Life has changed substantially for ordinary working-class Americans in the first two decades of the 21st century. The deification of technology, the growth of globalization, the harrowing financial events of 2008 followed by the Great Recession, and the COVID-19 pandemic have left them struggling psychologically, physically, socially, and economically.
Growing income and wealth inequality were on the radar screen long before the coronavirus pandemic, but the pandemic has made the problem more obvious and urgent. The actions of the Federal Reserve (Fed) have widened the gap. Quite apart from persistently low interest rates, there is the issue of inflation.
Last August, Fed Chair Jerome Powell introduced a policy that not only allows but welcomes an inflation level above 2 percent. The Fed assumes it will be able to just snap their fingers and stop inflation at the point they like, which is the pinnacle of hubris.
Inflation matters. It tends to redistribute income and wealth toward groups that are better able to hedge against inflation by sheltering their assets in ways that earn decent returns.
But for the ordinary American, prices that rise faster than wages mean a decline in real income, less purchasing power and lower living standards. Inflation coupled with wage stagnation is eating away at the working class.
While the cost of many discretionary goods has fallen during the pandemic, basic necessities such as housing, healthcare, education, and food are absorbing an ever-larger portion of the incomes of ordinary Americans.
The cost of groceries has been rising at the fastest pace in decades since the pandemic seized the economy. It’s as if working-class Americans are involuntarily observing Lent all year round. They experience life at the sharp end.
In the United States, the Consumer Price Index (CPI), which reflects retail prices of goods and services, including housing costs, transportation, and healthcare, is the most widely followed indicator of inflation. Food inflation is a major part of the CPI.
But the Fed generally focuses on “core inflation” or “core CPI.” This excludes non-discretionary items such as food and energy prices and can give a misleading picture of inflation trends. In the real world, people can’t exclude food from their weekly budget.
According to the latest inflation data published by the U.S. Labor Department’s Bureau of Labor Statistics, another light, or as they now say, lite, read, food prices have increased by nearly 4 percent in the last year, higher than at any point since the 1970s.
The increases are even more dramatic for some food items, with beef and veal prices up 25 percent year-over-year, egg prices up 12 percent, potatoes up 13 percent, and tomato prices up 8 percent.
The report is broken into price changes for “food away from home” and “food at home”. In November, the categories registered year-over-year increases of 3.8 percent and 3.6 percent, respectively.
Rising food prices impact everybody, but they are always top of mind for ordinary working Americans. Even more affected are the poor and the unemployed because they are unable to afford basic necessities. Cutting back on food budgets is one of the first things people do to make ends meet.
Central bankers suffer from a Copernican complex – the belief that the sun and planets revolve around them. Real world experience and history demonstrate that inflation can’t be controlled like a thermostat. But one thing you can be certain of is that inflation has a painful effect on working class Americans.
As the COVID-19 pandemic recedes, the national goal should be to Make America’s Working Class Great Again (MAWCGA). If you believe the intellectual gratin and shekel dispensers in D.C. will internalize that notion, perhaps you would be interested in some prime real estate – something deep in the Everglades.
