Inflation: How did we get here and how do we get out of this mess?
Portland, OR (KPTV) – With prices soaring at the gas pump and sticker shock at the grocery store, Oregonians are grappling daily with the cost of inflation.
FOX-12′s Simon Gutierrez sat down for a conversation with Rohan Gray, a legal scholar and an expert on fiscal policy at Willamette University to discuss the current situation and what lies ahead. Here’s an excerpt from that conversation:
Gutierrez: There’s a lot of talk about the cause of the inflation and a lot of speculation that it had something to do with the support check that went out, the stimulus payments that somehow triggered this inflationary wave. Is there truth to that or is there a different way to look at this?
Grey: I think there’s a different way to look at it. I think the first thing to sort of understand is that when we talk about inflation, we’re not talking about one number. What we’re seeing around the world right now is that on one hand you’ve got a shortage of key goods like computer chips feeding into other goods like used cars or car sales. That has really very little to do with consumer demand and more to do with supply chain bottleneck. And you’re also seeing firms using the general pandemic and the general inflationary pressure as an excuse to raise their own prices, way above the cost of what they actually have to make them. They’re increasing their profit margins.
Gutierrez: This idea of profiteering, that companies are inflating the prices they’re charging beyond what their additional costs are… is there any strong check on that?
Grey: The check should be for example things like antitrust and fair trade. So the FTC should be doing some of this. In New York, it’s the Attorney General who is proposing a change to the general business laws.
Gutierrez: We’re hearing a lot about the Fed potentially taking some action on interest rates to address inflation. Is it effective?
Grey: My view is it’s not very effective. Right now, if you look at the major causes of inflation, it’s used cars, which in turn is driven by the supply chain disruptions in the semiconductor industry. It’s food, which again is given in part to a large number of people not working and supply chain disruptions. It’s to do with energy. So the question is, if the Fed raises interest rates, its traditional tool, what is it going to do to those industries? Is it going to produce more food? Is it going to produce more semiconductors? Probably not. A lot of it stems from this belief that central bankers have all the tools that they need. That that interest rate, you move it up or down like a thermostat. And if you lower interest rates, it makes the economy get stimulated, and if you raise interest rates, it chokes off the economy. The reality is a little bit more complicated.
Gutierrez: So what do you see as a potential off-ramp for dealing with inflation? How do you reduce inflation without too many people, individuals, suffering?
Grey: If there is genuine inflation that we can’t stop in food or energy because of global supply chain bottleneck crisis related issues, most people are looking at that as one item in their larger basket of expenses. Other expenses could be reduced. That could include things like cancelling student debt. Rent freezes being extended. It could include things like reductions in medical costs or increases in insurance coverage or things like that.
Gutierrez: What do you see as both the short-term and the long-term impact of the military action on the United States economy?
Grey: The short-term is I think you are going to see a lot of disruption because a lot of supply chains, a lot of industry exports and imports that are related to Russia or Russia’s politisphere are likely to be curtailed to some degree. In the medium to longer-term, I think you’re going to see an increased push toward energy independence. The fact that even in the middle of all of this, Europe cannot wean themselves off of Russia’s oil and natural gas is a challenge to effectively opposing these autocratic actions.
Gutierrez: You mentioned the potential impact on the supply chain through this war, could that potentially translate to even additional inflation on top of what we’re already seeing?
Grey: Yes, it could. Certainly translating through the energy sector, right? The fact that right now Russia is struggling to even sell a lot of its oil and natural gas except through some of the European channels that have been kept open is going to have an effect on the global markets of those industries. In the short-term, it could definitely have a price impact.
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