A column in the NYT about a week ago made the case that the Fed’s attempts to reduce inflation by focusing on wage increases constitutes class warfare. The author went on to argue that wage increases aren’t necessarily inflationary, because businesses could choose to accept lower profits instead of raising prices. Does this argument hold water?
Not really. It is true–at least in my opinion–that wage increases are not the principal reason for the current rate of inflation, so I don’t support additional interest rate action by the Fed. However, to the extent that interest rate increases actually do limit inflation in today’s environment, it is largely by reducing asset prices and thereby making affluent consumers feel poor; that doesn’t sound like class warfare to me. As to the second proposition, the events of the past year have proved otherwise; businesses aren’t going to be willing to accept lower profits in the name of the public interest.
If you want to improve the lot of workers without just adding more inflation, it has to be done through the tax system. Period.