Is an Equitable Economic
Boom Attainable? By Ben Schmiedt
Artwork by Jinny Park, Design Lead 
The Consumer Price Index (CPI), an aggregated index of price changes, has been steadily increasing each month of 2021 and is up 5.4% in June 2021 compared to July 2020.
These numbers can serve as evidence of the devastating effects of unfettered stimulus spending, leading to what some on the right have referred to as “Bidenflation”. Inflation can devastate an economy by devaluing pensions, investments, and wages, but it must be understood as a complex and socially situated phenomenon that affects various groups differently rather than a simplistic political tool to discourage spending.
Particularly, as we experience a reopening economy, global supply chain bottlenecks and overwhelmed industries that are reemerging such as restaurants and hotels may expectedly cause periods of transitory inflation. After accounting for industries that have experienced expected levels of transitory inflation from reopening, prices have risen at a perfectly normal rate and have already begun to normalize, as Matthew Klein, an author and economics commentator at Barron’s, argues. The increased CPI accounts for various sector price changes without consideration of the underlying reasoning and magnitude of such shifts in individual sectors of the economy.
Although this index is an important tool, we shouldn’t allow CPI to operate as an all-encompassing metric that informs aggressiveness in monetary and fiscal policy. For example, we can mitigate shortages in the semiconductor industry by adding incentives to strengthen global supply chains, or resist increasing housing prices by investing in housing programs. Neither of these sectors would be assisted by fiscal austerity or an increase in interest rates; if anything, it would damage them, but economic orthodoxy may call for such measures. An accurate understanding of the risks of inflation must inform economic policy; if fears are overblown, fiscal underspending and premature interest rate hikes could leave behind lots of potential growth on the table which would benefit American workers and the productivity of businesses.
Those who have lived through the stagflation of the 1970s or are reliant on a fixed pension may be much more hesitant to support expansionary measures. Inflation perceptions also often serve as a sort of political litmus test. Whichever party is in power enjoys supporters that won’t mind expansionary spending, whether it manifests as tax cuts or increased spending. Despite these tendencies, inflation fears have routinely been brought to the forefront to discourage rampant spending on recession recovery packages.
Hesitant recovery spending, prolonged unemployment issues, and greater increases in post-recovery inequality characterize recent American recessions. COVID-19 stimulus programs have served as a slight pivot away from the austerity measures and weak recovery plans of the past; American poverty rates in 2021 have decreased by almost 45%. While this fact may serve as more of an indictment of the lack of social safety nets for ordinary Americans and the weak recovery plans of the past than anything else, it is an important change in policy direction. The same logic used for the American Rescue Act could inform a more robust infrastructure bill that encourages continual consumer demand, addresses structural inequities, and confronts climate change.
In addition to the direct ways government aid and the COVID-19 recovery have assisted Americans and allowed them to pay for crucial needs, a drastic increase in demand also created some of the tightest labor markets in recent memory. These conditions give workers greater power in determining their pay and benefits, rather than competing among one another for below living wages. As J.W. Mason and Mike Konczal point out in a New York Times op-ed, World War II economic gains serve as a blueprint for this sort of growth, where high demand allowed for “millions of workers [to get] new jobs at better wages — including women entering the workplace for the first time and Black people leaving the rural South.” Tight labor market forces could create a more equitable economy with less discrimination based on race, gender, and education due to the inefficiency inherent in these practices.
While Republicans and moderate Democrats have begun to call for the brakes on infrastructure spending, we should learn a lesson from the inadequate recovery plan of 2008 and instead allow for a healthier economic recovery. Some level of awareness around the dangers of inflation is necessary, but with inflation being largely transitory and real wages rising, there is little to fear. Policy should encourage developing an economy that gives workers power to negotiate wages and benefits that reflect the importance of their labor.
Ben Schmiedt ’23 studies in the College of Arts & Sciences. He can be reached at benschmiedt@wustl.edu.