Episode 12: Fed Up with Inflation (Bonus Episode)
References and resources
Solana Rice (00:04):
Hello, hello. Welcome to Racism Is Profitable, a pod about racism in our economy. This week we turn the pod over to our colleague, Rubén Lucio, to chat with his friends about inflation, the Federal Reserve’s response, and why people of color should care. Take a listen as he and Jordan Haedtler of the Sunrise Project and Public Defender Victoria Ruiz chop it up about what we really need to know about inflation.
Rubén Lucio (00:32):
All right. Hello everybody. My name is Ruben Lucio. [inaudible 00:00:38]. I’m the director of grassroots relationships here at Liberation and the Generation. And today we have a special treat for everybody. We’re going to be talking about inflation, the impact it has had on communities of color and the Federal Reserve’s response to it. I am going to be inviting some guests, so we’ll get started. Cool. Jordan, are you here?
Jordan Haedtler (00:57):
Yes, I am. Hey, Rubén.
Rubén Lucio (01:00):
Awesome, awesome. All things are running smoothly, I love it. Like I was mentioning to everybody, it’s a special treat for everybody today. I’m a special speaker, a guest speaker, I guess, in this space, in the Twitter space for Liberation and Generation Action. And we’re very excited to invite our guest today. Like I mentioned, we’re going to be talking about inflation, the Federal Reserve’s response to it, and the impact that it has for communities of color. Before we get started, I want to invite our speakers, one of which is already on, to introduce himself and Jordan, do you want to introduce yourself? Name pronoun, organization, title, fun fact?
Jordan Haedtler (01:40):
Sure. My name is Jordan Haedtler. I use he/him pronouns. And I currently just started a new position with an organization called the Sunrise Project. I’m working to try to take some of the policies that have recognized that climate change is a financial stability threat and better under placed by the Federal Reserve and others at the national level to try to guard against climate as a financial stability risk and try to take them to the state level. And so that’s what I’m doing, that’s my new role. And a fun fact about me is that I recently got married and my wife and I designed a custom tarot deck for our wedding, which featured among other stars, our other speaker today, Victoria, in the tarot deck. But it also had a central banker card, so I’m very ready for this conversation today.
Rubén Lucio (02:46):
Awesome. Thank you so much, Jordan. We have a limited amount of time, so we’ll just get started. Hopefully Victoria joins us at some point. I want to share a little bit of our history together. As you all just heard, Jordan actually featured Victoria in his wedding invitation design. By the way, congratulations Jordan. Very exciting. And the reason we are so close, why were in each other’s wedding materials is because we ran a national economic justice campaign called Fed Up. Ha-ha, you would notice that today’s title of the podcast is fed up with inflation. See what we did there? We ran a national economic justice campaign called Fed Up, and we focused on monetary policy targeting the Federal Reserve as our main target for advocacy. And basically, what we advocated for was more jobs and growing wages in low income, black and brown communities across the United States.
We know that low income communities are the first to get hit by economic crises and are the last to recover. We literally put communities of color that are struggling every day into in front of, I mean, of the people of power, the Federal Reserve chair at the time, Janet Yellen, and then Jerome Powell and all the Federal Reserve presidents and basically advocating for them to enact monetary policy that would have lasting impact in our communities for the good, like I said, growing wages and more jobs and also increasing worker power. With that, we’re here to talk about inflation. And Jordan, I’d love to kick it off to you first, if you can briefly give us a little bit of a breakdown of what inflation is broadly, what the heck do we mean when we talk about inflation, and then also how that relates to the current moment that we find ourselves in.
Jordan Haedtler (04:47):
Sure. Inflation is basically just rising prices, and there’s various different ways of measuring inflation. And so the Federal Reserve, when it looks at inflation, it looks at an index that excludes some of the more volatile prices like energy and food prices. But there’s different ways that are measuring how quickly or slowly prices are rising. And so the Federal Reserve, our country’s central bank, has a mandate of maintaining maximum employment and stable prices. What that means is that they consider a healthy economy to be one that has low unemployment but also stable prices. And their theory is that, and this is a sort of common economic doctrine, is that inflation is caused by too much money chasing too few goods. In other words, demand outstrips supply. And we start to see the prices of consumer goods going up because there’s a lot of people who have assets where they want to buy things, but there’s not enough things for them for people to buy and so things start to get more expensive.
