by Michael Hudson
June 22, 2022
Introduction:
Read more here: https://www.counterpunch.org/2022/06/2 ... ce-wages/(Counterpunch) The Federal Reserve Board’s ostensible policy aim is to manage the money supply and bank credit in a way that maintains price stability. That usually means fighting inflation, which is blamed entirely on “too much employment,” euphemized as “too much money.”… In Congress’s more progressive days, the Fed was charged with a second objective: to promote full employment. The problem is that full employment is supposed to be inflationary – and the way to fight inflation is to reduce employment, which is viewed simplistically as being determined by the supply of credit.
So in practice, one of the Fed’s two directives has to give. And hardly by surprise, the “full employment” aim is thrown overboard – if indeed it ever was taken seriously by the Fed’s managers. In the Carter Administration (1777-80) leading up to the great price inflation of 1980, Fed Chairman Paul Volcker expressed his economic philosophy in a note card that he kept in his pocket, to whip out and demonstrate where his priority lay. The card charted the weekly wage of the average U.S. construction worker.
Chairman Volcker wanted wages to go down, blaming the inflation on too much employment – meaning too full. He pushed the U.S. bank rate to an unprecedented 20 percent – the highest normal rate since Babylonian times back in the first millennium BC. This did indeed crash the economy, and with it employment and prosperity. Volcker called this “harsh monetary medicine,” as if the crash of financial markets and economic growth showed that his “cure” for inflation was working.
caltrek's comment: To me, this all argues for a Uniform Basic Income (UBI) policy. It is quite cynical and unjust to throw people into poverty just to put a tamper on inflation. While a UBI might complicate the problem of reducing inflation, it would cushion the negative impact on those most vulnerable. Of course, conservatives will oppose such measures, even as they accuse Biden and the Democrats of promoting inflation. Another version of the shock doctrine: Take advantage of worsening economic conditions to impose even more repressive measures upon a naive public.