Mr. Murphy is said to have presidential ambitions, and he doesn’t want to anger the powerful teachers unions that spent more than any other interest group to back his gubernatorial campaigns.
This explains Mr. Murphy’s appalling decision last month to block the expansion of New Jersey’s best-performing charter schools, including North Star Academy and Philips Academy, even while thousands of families wallow on waiting lists. A majority of residents in struggling cities like Newark and Camden are lower-income blacks and Hispanics, and high-quality public schools are a lifeline. Anyone yapping about equity while denying underprivileged minorities access to better schools deserves to be ignored.
The hope is that the Fed can engineer the proverbial soft landing, whereby inflation returns to around its 2 percent goal and the economy remains strong without a substantial increase in unemployment. Judging by their statements to date, Powell and his colleagues seem to believe they have a good chance of success.
Anything is possible, and wishful thinking can sometimes prove self-fulfilling. But I believe the Fed has not internalized the magnitude of its errors over the past year, is operating with an inappropriate and dangerous framework, and needs to take far stronger action to support price stability than appears likely. The Fed’s current policy trajectory is likely to lead to stagflation, with average unemployment and inflation both averaging over 5 percent over the next few years — and ultimately to a major recession.
Paul Volcker would not have had to put the economy through the wringer if his predecessors had not lost their focus on inflation. To avoid stagflation and the associated loss of public confidence in our country now, the Fed has to do more than merely to adjust its policy dials — it will have to head in a dramatically different direction.
Among the critics were people like Lawrence Summers, who served as Treasury Secretary during the Obama administration. “There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation,” Summers warned in a Washington Post op-ed in February 2021. “Administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply.”
“I think we do not need to spend $1.9 trillion…and we should have a smaller program,” Olivier Blanchard, the former chairman of the International Monetary Fund, wrote on Twitter in response to Summers’ op-ed. Biden’s plan to shovel another $1.9 trillion into the economy was coming on top of unprecedented fiscal stimulus and high personal savings rates (due to the pandemic). Americans were already poised to spend a lot more money chasing the same amount of goods as the pandemic waned, and the increase in demand would require impossible levels of output to match. “Strong inflation” would be the natural result, he warned.
“This would not be overheating,” he wrote. “It would be starting a fire.”
By July, a few months after the American Rescue Plan passed, economists surveyed by The Wall Street Journal said Americans should be bracing for levels of inflation not seen in more than 20 years. That dire prediction was an underestimation.
These are not politically motivated criticisms launched by Republicans who hope to hang high levels of inflation around Democrats’ necks in advance of the midterms. They were sober assessments from mainstream academics and economists, one of whom served alongside Biden in the Obama administration. The White House consistently ignored or downplayed those worries, even as prices ticked upwards throughout the second half of 2021, claiming that rising inflation was a “transitory” problem. By the end of the year, Federal Reserve Chairman Jerome Powell was forced to admit that wasn’t the case.
Geloso et al. rewrite our understanding of economic history in an important way. Their revised data series demonstrates Piketty and Saez overstate US inequality prior to 1960 by up to 20 percent in some years. Further, their paper provides evidence that the Great Depression was a stronger “leveler” of inequality than World War II and tax policy changes, as Piketty and Saez claim. These new adjustments change our reading of economic history, diminishing the emphasis on tax policy as a driver of economic equality in pre-1960 America.
Geloso et al.’s evidence discredits one of the main takeaways from Piketty and Saez’s work: that fiscal policy tools, such as progressive taxation, are an effective way to reduce inequality. The revised data series do not support the claim that income tax policies reduce inequality in the United States. This development is significant because prominent policymakers rely on Piketty and Saez’s research to justify tax increases. Inequality is a hot button issue in today’s political climate. These revisions must be taken into account by policymakers seeking to reduce inequality via tax policy.
Upon reading this CNN report headlined “Biden demands faster drop in gas prices as oil tumbles,” Washington University economist Ian Fillmore e-mailed to me his appropriate reaction: “I immediately imagined some tribal chieftain loudly commanding the sky to rain or a volcano to stop erupting.“