The Only Way To Whip Inflation Now

Inflation is still heating up.  And while Jim Cramer is blaming it on the virus, history has shown that pandemics usually lead to LESS inflation, not more.  So it has to be something else, but what could it be?

Let's see:  Global energy price hikes, global supply chain problems, labor shortages, and things like that have been years in the making, but our lopsided pandemic response has only exacerbated these imbalances.  Lockdowns, business restrictions, travel restrictions, mask mandates, and now vaccine mandates have really poured gasoline on the fire.  And while 18 months of over-generous unemployment benefits likely exacerbated labor shortages to some extent, yanking these benefits recently has really not reduced inflationary pressures at all, not even in the states that did it sooner.

The labor shortage is really a wage shortage, and is easy to solve by simply paying employees more.

The FERAL Reserve has been backstopping the entire economy all this time with rock-bottom interest rates and firehosing the economy with unprecedented amounts of newly-keystroked money.  Which has certainly prevented a full-blown depression from occurring, but when done too much for too long in a lopsided fashion (too much for Wall Street and too little for Main Street), it can certainly create distortions in the economy.

So what is the best thing that can be done?

1. Go "cold turkey" and end all remaining  mandates and restrictions, yesterday.  Reinstate immediately anyone who was fired or quit due to the vaccine mandates, and compensate them for their losses.  It may or may not be too late to rectify this man-made staffing crisis, particularly in healthcare.
2. The Fed should gradually taper off all QE and pandemic-related stabilization programs over the next couple of months, immediately raise interest rates to 0.5% or 1.0% now, and keep raising from there if inflation persists.  Then gradually switch to Quantitative Tightening as well as needed if it still persists.
3. Raise the federal minimum wage to $15/hour for all business with more than 500 employees within six months, then gradually for all employees with more than 10 employees within two years.  And no more subminimum wage for tipped employees either. 
4. Implement Universal Basic Income (UBI) for all of $1000/month for adults and $500/month for children under 18.
5. Redirect federal funds towards incentivizing improving supply chains, especially for energy and other critical sectors experiencing shortages.  That includes the government hiring temporary truckers, dockworkers, etc. for more than what the market demands.

And notice that we are NOT calling for austerity, in fact quite the opposite.  Fiscal austerity (tax hikes and spending cuts) would be recessionary and would basically cause stagflation at this point, while in contrast, raising interest rates would increase the value the dollar without shrinking the number of dollars in circulation.  The only taxes that should be hiked now are taxes on the top 1% (especially the top 0.1%) and mega-corporations, Pigouvian taxes, and perhaps vice taxes, and the only spending that should be cut (if any) is that which is harmful and counterproductive, and then redirected to more beneficial and productive spending.  There is no good reason to give up on the priorities of the genuine progressive agenda (Medicare For All, expanding Social Security, free college, free or affordable childcare, paid family leave, affordable housing, Green New Deal, etc.) at all.  As for the "debt ceiling", it is a fiction that serves no useful purpose, and it should be abolished completely, yesterday.

So what are we waiting for?

UPDATE:  As for how high to raise interest rates (i.e. the Fed Funds Rate), there is a science to it.  To quickly quash inflation without exacerbating it in the long run, the Fed Funds Rate should be raised and, if raising rates by one percentage point doesn't do the trick right away, keep raising it quickly until the interest rate exceeds the inflation rate by at least one percentage point, hold it there until inflation drops, and then quickly but gradually lower it (while still keeping it higher than the inflation rate) until the inflation rate drops below 3%.  Then drop the Fed Funds Rate to below the inflation rate and park it there as long as inflation remains low.  And as Rodger Malcolm Mitchell notes, the best way to cure and prevent stagflation is to quickly raise interest rates to cure the inflation, while simultaneously spending more federal money (and/or cutting taxes) and running higher federal "deficits" to cure the stagnation/recession as well.  Problem solved, all within four quarters. Otherwise, it remains an endless cycle that will feed on itself indefinitely as alleviating inflation would exacerbate stagnation and vice-versa.

China's rolling local and regional lockdowns in pursuit of the Zero COVID pipe dream are a big part of the problem as far as shipping.  Not much we can do about that, aside from taking our business elsewhere.

And if labor shortages are still a problem even after repealing all of those mandates, the federal government should implement wage subsidies (reverse payroll taxes) to top up workers' paychecks, and/or paying one-off sign-on bonuses of a few thousand dollars per new employee.  Problem solved.

UPDATE:  Another take on this can be found here.   Basically, it's not a supply chain problem or even an inflation problem, but rather a central planning problem.  Which is basically what is going on now, and has been going on to one degree or another since March 2020.  And it needs to end yesterday.

The SeaTac Success Story

On January 1, 2014, the Seattle suburb of SeaTac, Washington became the first town in the nation to raise its minimum wage to $15/hour.  They did it in one step with barely any lead time, albeit with some exemptions such as businesses with fewer than 30 employees (and the courts soon ruled that airport employees are outside its jurisdiction and are therefore exempt as well).  And the Koch-roaches and their disgusting ilk (along with some local business owners as well) were playing Chicken Little and predictably claiming that it would "destroy jobs" and all that jazz.

But guess what?  The sky didn't fall after all.  In fact, raising the minimum wage to $15 turned out to be a major shot in the arm for the town's economy, who saw a major revitalization in the past year.  Local businesses were expanding, not laying off employees en masse like the naysayers predicted.  And the reason is simple economics:  when workers have more money, they have more to spend in the local economy, which creates more jobs and so on in a virtuous cycle.  A win-win-win situation for everyone but the plutocrats and their sycophantic lackeys.  So we can consider the naysayers to be debunked. 

The TSAP supports raising the federal minimum wage to at least $10/hour if not higher, and many state and local minimum wages to at least $12 if not $15.  Now that SeaTac was the guinea pig, soon followed by Seattle, we can now say that $15/hour is no longer terra incognita.  So even a federal minimum wage of $15 should still be considered as an option, which we would support as well.  Specifically, we want a general minimum wage of $15 for workers over 18 years of age.  Workers under 18 should be paid at least 80% of that amount, or $12/hour.  Ditto for workers of any age in the first 30 days on the job, as a "training wage".  There should be no tip credits either.  Small business with fewer than 10 employees would be exempt from the wage hike, and would be able to pay the same as now.  Businesses with 10-30 employees would have the new minimum wage phased in gradually over two or three years, while businesses with more than 30 employees would be have to pay $15/hour within six months (i.e. two fiscal quarters) of the new law's enactment.  Otherwise, there should be no exceptions, period.  And for the first few years of the new law, there should be special tax credits for employers who hire workers under age 25 and over 55, and even greater tax credits for hiring employees under 20 years of age.  That should alleviate any hyperbolic concerns about a higher minimum wage somehow pricing these "less valuable" workers out of the market--which has never really been conclusively proven anyway.

So what are we waiting for?