There’s a lot of reasons why that has historically been the case, and there’s examples in history of that actually being the dynamic behind inflation. But the inflation that we’ve been seeing over the last year and a half since people started getting vaccinated and the economy started opening back up, really isn’t caused by the traditional supply demand imbalance that theory holds. It is caused by really the unique set of factors that relate to how fragile our supply chains are, shipping containers not being able to flow across international borders. In the same way, Russia’s invasion of Ukraine caused really high gas prices to spike even further.
And so there have been a lot of reasons why inflation has been so high the past year. Plus that really don’t have anything to do with the central bank theory that it’s caused by too many people having too much money. But that’s in economics 101 and in the central bank theory that you’re taught in economics, grad school or whatever, that’s basically the theory. They think that inflation is caused when too many people have too much money and it chases too few goods.
Rubén Lucio (07:59):
Awesome. Thank you so much, Jordan. You’re saying that the conversation’s a lot more nuanced than us folks have too much money in our pockets, and we’re trying to buy things that aren’t enough for all the money that we have in our pockets. You’re talking about there’s different factors at the global level, at the national level, factors that are not always taken into account in the traditional economic frame of what inflation is and what causes it. Is that correct?
Jordan Haedtler (08:26):
Rubén Lucio (08:28):
Awesome. We’ve got our second guest who just joined us, and that is Victoria. Victoria, if you want to introduce yourself real quick. Name, pronoun, organization, title, fun fact.
Victoria Ruiz (08:44):
Sure. Hi everyone, my name is Victoria Ruiz and I was very, very fortunate to get to be a campaigner on the Fed Up campaign with Ruben and Jordan that was ran through the Center for Popular Democracy. Since then, I actually have gone to law school and am now a public defender, which I guess is a fun fact. And my pronouns are she/her. So thanks for having me.
Rubén Lucio (09:12):
Awesome. Thank you, Victoria. The reason Victoria was a little late in joining us is because she literally just stepped out of court. Victoria mentioned that she is a public defender. Another fun fact is that she is the front person for a punk rock band signed to, what is that label that you’re assigned to Victoria? Sub Pop.
Victoria Ruiz (09:34):
Rubén Lucio (09:36):
Sub Pop, exactly. Public defender by day, punk rock front person, rockstar by night. I’ll add a little flare to your [inaudible 00:09:46], Victoria. Awesome.
Victoria Ruiz (09:46):
Thank you. Yes.
Rubén Lucio (09:49):
Awesome. Well, thank you for joining us. We just broke down what inflation is, how it’s a little bit more of a nuanced topic than what some economists would lead us to believe or the frameworks that some economists are working with now. And I wanted to invite both of you to talk about, what is the Federal Reserve doing in terms of inflation? We saw that during the pandemic the Federal Reserve was keeping interest rates low, making it so folks, the institutions that borrow from the Federal Reserve have a lower interest rate. And then as a result, us people who borrow from those institutions have a lower interest rate. Gave us the ability to then either start small businesses or have more money or pockets or things that we like need, cars and homes and things like that. That is no longer the case. And so Jordan, Victoria, can either of you talk a little bit about what the Federal Reserve is doing to tackle inflation and what that means for our communities?
Jordan Haedtler (10:50):
Victoria Ruiz (10:50):
Jordan, I think you should take this. Yeah.
Jordan Haedtler (10:57):
Oh, okay. Basically what the Federal Reserve is, textbooks say, when inflation gets too high, they raise interest rates in an attempt to slow down economic growth. And when they raise interest rates, they raise the cost of borrowing both for banks, and then that’s passed on between businesses and consumers. It’s supposed to, it doesn’t happen overnight, but it’s supposed to gradually slow down the pace of economic growth. And again, going back to the theory that if inflation is caused by too much demand, too many people having too much money chasing too few goods, then if that link was a direct correlation, then what the Fed’s doing right now, which is raising interest rates would work. But the problem we’re seeing is that the inflation that we have seen, which is causing real pain for a lot of workers and for a lot of people who need to heat their homes and get cars and drive to work and all that, is actually not caused by too much money being passed around in the economy.
