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Jackie Benson, "The Economics of Inflation and the Risks of Ballooning Government Spending," United States Joint Economic Committee, 10-06-2021, https://www.jec.senate.gov/public/index.cfm/republicans/2021/10/the-economics-of-inflation-and-the-risks-of-ballooning-government-spending-- 嘉玮

What Causes Inflation?

Further agreement between our recommendations and the job guarantee is that the ambition of job creation strategies should go beyond hitting the target of macroeconomic full employment at the national level—even if people committed to pushing the lower bounds of unemployment are defining this target. That is, there is almost surely some national unemployment rate (4 percent? 3 percent? lower?) at which further stimulus to aggregate demand could lead to accelerating inflation. Should we just stop there (what I’m calling macroeconomic full employment) and declare concern about jobs addressed? Definitely not. Instead, by deploying public investments strategically, we should be able to lean harder on (targeted) fiscal stimulus and less hard on (across-the-board) monetary stimulus to make sure that national full employment is spread more evenly across communities. If, for example, it turns out that macroeconomic full employment nationally is 3 percent (don’t laugh, —and making sure we know how low it can sustainably go is a key part of our job creation recommendations), then it’s possible to hit this 3 percent rate nationally, but in a way where some communities are at more-than-full employment while other communities face substantially higher joblessness. To put it too simply, when we’ve hit the target national unemployment rate of (say) 3 percent, we’d like it to be 3 percent in both (say) Seattle and Detroit, rather than 2 percent in the Seattle and 4 percent in Detroit.

A second macroeconomic issue concerns financing and policy trade-offs. If government is financially constrained, policy must operate in a realm of trade-offs. Consequently, adopting a JGP may require giving up other desirable policy proposals such as increased public infrastructure investment, expanded subsidized healthcare, covering the shortfall in Social Security via general revenues, free tertiary education at public universities, elimination of student debt, or a universal basic income (UBI). This effect of financial constraints on government explains why discussion of a JGP tends to quickly spill over into a broader discussion about the macroeconomics of public finance. JGP proponents tend to believe government is financially unconstrained and can pay for everything by printing money. After the fact, government can then readily withdraw the money it has printed by raising taxes. All of this can be done without causing financial, economic, or political disruptions or distortions. That view is identified with modern money theory (MMT), which dismisses financial constraints on policy and argues the only constraint is availability of real resources (i.e. unemployed workers or under-utilised capital). In contrast, more conventional public finance macroeconomics argues that history, economic situation, markets, and political process impose financial, economic, and political constraints on governments that are difficult to thread. Though government has the technical ability to pay for everything owing to its power to issue money, doing so in excessive fashion will provoke disruptive and distorting financial, economic, and political reactions. The possibility of such reactions renders government’s technical ability to pay for everything an economic will-o-the-wisp. A government with a short time horizon can use its printing power to finance all its policy desires, but subsequent market reactions to budget excess will impose costs and may make the policies unsustainable. Alternatively, a government with a longer time horizon takes such future reactions into account when setting current policy, making it de facto financially constrained despite the appearance of being unconstrained. A third macroeconomic concern is inflation. The JGP wage is a real wage, which means the JGP nominal wage must be tied to inflation. Private sector nominal wages may then likely be tied to the JGP nominal wage to maintain an appropriate wage differential. Consequently, the JGP nominal wage could start to act as a form of economy-wide nominal wage indexation. Such indexation could potentially generate an unstable wage – price spiral, particularly if the existence of a JGP aggravates distributional conflict by increasing private sector wage demands. Raising the private sector wage share may be a desirable feature, but it points to the need for additional macroeconomic stabilisation policy tools. That requirement is either ignored or denied by JGP proponents.

