Monday, October 1, 2012

Robert Samuelson Wants the Government to Stop Trying to Help People Into the Middle Class

image

http://www.cepr.net/index.php/blogs/beat-the-press/robert-samuelson-wants-the-government-to-stop-trying-to-help-people-into-the-middle-class

I always enjoy Dean Baker’s Beat the Press column – here’s he’s commenting on a Robert Samuelson Newsweek column --

This piece also includes a line about the risks of the Fed's expansionary policy:

"The most significant [risk] is that the Fed’s efforts heat up economic growth in a way that unleashes inflation, which would eat away at middle-class incomes."

Actually it is very difficult to imagine inflation taking a form that would "eat away at middle-class incomes." If the economy heats up in the way described, it means that unemployment would fall sharply, leading to more rapid wage growth. This rapid wage growth would be the factor driving inflation. Since most middle income people get most of their income from wages, if wages are rising rapidly, it is unlikely that their income would be eroding. Most middle income retirees get most of their income from Social Security which is indexed to inflation, so these people would be largely protected as well.

The big losers from higher than expected inflation would be lenders, like the Wall Street banks, who have large amounts of loans outstanding that would suddenly be worth much less in a higher inflation environment. This is a reason why Wall Street is generally a forceful lobby against higher inflation.

At one point the piece refers to Bernanke's "grueling" years at the Fed. It is worth pointing out that the main reason the years have been grueling is that Bernanke and Greenspan failed to recognize the housing bubble (Bernanke was a Fed governor from 2002 to 2005) and to take steps to deflate it before it grew large enough to do so much damage to the economy. In other words, he is cleaning up his own mess.

btp-2012-09-24

No comments:

Post a Comment