What will the future look like with the COVID-19 pandemic about to end, and a possible new cold war with Russia just beginning? It is a time when governments come to the rescue. We’ve seen it happening with the demise of COVID-19 due to the development of miraculous vaccines that only governments can research and fund.
But it also means consumers have been given more money to spend, which has resulted in the highest monthly inflation numbers since 2005.
The consumer price index jumped 1.2% last month, driven by the higher cost of gasoline, food and housing, the government said Tuesday. It was the largest monthly gain since Hurricane Katrina in 2005 and resulted in the highest annual increase in 40 years, crimping the spending of consumers and investments of producers.
Scary as that may be, the FRED graph shows that it has been higher in 1974 and 1980 during the Arab oil embargos when it rose to 14 percent, per the FRED graph. Inflation is also happening with commodities such as wheat and oil because of the sanctions against Russia for invading Ukraine and threatening the West with nuclear weapons if NATO interfered with Putin’s wholesale destruction of another country.
We are also seeing how the EU, US and Japanese governments have come together to aid Ukraine. But all of this takes lots of money, which only governments can spend, as I said. It took $trillions to vanquish the pandemic, and we see with the proposed 2022-23 fiscal year budget of $5.8 trillion what must be done to keep the US on a strong growth path.
It really means the transfer of more wealth from the private sector via higher taxes to pay for programs that promote more jobs and protect Americans from economic disruptions that may be caused by the Ukraine war.
For instance, the proposed budget includes a so-called “billionaire tax” that would apply a minimum tax rate of 20 percent to both the income and unrealized capital gains of households with a net worth over $100 million. The tax is projected to raise $360 billion over 10 years — more than half of it from billionaires that have prospered the most since the Great Recession of 2007-09.
To emphasize that wealthy Americans can afford higher taxes, the Times interviewer mentioned that some 130 new American billionaires were created just from 2020 to 2021.
French economist Thomas Piketty, author of the best-selling Capital in the Twenty-First Century, and sure to be a future Nobel Prize-winner in Economics, stated recently in a NY Times Magazine interview, “…the period of maximum prosperity of the U.S. economy in the middle of the century was a period where you had a top income tax rate of 90 percent, 80 percent, and this was not a problem because income gaps of 1 to 100 and1 to 200 are not necessary for growth.”
The income gaps have risen to more than 300 to 1 for CEOs vs. their employees during the 1980s as inequality levels grew to what they are today. We cannot possibly pay for the programs needed to protect Americans if such levels of inequality continue. That is already happening with the 5.6 percent annual rise in average hourly wages, with transportation, leisure and retail trade employees’ average wages rising even faster, as we said last week.
I said last week that now isn’t the time to worry about inflation or the Fed engineering a soft landing, or any ‘landing’ at all. It is precisely during such uncertain times that we need elevated growth and a government that steps up, while partisan politics step down, even with an upcoming election in November.
Harlan Green © 2022
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