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**AUGUST 8, 2022**
Kuttner on TAP
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**** Our Bewildering Economy
What are the contradictory trends and policy choices? And does the
Inflation Reduction Act live up to its name?
The robust job growth
of 528,000 in July, reported Friday, surprised forecasters and confirmed
that we are not in a recession-yet. But the Fed seems determined to
push us into one.
Despite the victory laps taken by Larry Summers, Jason Furman, and
others who blame inflation on the stimulus of the relief spending of
2020 and 2021, most of the economy's short-term price pressures do not
reflect excess demand
.
Other large economies with no comparable stimulus programs are
experiencing comparable rates of inflation
.
Labor has far less bargaining power today than in the stagflationary
1970s. As my colleagues at the Economic Policy Institute
observe, anytime wages lag far behind inflation, they can't be driving
it.
The supply chain crisis, exacerbated by Russia's invasion of Ukraine,
is compounded by the ability of large companies to extract price hikes
not justified by their own increased costs. All this is intensified by
long-term policy failures. These include America's failure to build
adequate affordable housing, or to contain price-gouging by drug
companies, as well as its half-century freeze on antitrust enforcement.
In this context, the Inflation Reduction Act
(IRA)
is a huge step in the right direction. It will cap drug costs to
seniors, reduce health care costs, and cut energy costs to consumers via
tax credits, as well as investing in renewable energy for the long term.
One splendid new provision, added to make up for the revenue losses of
the corporate concessions to Kyrsten Sinema, adds a 1 percent excise tax
on corporations that buy back their own shares to drive up the stock
price.
Why is this anti-inflationary? Because an inflated stock price creates
"wealth effects" that make people feel richer and spend more. That in
turn bids up prices of housing and other scarce goods.
Because of concentrated wealth, the new stock buyback tax hits mainly
the top brackets, not ordinary people. It's a powerful example of how
the menu of measures to constrain inflationary pressures are not
distributively neutral.
By contrast, the worst kind of anti-inflation medicine is the Fed's
blunderbuss policy of raising interest rates. It is not targeted at all.
It hurts workers, small businesses, and people seeking to buy homes or
those reliant on credit card borrowing. It helps banks, and creditors
generally, at the expense of debtors.
Read the full story at prospect.org
~ ROBERT KUTTNER
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Democrats Discover Winning Feels Good
Accomplishment is better than endless dithering-who knew? BY ZACHARY
D. CARTER
Bipartisan Highway to Hell-or Heaven?
State and local governments will decide if the infrastructure package
makes climate change better or worse. BY ROBERT HITT
Democrats Stepping on Their Own Message
The proliferation of PACs only worsens the cacophony. BY ROBERT KUTTNER
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