Two kinds of inflation deliver different results, and both affect the income and wealth discrepancy between the rich and everyone else.

Today’s cartoonists and commentators say that President Biden’s spending will feed the inflation beast and destroy our economy. They’ve got it totally backward.

Of course, everyone — rich, poor and middle class — pays more for products and services because of inflation. But those who caused the inflation benefit far more than they lose, and government, through tax and labor policies, always determines who ultimately wins and who loses.

Today’s inflation is the worst kind. Those who made a lot more money than they spent during the pandemic are now buying things like crazy, and raising prices for everyone. Those whose incomes stagnated or were eliminated during the pandemic now can’t afford to buy what they need, like housing, nutritious food and basic health care.

President Biden’s infrastructure plan would create the kind of inflation essential to today’s economy: wage inflation. He would raise taxes on corporations and the wealthy, who will continue to do well, and thus reduce the inflation they are causing. The tax revenue would pay for infrastructure, which would create more and higher-paid working class jobs.

That’s basically how President Roosevelt’s New Deal created the world’s greatest and most vibrant middle class from 1933 to 1980, the real measure of a great economy.

Political leaders managed our capitalist system in ways that benefited workers, the middle class and poor, and greatly reduced the growing income and wealth disparity between the rich and everyone else. The wealthy continued to get wealthier, but not nearly as much as they did in the “Roaring Twenties.”

U.S. history from 1980 to today demonstrates how too much inflation caused by the rich, and not enough by workers, created the lopsided economy we have today.

When President Ronald Reagan took office, he declared that “We’re the party that wants to see an America in which people can still get rich” — as though people hadn’t been getting rich enough since 1929. One of his economic goals was to reduce inflation.

The claim that Reagan won his war on inflation is an inaccurate half-truth. It’s true that the Consumer Price Index had gone up 13.5% in 1980, the year prior to his taking office. And when he left office in 1988 it went up only 4%. But the whole truth is that he won his war on middle class and worker wage inflation. He did not stop stock market inflation, corporate executive and investor income inflation, or real estate inflation.

During the Reagan years, 1981 to 1988, the Dow Jones Average more than doubled, from 964 to 2168. The average cost of a new home almost doubled, from $76,400 to $138,300. The only inflation Reagan stopped was the increasing wages of workers that had grown from 1941 to 1980. For those forty years, workers’ standard of living rose along with America’s elite for a change.

When the mass of workers made more money, along with the wealthy, everything got more expensive. Republicans concluded that workers were benefiting too much from the economy. Unions were too strong, wages were too high, and corporate profits weren’t high enough. To them, a good economy was when inflation was caused by rising stock and real estate markets, not that dreaded “wage inflation.”

That’s still true today. Listen to business news commentators debate whether or not the Federal Reserve is going to raise interest rates to cool down the economy. The #1 criterion for judging is always whether or not wages are going up too much — not are stock market or housing prices going up too much.

We’re always going to have inflation in a growing economy, and those on fixed or low incomes are hurt no matter what the kind of inflation. Government has to make other economic adjustments, like pegging benefits of programs like Social Security, minimum wage standards, unemployment insurance, and food supplement programs to the inflation rate.

From 1932 to 1980, Congress raised taxes to the highest level in our history on incomes, estates and corporations. During WWII we even had an excess profits tax. A well financed government was able to address problems businesses in the private market ignored.

Compare these economic policies with those we had during the decade of the Roaring Twenties, and that we’ve had since 1981: major tax breaks, mostly for the wealthy, record corporate profits and a rising stock market. Although both periods had low unemployment rates and rising wages, worker incomes didn’t and don’t compensate for inflation caused by the wealthy.

In terms of major economic cycles, we’re again close to 1929. Huge growing income and wealth discrepancies between the top 20% and everyone else — have historically always ended badly.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store