Throwing People Out of Work Is No Way to “Fix” the Economy

From groceries to rent, prices are rising on just about everything these days — and those with already-stretched budgets are feeling the pinch.

Bringing prices down must be a top priority for lawmakers, but Washington’s default tool for dealing with inflation — aggressive interest rate hikes — only makes life harder for these families. That’s because aggressive interest rate hikes work by increasing unemployment and slowing down wage growth, a “cure” far worse than the disease.

Larry Summers, former Treasury Secretary is a longtime supporter of this cruel approach. Earlier this summer, Summers cheered the idea of throwing millions out of work when he suggested that the Fed should “raise interest rates enough that the economy will slip into recession.” More recently, he doubled down: “My worst fear would be that the Fed will continue to be suggesting that it can have it all in terms of low inflation, low unemployment, and a healthy economy.”

Summers has argued repeatedly that cooling inflation is more important than taking care people. He believes that we should do all we can to bring down prices, even if this means putting millions of people out of work.

But the data is in: We can have a strong job market and lower inflation — and we don’t need further aggressive and painful interest rate hikes to do it.

The labor market has grown 528,000 jobs in JulyIt was far beyond our expectations. In fact, we’ve averaged over 500,000 new jobs a month for the past year — an astounding number for a recovery period. In July, we saw 0% inflation. And, the annual inflation is slowing down. Although inflation-adjusted earnings are down by around 3 percent per year, the most recent jobs report showed that real wages were slightly up since June.

It’s worth taking a closer look at Summer’s prescriptions so we don’t fall for this bad advice going forward. In June, Summers suggested that “we need five years of unemployment above 5 percent to contain inflation” — or even “or one year of 10 percent unemployment.” That would push some 10.5 million people out of work, with the worst impacts on poor communities and people of color who already suffer higher unemployment rates. And these numbers don’t even take into account the long-term scarring That is the result of unemployment spells.

What’s more, throwing millions out of work would do little to address the root causes of rising prices: outsized corporate power, supply chain shortages, and the war against Ukraine. Jerome Powell, Federal Reserve Chair admitted in June, raising interest rates “can’t affect… all the supply-side things that are still pushing upward” on gas and grocery prices. Rate hikes also won’t break up the megacorporations that Powell conceded could be “raising prices because they can.”

There are real solutions. The Biden administration’s Inflation Reduction Act tackles health care costs and makes critical investments in clean energy that will start to untether us from our reliance on fossil fuels which the war in Ukraine shows can be volatile and unpredictable.

In June, President Biden signed the Ocean Shipping Reform Act. This bill increased regulation of the deeply concentrated ocean shipping industry — a sector that has contributed significantly to supply chain bottlenecks and inflation. Policymakers introduced legislation to tax windfall profits and ban price gouging, in order to hold corporations accountable.

We can’t “save” the economy if people are struggling. Let’s face it, We AreThe economy. When we do well, that’s when our economy thrives. It’s time for our leaders to finally hit the mute button on Larry Summers’ inflation advice — or we will all pay the price.