To receive this newsletter directly in your inbox, click here to
subscribe. 

 

[link removed]

 

[link removed]

 

[link removed]

 

[link removed]

 

[link removed]

YOUR TAX DEDUCTIBLE DONATION SUPPORTS INDEPENDENT JOURNALISM

The American Prospect
IDEAS, POLITICS & POWER
The American Prospect, Inc.
1225 I Street NW, Suite 600
Washington, DC xxxxxx
United States
Copyright (C) 2021 The American Prospect. All rights reserved.

To opt out of American Prospect membership messaging, click here
.

To manage your newsletter preferences, click here
.

To unsubscribe from all American Prospect emails, including newsletters,
click here .
_________________

Sent to [email protected]

Unsubscribe:
[link removed]

The American Prospect, Inc., 1225 I Street NW, Suite 600, Washington, DC xxxxxx, United States