Managing Inflation, Industrial Policy Are Key To Fighting Inequality

The economy is on a tear, but how well it addresses the salient issues of the era — inequality and competition with China — depends importantly on how much the Federal Reserve tolerates surging inflation and how Congress reworks President Biden’s infrastructure plan.

Tangible signs abound of the return to normalcy. Airlines are booking middle seats, hotel occupancies are up, Disneyland and concert venues are reopening, and crowds are forming in Times Square.

Board, Blackboard, Economy, Inflation, Money

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Consumers are spending pent-up savings from stimulus checks.

The economy is expected to grow at its best pace since Ronald Reagan was president, but the global economy’s ability to keep up America’s appetite is severely stressed. Supplies of the building blocks of what we buy — computer chips for cellphones and cars, plastics used to make everything from hospital gowns to packaging, agricultural commodities, lumber and more — are stressed, and the material prices paid by businesses are surging.

Levi Strauss, consumer products companies like General Mills, Hormel, Kimberly-Clark and automakers are raising prices, and inflation is expected to reach 3% by June.

Federal Reserve Chairman Jerome Powell predicts rising prices will prove temporary, but he is tightening monetary policy. Last year, the Fed printed enough money to purchase more than $3 trillion in Treasury, state and corporate securities, whereas this year the pace is less than half as much. Consequently, the interest rate on bellwether 10-year Treasuries is up significantly.

However good things may look here, the EU remains stuck under the yoke of a bungled vaccine rollout and still has not dispersed to member states its much-heralded €850 billion stimulus funds. Infections are surging and new strains of COVID-19 are percolating in the developing world.

A near-perfect storm has further shifted wealth to the United States and China.

The pandemic unleashed the potential of technology for virtual work in many professions and Internet commerce. In varying measures, our cities are in for wrenching post-pandemic changes — less office space and more middle- and upper-class housing replacing commercial real estate and decline in retailing.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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