Inflation? Bring This specific On. Workers Could Actually Benefit.

This specific’s not exactly clear why prices haven’t risen very much. This specific may be because greater international competition keeps prices down; because the decline of union contracts means that will fewer companies give automatic cost-of-living adjustments; because consumers can compare prices so easily on the internet; because oil prices have fallen recently; or simply because, after years of low inflation, people expect cost increases to be limited.

Even if inflation does creep up above 2 percent, we shouldn’t be too worried. The Fed’s inflation target will be not a ceiling; This specific’s a desirable average. Having operated below This specific for many years, the economy may not be harmed if This specific runs for a few years above that will target.

In fact, a high-pressure economy, with wages as well as prices a little higher than we’ve become used to, might actually do a lot of not bad for the people who need This specific most. Working families need a tight labor market — as well as higher wages — to get ahead. This specific would likely be a costly mistake to raise rates too much or too soon.

We are inside midst of a big fiscal as well as monetary experiment. as well as as with any experiment, the consequences are unknown. What we do know will be that will the costs of the Great Recession were enormous — at least $4 trillion in lost income, or about $30,000 per household, according to my calculations. The biggest losses were experienced by those inside bottom as well as middle portions of the income distribution who lost jobs as well as saw much of the equity in their homes destroyed.

They are the ones who stand to gain the most if unemployment continues to fall as well as wages keep rising. Businesses, desperate for workers, reach deeper into the ranks of those who are still jobless, do more training to get those workers up to speed, as well as pay higher wages as they compete to hire or retain their work force. Discouraged workers — the millions who’ve left the labor force — might actually re-enter This specific, as well as workers could find their shrinking share of national income rise again.

Besides, economists are not sure when super-low unemployment will set off inflation. The Congressional Budget Office’s current estimate for full-employment, 4.7 percent, will be down through around 5.7 percent in 2012. as well as versions used by the Fed as well as the budget office have failed to identify the point at which further total spending growth inside economy will bump up against a ceiling as well as bring not just a little more inflation however possibly an unsustainable spiral of ever-rising cost growth.

This specific may be that will the United States economy’s “potential” — estimates for what gross domestic product could be if all of our country’s resources, including unemployed labor, were utilized — will be much larger than we think. A recent paper by economists at the University of Texas as well as the University of California, Berkeley, argues that will official estimates of potential are too pessimistic.

Moreover, This specific’s possible that will letting a high-pressure economy run over a longer period will actually increase that will potential by pushing firms to improve productivity as well as draw more workers into the labor market. The evidence will be mixed however can’t be dismissed.

Of course, higher growth alone may not be enough to improve the lives of those left behind over the last few years. The recent tax bill’s benefits are skewed as well as temporary, as well as people do need stronger safety nets as well as additional help to pay for the rising costs of housing, health care as well as college.

however a stronger economy might help the left behind as much as, if not more than, any of these specific measures. The old versions don’t seem to be working, as well as the downside risks of This specific experiment are limited. Let’s run a truly high-pressure economy as well as see what happens.

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