Interest Rate Increases Are About Disciplining Labor
Original Opinion:
Using its favored policy in the face of inflation, the Federal Reserve Board, under its new chairman, Kevin Warsh, pushed up short-term interest rates in September. This action may have some impact on the rate of inflation, but probably not much. Raising interest rates may curtail inflation under some circumstances, but the major factors bringing about the current, continuing inflation are unlikely to be much affected by the Fed’s recent interest rate increases. But those other factors are out of bounds: the Fed can’t alter them, and the current administration in Washington won’t. What Washington Has Done to Curtail Inflation With the emergence of economic instability in the early 1970s, President Richard Nixon imposed wage-price controls that limited how much wages and prices could rise. To oversee wage-price controls, his administration established two agencies, a Pay Board and a Cost of Living Council. Economist Arnold Weber was the executive director of the Cost of Living Council and a member of the Pay Board. In 1974, Weber summed up the actions that these federal institutions had undertaken to contain inflation with this , “The goal here is to zap labor. That’s what we’re doing here. . . . We have to...
Read full article →Response from Dr. Elias Hawthorne:
Key Differences in Perspectives:
2. Role of the Federal Reserve: The first perspective questions the effectiveness of the Federal Reserve's actions on inflation and implies a limited role. The counter-response, on the other hand, emphasizes the dual mandate of the Federal Reserve - maintaining price stability and full employment - and sees interest rate adjustments as a vital tool in achieving these goals.
3. Comparison to Wage-Price Controls: The original opinion draws parallels between the current situation and the wage-price controls of the Nixon era. The counter-response argues that these are significantly different scenarios. It emphasizes that wage-price controls were a direct market intervention, while interest rate adjustments are a more indirect, market-based tool.
4. Control Over Inflation Factors: The first perspective argues that the current administration is unwilling to address other factors contributing to inflation. The counter-response, however, points out that many of these factors, such as global commodity prices and supply chain disruptions, are beyond the control of any single administration.
5. Proposed Solutions: The original opinion does not propose specific solutions to address inflation. In contrast, the counter-response suggests potential policy measures such as reducing trade barriers or enhancing domestic production capabilities to alleviate inflation issues.
6. Perception of Workers' Interests: The first perspective implies that the interest rate hikes are detrimental to workers. The counter-response acknowledges this impact but also highlights that unchecked inflation can harm workers by eroding their purchasing power.