And so there’s strong reason to doubt that the Fed jacking up interest rates is going to work to address the inflation we’re seeing. Now what the Fed, just to put this in kind of historical context, the Fed’s interest rate is at 3% right now. They’re expected to raise an additional point or so by the end of the year. So they’ll be a four or four and a quarter points by the end of December. Now, historically that’s not super high, but in the context of what we’ve seen in the post 2008 financial crisis environment, this is a really dramatic and fast rate of interest rate increases. The Fed is actually at the beginning of the year, rates were basically at zero because the economy was still recovering from the brief recession that happened in March of 2020. The Fed has actually raised interest rates all the way up to 3% just since March of this year, which is a really historically high and aggressive set of interest rate increases.
Rubén Lucio (13:26):
Thank you so much, Jordan. Before the Federal Reserve increased rates, we saw a increase in wages. We saw an increase in worker mobility to be able to leave a job and feel secure that they can find another job. And then we also saw an increase in worker power where folks, we witnessed a lot of unionization efforts springing up all over the country in various different sectors. Those are direct results of low interest rates. And now the interest rates are climbing, like you were mentioning Jordan, at a significant and historically rapid pace. What are we seeing in terms of how that’s impacting workers?
Jordan Haedtler (14:14):
Victoria, do you want to maybe talk a little bit more about some of the unionization trends that we’ve seen since the pandemic subsided a little bit?
Victoria Ruiz (14:25):
Yeah, definitely. I think that there was the pandemic and the Jerome Powell becoming Fed chair just happened to kind of be around the same time when we were really excited about, or I guess people who are more progressive who are thinking about labor and wages. While there may have been better Fed chairs, Jerome Powell was actually a good pick. And in the years just before the pandemic really hit, he really extolled a lot of the benefits and a lot of the good parts of aiming for full employment, this idea of having a fully employed economy. And he was noting the extraordinary gains of high levels of employment and how basically with high levels of employment, going to what Ruben was talking about, that ends up really increasing worker power because workers now have a choice. It’s not so much, let me find the one door that’s open for me to walk through and get a menial wage job, but it’s like, oh wow, let me look at the 10 different doors that I may walk through.
And that leads ultimately to workers being able to have more leverage. And when we have leverage, then we have more ability to have collective power. And so right before the pandemic, Powell broke a long, long history of Fed policy and recommitted to the Fed really taking the full employment side rather than having this fear mongering focus on inflation. And we were hoping that that would mean that he would be prepared to risk some inflation in order to sustain lower rates of unemployment. But unfortunately, while it’s almost like we’re experiencing this all in parallel time lines, because obviously inflation takes a little bit of time to really understand when we’re looking at how other rates are moving.
It’s almost like that movie, Everything, Everywhere, All at Once where there’s just many different timelines moving. And ultimately when the inflation spiked, we were kind of like, okay, that’s going to be a part of this. And we were hoping that not so much that the Fed would sit on the sidelines, but we realized that it’s a good thing when we’re working towards full employment, when there are workers coming together and building collective power. And that we don’t immediately have to take you a sword to it. And in fact, we can use the Fed and some rising inflation almost as a shield to worker power.
Rubén Lucio (17:23):
Thank you so much, Victoria. For our listeners, a little bit of context is the Federal Reserve has what they call a dual mandate, which is at all times are trying to check inflation and also secure maximum employment. Which means that as many folks that want a job can have a job. And those are double edged sword kind of contradictory goals to hit. And so what I’m hearing from you, Victoria, what I’m hearing from Jordan is that we expect the Federal Reserve president, Jerome Powell, Federal Reserve Board as a whole to be able to take some of this inflation because it takes time to see where the economy is heading. And like Jordan was mentioning, there are various other factors than that there’s just too much money out in the market and not enough goods.
What we might be seeing now, what we’re seeing in communities of color for sure, and low income communities overall, is that while there’s inflation, that means the dollars worth less, things are more pricey, we’re also cutting economic opportunities for folks. Folks are getting hit twice, they’re getting hit with higher prices, and they’re also getting hit with a cut in the economy that’s reducing the doors that they are able to walk through like Victoria was mentioning, that’s reducing their power to advocate for better work conditions, and better salaries, better pay. It seems like we’re in this weird place where we’re trying to use traditional Federal Reserve tools to address a problem that’s fairly nuanced and unique to the current time and communities, specifically black and brown communities, low income communities, are feeling the brunt of both of those. Would y’all say that that’s correct or accurate or any thoughts on that, Jordan or Victoria?
