Defending Middle-Class Consumer-Culture on the Backs of the Poor

The economic news of the week: US inflation is now the highest it's been since 1981. In many sectors of the economy — food, energy, healthcare -- it's now running at double-digits, and the dollar's value against the euro has plummeted through the $1.50 barrier.

Faced with stagflation in the 1970s, politicians taking lessons from the monetarist school of economists decided to get a handle on inflation at whatever the cost. And so, in the years following Thatcher's election in 1979 and Reagan's in 1980, they shrank the money supply, sending interest rates sky high, deliberately raising short-term unemployment (remember the three million unemployed in the early years of Thatcher's premiership in the UK), all to the mantra of "it's for your own good."

If your measure of decent policy is "how does this effect the poorest sections of society?" -- which is as good a measure as I can think of for ethical decision-making — then the monetarists were wrong, not because inflation wasn't a huge problem (clearly it was), but because the shock tactics they used to tackle it hurt the poor, the least job-secure, the most. The only way to rein in inflation as rapidly as the monetarists wanted, during a period in which trade unions had considerable muscles to flex, was to send interest rates soaring at the same time as the government worked to shatter organised labor and use the spectre of mass unemployment to drive down real wages. Inflation was tamed - but at the cost of tremendous societal dislocation.

Today, however, when labor is utterly quiescent in the US, not reining in inflation hurts the poor the most. The reason for this is that unemployment (which, while rising, is still only 5 percent) isn't the pre-eminent concern here. Rather the bigger, broader, concern is staggeringly low wages for the working poor. Quite simply, a tremendous number of people are working for remuneration that isn't keeping up with price increases. Since poor people spend most of their disposable income on necessities, when the price of those necessities goes up, as it has for several years now, the purchasing power of the poor is hit first and hit hardest.

A moderate dose of monetarism — not of a scale to trigger the unemployment of the early 1980s, but enough to at least curb some of the inflationary pressures in the economy — combined with some smart, targeted, federal subsidies and mortgage-relief interventions would probably benefit the poor in 2008 rather than hurt them. After all, when the Federal Reserve lowers interest rates, poor people who already can't afford mortgages and can't afford mass consumption lifestyles don't really benefit — these are reliefs for the middle classes and stock owners rather than the invisible poor. But when prices of staple goods rise as a result of inflation, the people at the bottom of the economic barrel, those without the bargaining power to be able to push their wages up, suffer most.

In the past couple years, I've interviewed men and women in remote rural regions who literally have to borrow money (from family or from credit card companies) to put gas in their cars to drive to work. While a dollar extra per gallon of gas might not seem noticeable to a middle-class denizen of New York or Los Angeles, the extra $20 or $30 a week poor residents of locations such as Siskiyou County, California, are spending on gas works out to nearly 10 percent more of their total income going to filling up their cars than used to be the case. It's not uncommon these days to find working men and women who spend upwards of one quarter of their meagre paychecks on gas for their commutes.

I've also interviewed people in California, Oregon, Idaho and elsewhere who work two jobs but - faced with soaring energy and food costs - come the end of the month they no longer have money to feed their families. They end up on food lines outside church pantries and other charities, the boxes of cereal, canned soup, bread and pasta given out by these institutions the difference between full and empty bellies for them and their children.