Rudy Barnes, Jr.
In 1992 James Carville proclaimed that in politics, “It’s all about the economy.” We are in a recession by the traditional standard of two consecutive quarters of a declining GDP, but other signs are mixed. Despite the Federal Reserve increasing interest rates to counter runaway inflation, consumer spending is high, unemployment remains low and the stock market is rising.
There are two economies in America: One for the rich, and one for the rest. The disparities of wealth in those two economies are more dangerous to a democracy than inflation. When disparities of wealth are combined with inflation they can destabilize the middle class so essential in a libertarian democracy, and foster a political insurrection like the one on January 6.
The rich are the 10% of Americans who own 90% of stock in the Wall Street megacorporations that produce and set prices on most of America’s consumer goods. That’s where the power in America resides, not in the diminishing middle class and poor, who bear the brunt of inflation and any recession and who must often live from paycheck to paycheck.
When the stock market goes up with inflation, that’s evidence that the rich who control the megacorporations on Wall Street have raised prices to make their profits despite inflation. That leaves the rest with higher prices and nothing to offset them. The solution is to control prices in inflationary times; but that will be resisted by the megacorporations who set the prices.
What really matters in a recession is that people keep their jobs and that inflation doesn’t unduly raise prices. Providing for the common good requires balancing the needs of consumers with respecting the economic freedom of the producers of consumer goods. If producers don’t control prices during inflationary times, then Congress may have to do so.
The old notion that higher interest rates by the Fed deter investments in the stock market has been disproved by a booming stock market over the past few weeks. It has become a safe haven for the wealthy who can afford to invest in stock; and as a barometer of the economy of the rich the stock market has made a mockery of the Fed’s efforts to counter inflation.
Can Congress regulate prices set by Wall Street megacorporations in inflationary times? It has only done so in national emergencies. In the past Wall Street has prevented Congress from such regulations with generous contributions. But if Congress doesn’t prevent Wall Street from exacerbating income disparities in a recession, it’s inviting socialism to reform American capitalism.
A booming stock market is not a sign of a healthy economy in inflationary times. It’s just the opposite. If the Fed and Congress can’t (or won’t) subdue a booming stock market in inflationary times with taxes and price regulations, a recession will spell the end of unregulated American capitalism--and the megacorporations of Wall Street won’t know what hit them until after it happens.
“The U.S. economy shrank at an annualized rate of 0.9 percent between April and June, marking two consecutive quarters of negative growth. Six months of contraction usually signals a recession. The contraction comes as other markers of the economy — such as the job market and consumer spending — are still showing signs of strength. That leaves policymakers, economists, businesses and families to make sense of how the economy is doing, and what the latest GDP report tells us about where we go from here.
…Inflation has risen to the highest levels in 40 years, with prices rising 9.1 percent in June compared with the year before. The Fed is racing to get control of rising prices before they become even more embedded in the economy. Republicans are hammering the Fed for being too slow to respond and are placing much of the blame on Democrats’ sprawling stimulus efforts from last year. Meanwhile, the job market has shown tremendous strength since losing 20 million jobs at the beginning of the pandemic. The unemployment rate remains remarkably low — 3.6 percent — and the job market has been a huge talking point for the Biden administration. But economists and policymakers also worry the job market is unsustainably hot. There are far more job openings than job seekers, and the mismatch has the Fed trying to tamp down demand for workers without causing people to lose their jobs.” See https://www.washingtonpost.com/business/2022/04/29/why-gdp-economy-shrank/?utm.
Paul Krugman has noted the ambiguity of defining a recession. “What difference would a recession call make, anyway? What should matter is the state of the economy — which is complicated — not the particular word we use to describe it.” See https://www.nytimes.com/2022/07/26/opinion/recession-gdp-economy-nber.html?
For a commentary on the topic dated February 5, 2022, before we actually entered into a recession, see Musings on the Stock Market, Inflation and Providing for the Common Good at
http://www.religionlegitimacyandpolitics.com/2022/02/musings-on-stock-market-inflation-and.html. See also Musings on Inflation, the Stock Market, and the Economy (May 14, 2022) at