Jordan Haedtler (19:19):
Yeah, it’s a balancing act and it’s a tough position for sure. But I would say a lot of the reason why people on the left who were relatively pleased with J. Powell and the job that he was doing as Fed chair until more recently was that he had said some good things about the fact that wage growth was a good thing and that the level of unemployment and some of the easing of racial economic disparities that we had seen in the economy prior to the pandemic, it sort of exacerbating those inequalities again, was good and was a reflection of the Fed’s focus on its full employment mandate. But what we’ve seen in the last year is that there’s been a pretty dramatic turnaround.
And the Fed, the important thing to keep in mind is that the Fed can and has caused economic recessions in the past. Were not there yet, but it’s thought that if the Fed continues down the path that they’re going down right now, that they will cause a recession and it’ll be a deliberate choice to slow down job growth and eliminate the wage gain that workers were seeing initially as the economy began to reopen. And this happened before, the Fed has caused many recessions in the past. Most notably, some of the most painful and longest occurred in the 1980s under then Fed chair Paul Volcker. And J. Powell has sort of held him up as a hero in the last year and has said, “I’m willing to do what Volcker did.”, which is pretty scary.
Rubén Lucio (21:11):
That sounds really scary, Jordan. And the closing piece of this conversation, what should the Fed be doing instead? What should our monetary policy experts, officials be doing instead of what they’re doing now to avoid such a situation? Victoria, any thoughts here?
Victoria Ruiz (21:37):
Yeah, and both of you should jump in. It seems that basically the Fed should wait and see a little bit more on inflation just because it’s not just inflation that’s impacting workers. As workers, sure there are higher prices, but if there is less jobs and we’re being squeezed out of the economy, then the working class is going to be way, way more hit by the tightening of interest rates and so on and so forth. It seems like there are a lot of reasons for the Fed to kind of hold off right now. Inflation I think has slowed a bit, and the consumer price index, the measure which we use, there were times in the summer when it was zero or it was falling. I think not using inflation as a fear mongerer to raise interest rates and realize that corporate power is so consolidated and that we need to allow an economy where workers are able to breathe in order for workers to be able to collectively organize.
Jordan Haedtler (22:57):
Yeah, that’s right. I would also say there’s fiscal and regulatory tools available that can be used to fight inflation, and the Fed has often been perceived as the only game around. But raising interest rates is a really blunt and painful and damaging tool. And so we know that you can raise taxes, you can enforce antitrust laws as Victoria mentioned to kind of crack down on corporate power. And you can invest in housing, which is a really, really major source of inflation right now. You can invest in supply chain resilience as Congress has done with a few recent laws that they just passed. And so Congress has a role to play. The various executive branch agencies have a role to play. It’s not just the Fed’s job to fight inflation, and in fact, what the Fed is doing is doing more harm than good.
Rubén Lucio (23:56):
Thank you so much, Jordan. Well, with that, thank you so much, Jordan. Thank you so much, Victoria. It’s great to be in space and communion with y’all talking about the same stuff we used to talk about five years ago, right? The amazing campaigns, in fact, we were able to launch together. Thank you so much for joining us and I hope you all have a great day.
Jordan Haedtler (24:20):
Thanks so much. Great talking to you both.
Victoria Ruiz (24:22):
Rubén Lucio (24:24):
This has been a special edition, special episode, of LibGen Action’s podcast. Racism is Profitable and this will be available on our Twitter account @LibGenAction and anywhere you get your podcasts. Thank you so much everybody. Goodbye.
Solana Rice (24:44):
Thanks for listening. For more information, check out our list of episode resources and visit us at liberationinagenerationaction.org. Shout out to our producer and audio editor, Nino Fernandez, the design team at TrimTab and the LibGen Action Communications team. Like what you heard? Us make some noise by telling two friends about the Racism is Profitable podcast. Until next time y’all, peace.