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Can you curb inflation without killing jobs? Economists have some ideas.


The Federal Reserve is moving full speed ahead to curb inflation by hiking interest rates — even as officials concede that will put many Americans out of work. In defending its policies, meanwhile, the Fed has said there’s no “painless way” to lower food, rent and other prices.

Yet while all government policy has winners and losers, the way monetary policy is used today tends to obscure one thing: Workers and consumers don’t have to be the ones taking it on the chin. That amounts to a choice. The choice is made both by Fed officials who are putting their mandate to stabilize prices ahead of their responsibility to maximize employment, as well as by lawmakers who often resist policies that could soften the blow.

Economists say there are other options for tamping down inflation without resorting to the blunt instrument of jacking up interest rates, which inevitably inflict the most pain on the lowest-income workers. From untangling supply-chain snags to restraining the outsized corporate profits that contribute to soaring consumer prices, here are some ways experts say could help curb prices without causing massive job losses. 

It’s the supply side, stupid

At its core, inflation is caused by too much demand — for cars, homes, restaurant meals and more — chasing too little supply. The Fed’s interest-rate hikes address the demand part of the equation: They make borrowing and investing more expensive, raising the costs for consumers and businesses, which eventually lowers demand. 

The nation’s current bout of inflation, however, was mostly caused by supply issues outside the Fed’s control: “energy shortages, food bottlenecks because of war in Ukraine — we’re still working through the infamous supply chain,” said Claudia Sahm, a former Federal Reserve economist and the founder of Sahm Consulting. 

“Not all the inflation is inflation the Fed can fix,” she said. 

So who can? Setting aside the partisan gridlock that has paralyzed Washington in recent years, Congress and the Biden administration can. Steps to boost supplies — and thus reduce inflation —  include moving production of critical components, like semiconductors, to the U.S. so key industries are less vulnerable to production snags. 

Long-term fixes

The CHIPS Act and the Inflation Reduction Act, which both passed this fall, allocate billions to boosting domestic supply chains, with the aim of making today’s delays and shortages less likely in the future. But these are long-term fixes: The Congressional Budget Office and the Penn-Wharton Budget model note that the IRA’s inflation-lowering effect will take a decade to fully kick in.


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Limit profit margins

Surging prices for energy and raw materials are just one reason inflation has surged. Many companies have also prices simply because they can, while padding their own profit margins. In the first half of year, corporate profits hit their highest level since the 1950s, breaking a record set earlier in the pandemic. A recent analysis by the Roosevelt Institute’s Mike Konczal found that there was “significant room for these [corporate profit] margins to come down, as well as for any wage increases to be absorbed within the firm without the need for price increases.” 

“A year ago, a month ago, they said, ‘We have to raise prices because our costs have gone up.’ They raised prices, we now know, more than their costs went up,” Robert Reich, who served as Labor Secretary under former president Bill Clinton and is now a professor at the University of California, Berkeley, told CBS MoneyWatch.

Reich noted that Congress could deter such profiteering by directly limiting how much profit companies can squeeze from global shortages. A tax on profits over a certain baseline would discourage companies from raising prices “because it would take away the benefits of the price increases,” he said. 

Sen. Sheldon Whitehouse, D.-Rhode Island, has introduced just such a bill. Under his proposal, which is aimed at oil and gas companies, any profits corporations make above their average for the years 2015-2019 would be taxed at 50% and returned to taxpayers. Back in May, the U.K.’s Conservative government in May passed a one-time tax on oil and gas companies.

If companies’ profit margins were capped so that the only way for companies to make higher profits was to sell more, that would go a long way toward alleviating inflation, Reich said. He acknowledged, however, that taxing high profits is unlikely to get traction in Congress.

There is historical precedent for imposing price controls and limiting profits. During and immediately after World War II, the U.S. was focused on the war effort and struggled to produce enough goods for cash-rich consumers. When annual inflation soared as much as 20%, the government intervened by directly regulating the price of many critical goods.

“Right after the war, you had soaring pent-up consumer demand, and you had companies raising their prices dramatically, profiteering and price-gouging — given that items were so scarce. Today, you still have supply bottlenecks and soaring demand,” Reich said. 

Nationalize oil companies

In addition to squeezing families directly as they face higher heating and cooling bills, the cost of energy — oil for transportation and natural gas to power the grid — is a major driver of the increases Americans are seeing on store shelves. But domestic oil companies have been slow to expand drilling, while OPEC, the international oil cartel, is actively considering cutting production to keep oil prices high.

The Biden administration has boosted the supply of oil by opening the Strategic Petroleum Reserve, helping bring down gas prices from crushingly high to merely uncomfortable levels. But the administration could be even more hands-on in its efforts to increase the energy supply by taking control of production facilities, said James Galbraith, a former congressional economist and current professor at the University of Texas. 

Currently, oil and gas companies are chiefly structured to deliver maximum profits to shareholders — not to benefit consumers, which locks them into a boom-bust cycle, Galbraith told CBS MoneyWatch. Short of outright nationalizing these facilities, he said the government could regulate them in the same way it oversees public and private utilities. 

“The most important thing would be to try and stop another speculative run-up in the price,” he said. “You want the price of these fuels to be high enough so that producers can make a profit by drilling and selling, but you don’t want them to be in a position where they can just make money by waiting for the price to be higher. And that’s what the speculative element permits them to do.”

This “speculative run-up” first happened in 2007 and 2008, when oil rose to $147 a barrel before collapsing along with the global economy. “We don’t want to repeat that experience,” Galbraith said.

Bust up monopolies

Another reason companies are able to raise prices is that they lack competition that would keep price hikes in check. Since 1980, two-thirds of U.S. industries have become more concentrated, with key industries like agriculture, meat processing, consumer goods and air travel dominated by a handful players. 

“The average big company has much more pricing power than it ever had since the turn of the last century,” Reich said. 

Pointing to air travel, he said, “In 1980, we had 12 airlines. Now we have four major airlines, and many hubs have just one or two. When you have only one or two in a hub, it’s very easy for them to coordinate price increases, and you see ticket prices soaring.”

Breaking up corporate monopolies would likely require better funding the Federal Trade Commission and the Justice Department’s antitrust division, doing more to block potentially anticompetitive mergers and punishing monopolistic corporate behavior, which takes years in the courts. But in the short term, the Biden administration can use its bully pulpit to warn companies against price-gouging, said Reich, who worked for the FTC in the 1970s. 

“Even a statement, even when antitrust authorities said, ‘We are going to look hard at this industry’ — that had a tendency to reduce price increases that were driven by monopolization,” Reich said. “Antitrust enforcement is very long-term, very difficult. But merely the threat of it can deter companies from raising prices over their costs.”


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Tax the rich

Consumer demand also plays a role in today’s surging prices. The richest consumers, who buy the largest houses and drive the priciest cars, have a disproportionate impact in this arena. Across all spending categories, the highest-income consumers spend two to three times as much as the poorest, Sahm recently noted — a phenomenon that has accelerated since the pandemic. 

“Put simply, the well-to-do, hugely compensated Americans contributing greatly to soaring prices is the class least damaged by the rampant inflation,” Edward Pinto of the American Enterprise Institute wrote earlier this year. 

Simply asking people to cut back on consumption isn’t effective and tends to be unpopular with the public, as the Carter administration learned in the 1970s. 

“It’s hard and it’s not politically popular,” Sahm said. “The inflation people get really upset about it, asking people to cut back outside of an emergency situation.” 

But there’s another way to reduce consumption by the rich: Tax them. Experts say such a tax could also help reverse historically high levels of inequality, which are currently being exacerbated by inflation as well as the Fed’s rate hikes. 

Tax hikes on the wealthiest “would be politically popular and equitable,” Sahm said. Still, she said, wealthy people are the least price-sensitive, meaning that a tax would have to be quite significant to make a dent in that group’s spending.





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