If the United States could guarantee jobs in even a modestly efficient manner and in a way that significantly increased employment, it would be a very good thing. I want to be enthusiastic about job-guarantee proposals. But at a time when cynicism about government runs strong, it is important for progressives to avoid making promises that they cannot keep. We must rigorously examine the practicality of a job guarantee. A first question is how much to pay. A program of last-resort employment could likely provide the minimum wage and low benefits. But that will not help those laid off from highly paid manufacturing jobs or those who expect to earn wages well above the poverty line. While such a proposal could help many young people, it is far from clear that it would connect with the principal concerns of Rust Belt adults. On the other hand, if the guaranteed jobs paid premium wages, say double the $7.25 per hour national minimum wage, they would be an attractive alternative for a quarter or more of the workforce, raising questions of cost and economic disruption. Suppose a $15 per hour guaranteed job drew 4 million additional people into the workforce and also attracted 10 million existing employees, just one quarter of those for whom it would represent a wage increase. The cost, once benefits, materials and supervisory needs are included, would, conservatively, be $60,000 per worker. That would increase government spending by $840 billion — one-fifth of the current federal total. If wages for the 30 million lower-wage workers who remained in the private sector went up by just $4 per hour, private-sector costs would rise by $240 billion. The burden would largely fall on small businesses and disproportionately hurt restaurants and other major employers of low-wage labor. A second question job guarantees raise is what all these new workers would do. The current federal government civilian workforce comprises 2 million people . Meaningfully increasing employment or offsetting adverse trends even if all hired came off the sidelines of the workforce through a jobs program would require boosting the federal workforce by at least 50 percent. The United States has large needs, for example in infrastructure and care of the aged. At the federal level, these are met through contracting, not direct hiring. Using an employment guarantee to address these national problems would require significant restructuring of the way services are provided, likely with an efficiency cost.

A final question concerns the macroeconomics of a jobs guarantee. If the Federal Reserve saw the budget deficit expanding substantially, a tightening of the labor market or upward pressure on wages, it would probably respond by raising interest rates significantly. This would discourage spending and offset the employment gains from a guarantee scheme. If, on the other hand, the program was financed with new taxes, demand from those who paid the taxes would go down. That would reduce private-sector employment and offset the gains from an employment guarantee.

#4: Inflation would rise. A sudden increase in the cost of labor for businesses will lead to inflation throughout the economy because of higher business costs that will need to be passed on to consumers. In addition, when only those at the bottom of the income distribution get a defacto raise to $15, there are upstream consequences. Workers who were making $15 an hour may demand $20 an hour now. Workers making $20 an hour might want $25 an hour and so on. This may seem like a benefit, but “this is a story of serious wage-price spiral, unless we introduce other measures,” warns progressive economist Dean Baker.5 We have been very fortunate that inflation has been well under control for the last few decades. A federal jobs guarantee could change that pretty quickly.

#5: It would be an administrative nightmare. Finally, matching millions of workers to the jobs envisioned under a jobs guarantee would be an administrative nightmare to implement. State and local governments will be tasked with finding the productive work to do, but how do we train millions of people to do these jobs? How does the Department of Labor oversee the millions of new jobs to make sure they’re legitimate? What are the qualifiers for the kind of work that’s eligible? What if a right-leaning state wants jobs done that a left-leaning federal government deems unproductive or socially unacceptable like building an oil pipeline or opening up a coal mine?

Combine that with a looming global recession and we find ourselves at one of those historic junctures in which events could soon mess with our lives in unimaginable ways.

Our country is changing. We all know that. Change has arrived with political polarization and extremists left and right who want to define what America will be tomorrow. Opinion polls register our angst almost weekly as we wonder what comes next.

The next economic crisis is closer than you think. But what you should really worry about is what comes after: in the current social, political, and technological landscape, a prolonged economic crisis, combined with rising income inequality, could well escalate into a major global military conflict.

The 2008-09 global financial crisis almost bankrupted governments and caused systemic collapse. Policymakers managed to pull the global economy back from the brink, using massive monetary stimulus, including quantitative easing and near-zero (or even negative) interest rates.

