There are many causes for the recent global inflation we have been facing. None of which are affordable interest rates for those who NEED to borrow to get by or get into or stay in the middle class. About half the cause is simple greed and price gouging. There is no doubt that raising interest rates cuts demand of the lower & middle classes and works to reduce inflation. Meanwhile the demand from the rich increases as they buy more before the price goes up. My question is why it that our first and seemingly only response to excess inflation is to further raise costs for those who borrow for necessities like a home, transportation and college?
Seriously WTF? Why is the only solution to the supply & demand imbalance, and the corporate price gouging unrelated to supply and demand, interest rate inflation for those lacking the cash? Why, when the typical American is bearing the brunt of inflation as the wealthy are reaping even greater profits is the solution to hand the wealthy lenders higher interest rates? When interest rate hikes often lead to recession by the time they get inflation under control why is it our first course of action?
To me the answer is simple. Interest rate increases are the means to control inflation that brings the least harm and the greatest profit to the rich. Recessions, while causing short term losses in the stock market, are great for demanding more from workers for less pay increasing profits, buying opportunities for wealthy investors and higher stock prices in the long run. Raising interest rates on those that need to borrow is a long term win/win/win for the wealthy and a lose/lose for the rest of us.
There are other ways, both long and short term, to control inflation.
The first tool should be preventing those that would otherwise use general inflation as an excuse to raise prices faster than costs in their greed for greater profits and penalizing those that do. The price gougers. Standing laws need to fully tax the windfall profits of corporations that raise prices, unjustifiably, to increase profits during periods of inflation along with penalties of 150% on the executives for additional compensation earned related to the price increases. I’d even go so far as criminal penalties for those owners and executives that price gouge during any period on national stress such as global supply chain disruptions, pandemics, wars or natural disasters. For long term inflation control and stability additional investment is required to expand and protect the supply chains from disruptions and increase diversity of suppliers to end the monopolistic power that too many industries have to raise prices. Of course such increased competition and investment will eat into profit or require taxes which means making the greedy pay their fair share.
After the greed issues are dealt with then, and only then, should other supply and demand issues that protect the non-wealthy as much as possible and can be implemented in a timely manner be addressed. For example, if there’s a chip shortage raising the prices of everyday goods then a significant tax can be placed on luxury goods that use the chips or those that purchase above a certain amount of chips. This, like raising interest rates, causes additional inflation on luxury goods for the wealthy rather than necessities for the rest of us. Another temporary and timely means of reducing demand is to ration the supply fairly. So, if there’s only 5 chips per person available then everyone gets a coupon worth 5 chips. It worked well in the past until the supply chain was able to catch back up during and after WWII. Nixon responded with a 90 day price freeze. It worked.
One thing all these solutions have in common is they don’t pass the pain disproportionately on the non-rich and risk recessions like hiking interest rates does. This article discusses the above options and includes the following to which I have added emphasis (probably unnecessarily).
Each alternative policy to control inflation (raising interest rates included) has its particular strengths and weaknesses, virtues and flaws. Honest discussions of how to respond to inflation would involve comparing the strengths and weaknesses of all — or at least many different — policy options. Honest national leaders would not pretend only one policy exists. That approach — dominant in the United States today — yields both policy mistakes and leads to crucial opportunities being lost. It does, however, serve the interests of those who advocate for that one policy.
The problem is those advocates currently control both the government and the media that is desperately needed to get the truth out.