Economist Dean Baker: Inflation Hawks Are Job Killers

Wednesday, 06 Aug 2014 09:29 AM

By Michael Kling

  Comment  |
   Contact  |
  Print  
|  A   A  
  Copy Shortlink
High-level inflation hawks at the Federal Reserve are job killers, Dean Baker, co-director of the Center of Economic and Policy Research, charges.

Some key policy makers argue that an increasingly tight labor market will prompt wage growth and out-of-control hyperinflation. So the Fed must take preemptive action against that inflation by raising rates or our dollars will become worthless.

Higher interest rates would also make it harder for borrowers to meet debt payments, discourage investment and make it harder for people to find jobs, Baker writes in an article for The Huffington Post.

Editor's Note:
Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

We've seen this debate on the interest rates before, Baker argues. In the mid-1990s, most economists thought the unemployment rate could not fall below 6 percent without causing serious inflation and pressed the Federal Reserve to raise interest rates. In 1996 inflation hawks at the Congressional Budget Office predicted unemployment would be 6 percent in 2000 and the budget deficit would be 2.5 percent of GDP.

Unemployment fell to 5 percent in 1997, 4.5 percent in 1998 and 4 percent year-round average in 2000.

Instead of a budget deficit, we had a 2.5 percent budget surplus, contrary to the CBO prediction.

If the inflation hawks had gotten their way in the mid-1990s the economy would have been completely different, he argues. "Millions of workers would have been denied jobs, tens of millions would not have seen pay gains, and we would have continued to run substantial budget deficits."

It's the same situation today, Baker notes. "Many in the financial industry couldn't care less about unemployment. They don't want to risk any inflation that could erode the value of their wealth. Their voices are being heard at the top levels of the Fed."

Even though the topic is a huge jobs issue, he says, it's receiving less media attention than other subjects that involve less than 1 percent as many jobs, such as the Export-Import Bank or the Environmental Protection Agency's carbon emissions rules.

Others believe see signs that inflation is beginning to increase after being dormant the last five years. Inflation may be close to 3 percent this year, Scott Burns, a principal at AssetBuilder Inc., writes in his blog.

Rising prices in a host of categories, especially shelter, the biggest expense for most Americans, suggests that a 3 percent inflation rate is imminent, he warns.

The Consumer Price Index for shelter rose 0.2 percent in June after rising 0.3 percent in May, he points out. It rose 2.8 percent over the previous 12 months, while wages rose only 2.3 percent.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

Related Stories:

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

Return of $2 Gasoline Seen for Some in US as OPEC Resists Cuts

Friday, 28 Nov 2014 21:52 PM

For the first time in five years, $2 gasoline is making a comeback in some areas of the U.S., just in time for the Dec.  . . .

Kudlow: Lower Oil Prices Are Positive for Economy - Let's Be Optimistic

Friday, 28 Nov 2014 21:13 PM

Lower oil prices are unambiguously positive. Can we please be optimistic about it, asks renowned economist and CNBC cont . . .

Hans Parisis: Oil, Currency Uncertainties Certain to Spark Volatility

Friday, 28 Nov 2014 16:59 PM

Next year will be challenging year for the markets everywhere and where one big “Black Swan” event, which is a metaphor  . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved