Bits and pieces - January 28, 2023

 

The Fed Mandate (and how it changed under neoliberalism)

There is a “raging” debate over the role of the Federal Reserve in fighting inflation. What both sides of this debate assume is that fighting inflation is part of the Fed’s job: that the Fed has a “dual mandate”—maximum employment and price stability—and that in situations like these, with prices spiking for a range of goods and services, the Fed is supposed to take steps to tighten financial conditions with a view toward constraining the demand for goods and services. But this assumption reflects a widespread misunderstanding.

Congress did not design the Fed to minimize price increases as a general matter. Instead, it gave the Fed a single mission—promoting monetary expansion at a rate consistent with full capacity utilization in the economy over the long run. In fact, when the Fed was established, Congress was concerned primarily with deflation, a monetary problem that can trigger deep recessions; legislators hoped that the Fed could address this problem by stimulating bank lending and preventing economic contractions …. Congress, in other words, designed the Fed to keep the economy growing, not slow it down for the sake of stable prices in the short-to-medium term. …

Raising interest rates to sap aggregate demand merely to prevent price indices from rising above a certain annual target is at odds with the Fed’s mandate. … despite what we have witnessed over the past several decades, the Fed is not designed to serve as an all-purpose manager of macroeconomic cycles. This idea, which has its roots in the 1980s and the “Volcker shock,” is the product of a global consensus among economists and central bankers about the proper role of central bankers (one that is consistent with the statutory mandates of many other central banks, for example, the ECB). But not only was this sort of central banking not what Congress had in mind, it runs contrary to the stated goal of the Fed – creating the conditions for full capacity utilization in the economy.

And, since research shows that economies perform better at modestly higher inflation rates (see my earlier post, Hold the presses, 1/7/2023) setting the goal of 2% inflation is diametrically opposed to the original mandate of the Fed. When did change this occur? In the 1980s at the onset of runaway inequality. The connection should be obvious, but as they say, there are none so blind as those who will not see.

 

The Racial Wealth Gap

The economic struggle continues for Black Americans decades after the death of Dr. Martin Luther King Jr. in 1968, according to NAACP President and CEO Derrick Johnson.

“From voting rights and police reform to the ongoing fight for economic justice, there is much work left to be done to fully realize Dr. King’s dream. Today, the racial wealth gap in America continues to be the single greatest barrier to realizing Dr. King’s dream,” Johnson said Sunday ahead of the King holiday.

Forbes reported that middle-class Black families back in 1968 had an average household wealth of about $6,600 compared to about $71,000 for white middle-class households, adjusted for inflation.

By 2016, the Brookings Institution pegged Black family net worth at $17,150 compared to $171,000 for their white counterparts. Income disparity isn’t the only issue. White families tend to have greater wealth than Black families with similar income levels.

“Two households can have the same income, but the household with fewer expenses, or with more accumulated wealth from past income or inheritances, will have more wealth,” the report stated. Intergenerational wealth is one key difference. White families receive much larger inheritances on average than Black families.”

At the same time, U.S. Treasury Secretary Janet Yellen has highlighted the systemic racial inequalities that continue to keep Black Americans at the economic periphery.

Speaking at an event honoring King in 2022, Yellen said, “From Reconstruction, to Jim Crow, to the present day, our economy has never worked fairly for Black Americans -- or, really, for any American of color.”

Johnson called on elected officials to pass student debt relief legislation as a tool to address the wealth gap. The Congressional Black Caucus has framed the student debt disparity as “a racial and economic justice issue,” urging the Biden administration to implement a “broad-based” approach to the $1.7 trillion student loan debt crisis. Black borrowers are burdened with a disproportionately high amount of federal student debt.

 

Bernie Sanders on Pharma

“Five of the largest US pharma firms totaled $80 billion in profits last year, but millions of Americans can’t afford medicine.

“In Canada and other major countries the same medications manufactured by the same companies, sold in the same bottles are available for a fraction of the price that we pay in the United States.

“There is no rational reason why the HIV treatment Biktarvy costs $45,540 per year in the U.S but only $7,500 per year in France. Or why a weekly dose of the autoimmune medicine Enbrel costs $1,762 in the U.S. but just $300 in Canada. Or why a vial of insulin costs $98.70 in the U.S., but just $11 in Germany.

Well maybe no “rational” reason Bernie, but it’s not hard to figure out what brought this about and why it continues.

“Over the past 25 years, the pharmaceutical industry has spent $8.5 billion on lobbying and over $745 million on campaign contributions to buy politicians. Incredibly, last year, the drug companies hired over 1,700 lobbyists including the former congressional leaders of both major political parties – over 3 pharmaceutical industry lobbyists for every Member of Congress.

 

How the racists respond to fair redistricting – “It’s always about race”

Commenting on the Mobile, Alabama mayor’s plan to annex predominantly white areas west of the city, which could bring in 26,000 new residents, once again diluting Black voting strength and undoing the progress made toward a city council map that fairly reflects the demographics of this majority-Black city, Jim Flowers, director of All Saints Episcopal Church noted, “the white city council members consistently say that it’s not about race. But if you’re in the public life in the U.S., it is always about race – always.”