How to deal with inflation in a way that benefits the working class and not the banks and the very rich

The Good News:

With the start of 2023, Washington D.C. and 23 states raised their minimum wages, many of them automatically as a result of having previously tied the minimum wage to the cost of living – proving to Congress and the other states that such a simple, long-lasting solution is possible.

The Bad News:

Only three states (Washington, California, and Massachusetts) and Washington D.C. now have minimum wages of $15 or more (as do federal workers and some state workers and contractors). The federal minimum wage -- which is all that many states have, and to which some other states' minimum wages are tied -- has now gone the longest period of time without correction since it was created in 1938, and is worth less than it has been since 1956.

The federal minimum wage of $7.25 per hour would be $12.12 if the law had built in adjustment for inflation in 1968. If the federal minimum wage had kept pace with productivity, it would now be over $26 per hour.

The value of the federal minimum wage has reached its lowest point in 66 years, according to an EPI analysis of recently released Consumer Price Index (CPI) data. Accounting for price increases in June, the current federal minimum wage of $7.25 per hour is now worth less than at any point since February 1956. At that time, the federal minimum wage was 75 cents per hour, or $7.19 in June 2022 dollars.

The Solution to Inflation:

A national $15 minimum wage would raise the incomes of tens of millions of workers, including servers in restaurants, grocery store employees, and essential health care workers—as many as 2 million direct care workers would benefit from a $15 minimum wage.

Not only would raising the minimum wage affect the tens of millions of workers currently working for less, it would serve as a tidal force to raise the wages for tens of millions more – in this instance there is no question but that “a rising tide lifts all boats”.

An Added Benefit or two:

The most significant benefit of this would accrue to those at the bottom of the economic ladder, thus spurring economic activity through augmented demand. No recession, which is what the Fed is trying to produce by raising interest rates, just economic growth. What’s not to like?

Social Security will see a big jump in revenue, hopefully quieting those who claim it’s not solvent and needs to be cut (or privatized).

And, most importantly, the results of raising the minimum wage nationally, would take some of the wind out of the Fed’s program to bring inflation down to 2%.

Moderate Inflation Actually Benefits the Working Class

As I have previously noted (Hold the Presses, January 7, 2023), the overwhelming evidence is that very low inflation rates (0-2.5%) are a drag on economic growth. But the Fed and friends use the fallacious argument that we need low inflation in order for companies to invest and help the economy grow. NOT TRUE.

But, it is true that low inflation helps the wealth of the 1% grow in comparison to the rest of us. And higher inflation hurts the very wealthy. Forbes and Bloomberg have estimated that billionaires lost between $1.4 and $2.1 trillion in 2022, a year that has seen the highest inflation rates since the early 1980s. Not that I’m shedding a tear for them, simply noting why they are so adamant about reducing inflation.

In fact, there certainly appears to be a correlation between the extended period of very low inflation rates following the Volker shock in the early 1980s and the rampant runaway inequality and financialization of the economy we’ve seen since then. I would argue that it’s more than a coincidence, since low inflation benefits those with money and creditors who are owed money, i.e., the rich and the banks.

Conclusion

There are numerous ways in which the working class can fight the obscene and growing income inequality in our country and worldwide. Yes, pass a wealth tax. Yes, pass regulatory measures to reign in the most egregious forms of exploitation. Yes, strengthen anti-monopoly enforcement. But at the same time reject the conventional wisdom that the economy and working people benefit from a very low inflation rate. It’s not true and it’s certainly not beneficial to the working class.