This week's biggest economic show occurs tomorrow (Wednesday) when Fed chair Ben Bernanke steps in front of the cameras for the Fed's first-ever news conference. The question on everyone's mind: Will the Fed signal it's now more worried about inflation than recession?
Much of Wall Street thinks inflation is now the biggest threat to the U.S. economy. As has been the case in the past, the Street is dead wrong. The biggest threat is falling into another recession.
The most significant economic news from the first quarter of 2011 is the decline in real wages. That's unusual in a recovery, to say the least. But it's easily explained this time around. In order to keep the jobs they have, millions of Americans are accepting shrinking paychecks. If they've been fired, the only way they can land a new job is to accept even smaller ones.
The wage squeeze is putting most households in a double bind. Before the recession, they'd been able to pay the bills because they had two paychecks. Now, they're likely to have one-and-a half, or just one, and it's shrinking.
Add to this the continuing decline in the value of the biggest asset most people own - their homes -- and what do you get? Consumers who won't and can't buy enough to keep the economy going. That spells recession.
Why doesn't Wall Street get it? For one thing, because lenders always worry more about inflation than borrowers -- and, in general, the wealthier members of a society tend to lend their money to people who are poorer than they are.
But Wall Street's inflation fears are also being stoked by several specifics.
First are price upswings in food and energy. The Street doesn't seem to understand that when most peoples' wages are dropping, additional dollars they spend on groceries and at the gas pump means fewer dollars they have left to spend in the rest of the economy. Rather than cause inflation, this is likely to lead to more job losses.
The Street is also worried that the Fed's easy money policies are pushing the dollar down and thereby fueling inflation - as everything we buy abroad becomes more expensive. But if wages are stuck in the mud and everything we buy abroad costs more, Americans have even fewer dollars to spend. This also spells recession, not inflation.
Finally, the Street worries that if Democrats and Republicans fail to agree to a plan to cut the budget deficit, the credit-worthiness of the United States as a whole will be in jeopardy - causing interest rates to rocket and inflation to explode. Standard & Poors, the erstwhile credit-rating agency, has already sounded the alarm.
The Street has it backwards. Over the long term, the deficit does have to be tackled. But not now. When job growth remains tepid, when wages are dropping, and when the value of most households' major asset is declining, government has to step in to maintain overall demand.
This is the worst possible time to cut public spending or reduce the money supply.
The biggest irony is that the Street is doing wonderfully well right now, in contrast to most Americans. Corporate profits for the first quarter of the year are way up. That's largely because corporate payrolls are down.
Payrolls are down because big companies have been shifting much of their work abroad where business is booming. The Commerce Department recently reported that over the last decade American multinationals (essentially all large American corporations) eliminated 2.9 million American jobs while adding 2.4 million abroad.
What the Commerce Department didn't say is the pace is picking up. In 2000, 30 percent of GE's business was overseas and 46 percent of its employees; now 60 percent of its business is outside the U.S., as are 54 percent of its employees. Over the past five years, Oracle added twice as many workers overseas as in the US; 63 percent of its employees now work abroad.
Corporations are simultaneously finding ways to cut the pay of their remaining U.S. workers -- not just threatening job losses if they don't agree to the cuts, but also automating the work or sending it to non-union states. (The Wall Street Journal's editorial page, an unremittingly reliable barometer of Street thought, argued earlier this week that such states offer workers the freedom to choose whether to join a union -- in reality, the freedom to lose even more bargaining power and be forced to accept even lower wages.)
America's jobless recovery is becoming a wageless recovery. That puts the odds of another recession greater than the risk of inflation. Wall Street and its representatives in Washington don't understand -- or don't want to.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Yvette Kantrow: The Maginot Media
Not many jobs went overseas between these two dates.
If any.
For those of us in retirement what we don't want is inflation. What do you tell those that are on fixed incomes if inflation is allowed? Then more older people will have to enter the workforce thereby competing with younger workers who have not even got a 401K yet.
The Fed. needs to work on keeping the dollar strong. Seniors on social security and retirement savings need to keep their purchasing power where it is-not decrease it because of inflation.
Inflation hurts retirees because it steals their savings just like a tax does.
Inflation is a method of wealth redistribution.
Consider this possible tax reform to "promote the general welfare": Set the "base" federal corporate income tax rate at 80%, but allow corporations to "earn" a reduction in that tax rate based on the ratio of the Social Security wages they pay to their domestic employees relative to their profits. The higher the ratio of Social Security wages to profits, which I'll call the social contribution rate, the lower the corporation's income tax rate.
This kind of tax rate incentive plan would be similar in principle to property or income tax abatements that municipalities give to businesses to encourage them to operate in their jurisdiction, but scaled up on a national level AND with the explicit structure to motivate domestic middle class employment. To be effective, firms should have the opportunity to earn a substantial tax rate abatement, say up to a 80% reduction in the corporate tax rate, if their social contribution rates are high enough (for example 200% or more).
Why is this idea something to consider at this juncture in our nation's history? Because it provides a framework for our national government to use corporate policy to define more clearly that our society values profitable corporate activity by how much it promotes the economic health of our DOMESTIC citizenry. In other words, its people. Because, summing it up, isn't that the overall purpose of our Constitution?
Attacking the windmills
Repeal the 5th Amendment.
Unemployment is expected to decline slowly also.
With a stagnant economy, how can unemployment drop.?
Simple, the minimum wage is declining.
A 3 To 4% increase in the inflation rate, means a 3 to 4% decline in the minimum wage. As the minimum wage declines, the employment rate rises.
Conversely, as the minimum wage increases, unemployment rises.
Got a solution, or just crying about it?
Too young = not enough experience often.
Too old = might have the experience, but expensive, particularly on the healthcare side
Race/Sex = means nothing if they think you are th ebest for the job.
The only criteria that matters is "Will your costs be less than your profit".
Just asking.
Actually, the Obama Administration is bringing us both. Stagflation anyone?
http://www.cnbc.com/id/42796520
They could care less about our ideals, beliefs, or ethics as a nation. They don't give a rats *%^ about abortion, no money in it. BUt they need the support of that constituency to get their stooges elected. They manipulate the policy and regulation aspects of government. They have duped the non-racists in the Tea Party by claiming individual rights and constitutional adherence for their own self interest. Wait until they find out about how far property rights can go when taken to the nth degree.
This country needs an enema. People have to wake up and realize that some of these groups could care less about America. "Business" is one of them. The master's of marketing can spew all the mission statements they want, it's all BS. They needed to beat labor, so they shipped workers overseas. Less labor costs = more profit. As the artical points out, this trend is increasing.
We produce practically nothing in this country, and anyone concerned about national security should be very concerned. Time to reclaim America, the T-party rhetoric has it right. Too bad their political interests are so corrupted
That's why we must prevent them from contributing to national politics, prevent them from contributing money to campaigns, prevent them from "engaging" regulatory agencies, and remove their legal status as :individuals".
As the president said yesterday morning, we have serious problems right now and we need to somehow get the country on a track to work together, but the views of conservatives and progressives are so diametrically opposed to each other, and there is so little willingness to compromise on the right, that I have little hope we will see a good outcome for the course we're currently on.