This approach views a bad economy as a driving force incentivizing political leaders to initiate diversionary conflict as a way of proving their ability to lead the country (e.g. Bennett & Nordstrom, 2000; Brule´, Marshall & Prins, 2010; Fordham, 1998; Heldt, 1999; Solt, 2011). Of course, the leaders could also gain support by rebooting the economy, but they often feel unable to do so. International conflict can yield two distinct benefits to domestically threatened leaders (Haynes, 2017). First, an external threat increases internal cohesion. Many studies of intergroup psychology have found that favorable attitudes toward in-group members become stronger when individuals perceive a more severe threat from (or competition with) out-group members. Thus, a conflict with a foreign state can help an incumbent leader maintain political control (Theiler, 2018). Second, when facing domestic concerns about political leadership, leaders can engage in military conflict to demonstrate their competence (Richards et al., 1993). If they meet public expectations or even achieve a glorious outcome, their popularity can be restored. The effects of economic conditions on international conflict have long been debated, at least since Ostrom & Job’s (1986) study of US presidents’ use of force. Based on statistical analyses in large-N studies, some scholars have argued that the diversionary theory of war is supported only by anecdotal evidence, and that there is no significant relationship between domestic unrest and international conflict (Leeds & Davis, 1997; Meernik & Waterman, 1996). Even if some historical cases are classified as diversionary conflicts, these scholars contend, we cannot generalize a causal theory from them. Indeed, few insist that domestic unrest is a sufficient condition for international conflict, though it may cause political leaders to contemplate conflict initiation. Some studies even argue that domestically troubled states tend to be targets, not initiators, of international conflicts due to their weakened capability and unwillingness to fight (Blainey, 1988; Clark, Fordham & Nordstrom, 2011; Foster, 2006). Thus, during the last four decades, studies of diversionary conflict have aimed to identify (1) the conditions under which such conflicts occur, (2) the types of domestic unrest that produce international conflict, and (3) alternative options to the diversionary use of force against foreign states, as discussed below. First, many studies have shed light on dyadic or domestic conditions that facilitate diversionary conflict. Domestically challenged leaders are prudent in choosing their diversionary targets so as to remain in office. Targeting a territorial or strategic rival can revive domestic support because there is little need to justify the military action to the domestic public (Heldt, 1999; Mitchell & Prins, 2004; Tir, 2010). Also, political leaders may target states with rising power and/or a different identity to exploit their domestic audience’s fear of these rivals (Jung, 2014a), whereas they avoid attacking states that are either too powerful or too weak, because either winning is impossible or it will not strengthen their domestic standing (Tarar, 2006). Human rights violators may become democratic regimes’ diversionary targets because a liberal audience readily supports humanitarian intervention (Tokdemir & Mark, 2018).

This paper investigates the impact of a shock to a country’s national income on the intensity of conflicts. It does so by exploiting the commodity terms-of-trade (ToT) as an exogenous source of income variation. Our approach uses a more comprehensive ToT index than earlier studies, tracking a variety of commodities and time-varying trade shares while being scaled to the impact on aggregate income. As a result, our measure minimizes the dependence of results to movements in individual commodities such as oil and is sensitive to fluctuations in aggregate income. Our analysis indicates that a negative ToT shock significantly increases the intensity of conflicts, as measured by the number of conflict events per one million population. We find that the impact tends to be larger and more persistent for Low-Income Countries (LICs) and for Fragile and Conflict-affected States (FCS). Moreover, the impact is positively correlated with the level of inequality and a country’s external debt burden. The former effect is consistent with the opportunity-cost channel, which posits that lower income incentivizes individuals to participate in non-productive activities such as violence. The latter supports the relevance of a state-capacity channel, with lower income weakening a government’s capacity to address the impact of an economic shock on income levels and/or the fallout from conflicts, including through adequate social safety nets. Moreover, we find second-round effects from ToT shocks on the security situation of neighboring countries through spillovers of conflict. Overall, our results highlight that ToT shocks have heterogeneous consequences on the incidence and intensity of conflicts, as the impact is affected by a country’s underlying macroeconomic, institutional, and geographical conditions. The paper’s empirical results suggest that policies matter for the link between macroeconomic shocks and conflicts. First, inclusive growth that increases incomes and reduces inequality should help to enhance an economy’s resilience to shocks and work towards preventing violence. Second, adequate fiscal buffers in the form of sustainable (external) debt levels are critical to mitigate the impact of ToT shocks on an economy’s income and thus the likelihood of conflicts. It is plausible to assume that these fiscal buffers can facilitate the provision of adequate social safety nets, ideally targeted to vulnerable households, to break the negative cycle between economic shocks and violence. The results also suggest that financing engagement by international institutions can play an important role to help countries reduce the likelihood of conflicts when faced with an economic shock, as such financing increases the scope for more budget spending and eases foreign exchange constraints that many LICs tend to experience.

