Raising Interest Rates did NOT Solving INFLATION !

Sep 25, 2023: WASHINGTON (AP) — Last year inflation spiked to the highest level in four decades.

Fortunately the FED's raising of interest rates have made no difference to Inflation.
The Fed did not succeed in its PRIMARY GOAL of

[ far different from the last time inflation spiked, in the 1970s and early 1980s.
The Fed  attacked inflation by escalating the central bank’s key short-term rate above 19%.
The result? Unemployment shot to 10.8%, which at the time marked its highest level since World War II. ]

Here are some reasons for the economy’s unexpected resilience and a look at whether it might endure:

REPLENISHED SUPPLIES HAVE COOLED INFLATION

The idea that defeating high inflation would require sharply higher unemployment is based on a long-time economic model that may prove ill-suited for the post-pandemic episode.

Those who assumed that surging unemployment was a necessary price to pay for conquering inflation believed that the price spikes of the past 2 1/2 years were driven mostly by overheated demand.
(Shut-in consumers did ramp up their spending from stimulus checks).

But to quell demand-fueled inflation, the Fed’s policies would have needed to crush spending, causing sales to plunge and forcing businesses to cut jobs.
Yet inflation has cooled even as Americans continued to spend.

“The economy healed without unemployment moving up, without consumption slowing —  the driver of Inflation is something else.

The supply disruptions of the pandemic and Russia’s invasion of Ukraine played the biggest role in accelerating inflation.
Even as spending on goods soared, spending on services declined, leaving overall demand roughly in line with pre-pandemic trends.

This inflationary episode, may end up more closely resembling the one that occurred after World War II
than the one of the late 1970s and early 1980s.
After World War II, manufacturing output slowed as factories retooled from wartime production.
At the same time, many returning servicemembers moved to the suburbs,
and demand spiked for homes, appliances and furniture.
Even so, inflation eased once output resumed.
 

The prices of nearly three-quarters of goods and services have declined as quantities have increased.
Rising supplies have been the primary reason why inflation has declined.
Emphasizing -- its the Corporation's PRICING of goods that started the Inflation, of course ! ( not DEMAND )
          (The figures exclude volatile food and gas prices in order to capture underlying trends.)

THE JOB MARKET HAS CHANGED

mmmmmaybe

CONSUMERS AND BUSINESSES HAVE KEPT GOING

Households and companies were better insulated from rate hikes than in the past.

Americans saved thousands of dollars of stimulus checks and enhanced unemployment benefits they received during the pandemic. Those savings helped propel consumer spending well into this year.

Businesses refinanced debt with lower rates in 2020 and 2021 , thereby locking in lower payments.
Rate hikes haven’t raised Businesses' borrowing costs.

Businesses are also benefiting from government subsidies in legislation pushed by the Biden administration,
including measures to boost investment in infrastructure, renewable energy and semiconductor manufacturing.
Spending on new factories has jumped in response.

by the end of 2024

Inflation — excluding volatile food and energy — will be 2.6% , down from 4.2% now.
Unemployment will edge up to just 4.1%.
NO recession - no thanks to the Fed!

SOURCE CHRISTOPHER RUGABER  -- covers the economy and the Federal Reserve

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Time to Tax Excessive Corporate Profits

First, the history:

During the First and Second World Wars and the Korean War,
the US implemented a broad-based windfall profits tax.
During World War II, the tax rate reached as high as 95% , which ensured that companies could not profiteer off the war.
In addition, the US enacted a windfall profits tax on oil and gas companies as recently as the mid-1980s.

The idea underlying these prior efforts was that companies should not earn “windfall” profits, namely profits that result from external circumstances such as wars or extraordinary rises in the price of certain commodities, and not from their own efforts.

The current combination of the COVID-19 pandemic, which raised the profits of companies like Amazon to record levels, and the war in Ukraine, which did the same to oil and gas companies, fully justifies reviving the windfall profits tax.
The Sanders proposal is essentially identical with the Word War II version of the tax, including:

Second, the economics:

Economists distinguish between

Normal returns are a legitimate target of taxation, but the tax rate should not be too high because a high rate would deter companies from socially useful investments.

Excess returns, on the other hand, are those that are not subject to competition:

Because excess returns are not subject to competition, taxing them at even very high rates will not deter investments because the remaining after-tax profit will still be a windfall.
Correctly distinguishing between

Finally, the regulatory aim:

The corporate tax is not primarily about

The corporate tax is primarily about regulating large corporations by giving them

The Sanders proposal is designed to regulate corporations that take advantage of

to increase their profits way above their previous average profit.

Ideally, it would raise little revenue but induce a fall in prices, which would benefit everyone except corporate shareholders.

But if such a price decrease does not happen, the tax would raise significant revenue (according to Sen. Sanders, an estimated $400 billion in one year from 30 of the largest corporate profiteers alone).
These revenues could be used to subsidize working families that suffer the effects of rising prices, and to accelerate the shift to renewable energy so that the economy is less at the mercy of the oil companies, domestic and foreign.

SOURCE: https://prospect.org/economy/time-to-tax-excessive-corporate-profits/