Since the beginning of the world economic reopening this year, we’ve all felt and heard endlessly about it: inflation.
Historically, inflation has been quantified using the Consumer Price Index (CPI), first measured in 1913. Since then, a simplistic explanation has been that too much cash and credit available to Americans and businesses increases demand, resulting in higher prices. For example, as our living standards rise, so does what is called core inflation. A cup of coffee increases in price over time. This small, steady inflation is easier to absorb because income often rises along with price increases.
But the inflation we’re experiencing now has been caused by other issues. In one scenario, inflation is caused by increased costs for raw materials and products used to make an end product. Another explanation says inflation grows because cash is so flush that demand rises and producers can’t keep up, so they raise prices. Both these scenarios blame consumers for having cash and creating too much demand.
Sen. Joe Manchin and the Republicans claim this is what is happening with the current inflation rise and that any investment in our future will cause more inflation. Every single House Republican voted against the Build Back Better Act and Senator Manchin is refusing to pledge to support Biden’s bill. But these members of Congress all fail to recognize that this current cycle of inflation is NOT normal inflation, and austerity will not alleviate the issue. Since many Americans are feeling their wallets pinched right now, let’s be clear — austerity will exacerbate inflation. Our current inflation is caused by a shortage of humans participating in commerce, or what economists call labor.
Sen. Manchin and the GOP fail to acknowledge that the 2020 Covid-19 crisis caused the economy to contract by 19.4%. To remedy this contraction, we need to use reflation so stagflation does not occur. Reflation refers to investments made into “infrastructure spending, increasing the money supply, lowering interest rates” and certain kinds of tax cuts. These are precisely the kinds of investments the Biden Administration, the Democrats, and the Federal Reserve have proposed, and they show only one party working hard to make Americans’ daily lives better.
Despite decades of cries from the GOP and economic justice opponents that claim investing in the American people and our country’s future will cause inflation, inflation has remained steady and low, even with huge tax cuts given to the wealthy and corporations.
New outcries about the debt and inflation even caused some to oppose relief for people as we battle the pandemic. These claims hold that the government gave too much assistance and now we have inflation. But this is not what is causing our current, temporary inflation. As early as November 2020, we were being warned that inflation was going to rise as we returned to more “normal” economies, including global trade and travel, which would create spikes in consumer demands. Economists agree that this inflation in costs would be short lived. But how can we believe it?
As the world reopens, we’re experiencing inflation caused by a complicated web:
- Output gap — producers not able to meet demand for reasons ranging from a lack of employees to shortages or delays in delivered goods brought on by labor shortages
- Bottlenecks — supply chain delays and shortages or delays of goods brought about by labor shortages
- Second-round effects — wage increases created by labor shortages
- Labor participation rates — the number of able-bodied adults working
- Global climate change
In other words, the current causes of inflation are only tangentially related to an excess of cash and credit, even though we’ve received stimulus checks and business support throughout the pandemic. The current cause of inflation is created by labor shortages and climate change.
The web of labor shortages and climate change explains why we must pass this part of Biden’s Build Back Better (BBB) agenda. Together with the recently passed infrastructure bill and Biden’s executive order that requires 24-hour work at ports, the Democratic agenda has already reduced the backlog at California ports by 29%. Moving forward with infrastructure and BBB will help reduce the output gap and bottlenecks, and reduce inflation.
As Biden says in this tweet: “I have a plan to lower costs and ease inflation — my Build Back Better Act. Congressional Republicans can’t say the same.”
The second half of the entire BBB, which passed in the House without a single GOP vote, will address inflation first by spurring labor participation and by beginning to more fully address climate change remediation.
The BBB will give people with children an opportunity to pursue full-time work or education because they will have affordable child care or free preschool for their young children. It will help reduce the need for low-wage earners to maintain two or three jobs by ensuring that child tax credits continue to buoy families, allowing time for educational and skills-based job improvement and increasing the number of skilled folks available to fill necessary jobs.
Another way to increase labor participation to bring down inflation is to increase immigration. Therefore, one part of BBB deals with immigration. Since the issue became a GOP culture war talking point, the U.S. has already reduced legal immigration significantly, creating even greater stress on our labor shortage. The BBB as passed by the House includes immigration reform that would allow the arrival of 6.6 million long-term residents to participate in our economic recovery. Not only would this influx of workers improve with our labor shortage in general, it would help significantly with inflation-caused labor shortages in agriculture and construction.
Another key part of the Biden and Democratic agenda addresses climate change, which has destroyed houses, entire towns, and farm production, and affected water systems and infrastructure from coast-to-coast. The need to replace what has been lost due to historical floods, wildfires, hurricanes, tornadoes, and storms like Derechos in the Midwest leads to inflation because it creates increased demand as people rebuild structures and try to mitigate lost agricultural production. It also drives up building costs for sustainable agriculture and housing.
The Biden infrastructure bill and BBB will make our country more resilient to climate change now, and move us toward reducing the carbon output that will drive future climate change and concomitant inflation. Together they provide credits and infrastructure for more climate-friendly solutions to transportation, building costs, and green energy. It’s an overall win for our long-term fight against fossil-fuel-driven climate change and the rising costs associated with not changing to new ways of sustainable energy. While climate change can only be curtailed with a global effort, at least the BBB bill can help curb inflation costs.
To those still unconvinced that inflation will not rise if we increase labor participation by supporting the child care incentives and opportunities for education, families, immigrants, and climate change remediation contained in the BBB bill, consider how the Bush and Trump tax cuts made the top 10% and corporations much more flush with cash. That did not seem to affect inflation. The only influence of this influx of cash, credit, and disposable income to a select few was increasing income inequality. Inflation beyond core inflation was flat.
It’s time to advocate for a new economy built on the Build Back Better Biden and Democratic agenda to curb inflation. Together, all of America will benefit as consumers and producers get costs under control. It’s time for America to Build Back Better to end inflation and income inequality while improving everyone’s economic and environmental well-being.
For more on this topic, here are some charts and graphs that explain the current causes of inflation. Compare them with the graphics showing how Build Back Better and the Infrastructure bill address these issues.
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