WASHINGTON, June 9 (Reuters) - Republicans in the U.S. House of Representatives on Friday unveiled a series of new tax breaks aimed at businesses and families while proposing to reverse some of President Joe Biden's legislative victories, including credits to spur the sale of clean-burning electric vehicles.

Three related bills were introduced on Friday with the goal of moving the legislation through the House Ways and Means Committee next week. That is when the Joint Committee on Taxation also is expected to release its analysis of the package.

Overall, Biden’s tax provisions would reduce after-tax incomes for nearly two-thirds of households. But for those making less than $410,000, nearly all of that decline would be due to their share of the corporate tax hikes.

By contrast, individual income, payroll, and estate taxes alone would raise taxes on only about 2 percent of households. And nearly all of them will make $410,000 or more. Nearly 40 percent of the lowest-income households and almost one-quarter of middle-income households would get a tax cut.

WASHINGTON (AP) — Rising U.S. consumer prices moderated again last month, bolstering hopes that inflation’s grip on the economy will continue to ease this year and possibly require less drastic action by the Federal Reserve to control it.

Inflation declined to 6.5% in December compared with a year earlier, the government said Thursday. It was the sixth straight year-over-year slowdown, down from 7.1% in November. On a monthly basis, prices actually slipped 0.1% from November to December, the first such drop since May 2020.

The US inflation rate slid to a more than two-year low, a major step toward ending the cost-of-living emergency — and possibly the Federal Reserve’s historic monetary tightening, too.

At 3% last month, consumer-price inflation is now just one-third of the level it reached a year ago, which was the highest in four decades. And the details for June were also better than expected, with key measures of underlying inflation coming in below forecasts.

WASHINGTON (AP) — Squeezed by painfully high prices for two years, Americans have gained some much-needed relief with inflation reaching its lowest point since early 2021 — 3% in June compared with a year earlier — thanks in part to easing prices for gasoline, airline fares, used cars and groceries.

The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Federal Reserve’s 2% target. From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild.

Workers saw their buying power grow in May for the first time in two years, as inflation continues to fall from its pandemic-era peak.

If the trend continues, it’d be welcome news for households, who could lean more on their paychecks instead of their savings or credit cards to support everyday spending, economists said.

WASHINGTON, July 12 (Reuters) - U.S. consumer prices rose modestly in June and registered their smallest annual increase in more than two years as inflation subsided further, but probably not fast enough to dissuade the Federal Reserve from resuming raising interest rates this month.

The report from the Labor Department on Wednesday also showed underlying consumer prices posting their smallest monthly gain since August 2021. The considerable slowdown in underlying inflation sparked a rally on the stock and bond markets, with investors convinced the U.S. central bank's fastest monetary policy tightening cycle since the 1980s was drawing to a close.

Rob Wile, "Inflation cooled to 4% in May — the lowest reading in two years," NBC News, 6-13-2023, https://www.nbcnews.com/business/economy/inflation-may-2023-what-is-it-are-prices-falling-rising-rcna88860-- 嘉玮

Consumer price growth cooled again in May to the lowest level since March 2021, the Bureau of Labor Statistics reported Tuesday.

Greg Iacurci, “Here’s the inflation breakdown for June, in one chart,” CNBC, 7-12-2023, https://www.cnbc.com/2023/07/12/heres-the-inflation-breakdown-for-june-in-one-chart.html-- 嘉玮

Inflation slowed sharply in June to its slowest pace in more than two years, translating to less of a pinch on the average consumer’s wallet thanks to price relief across categories like energy, groceries and housing.

Republicans have taken an aggressive approach to President Biden’s plans to finance his roughly $6 trillion agenda: Don’t mess with their 2017 tax cuts.

Even before Biden formally unveiled his plans, Republicans sent a message that they consider the 2017 law that slashed personal and corporate tax rates as a sacrosanct measure that they’ve no intention of gutting.

If you look only at Biden’s proposed changes in direct taxes on households, including individual income taxes, payroll taxes, and estate taxes, the average tax increase falls by more than half, to about $1,100. Low- and moderate-income households would get slightly larger tax cuts and very high-income households would face a smaller tax hike than with all tax changes. This calculation excludes corporate tax increases, which TPC assumes indirectly affect workers and shareholders by lowering their future wages and investment income.

Biden’s Pledge