Wages of the Fed

Listening to Chairman Jerome Powell of the Federal Reserve blame rising wages and labor shortages for the inflation certainly takes us back — to an epic argument we had with the editor of the pro-labor Jewish Daily Forward and its star writer, Nobel laureate Isaac Bashevis Singer. The argument erupted over brunch at the home of the editor, Simon Weber, when we remarked that the Wall Street Journal was calling for open immigration.“Oy,” Singer said. “All those Mexicans.”We almost fell out of our socks — and said so — to hear such a thing from the greatest immigrant writer in the home of the editor of the greatest immigrant newspaper. Weber motioned for us to come out on his balcony, which, from 23 stories up, overlooked a borough in which all kinds of foreign languages were spoken. There he shook his finger in our face and said, “I know you guys from the Wall Street Journal — all you want is cheap labor.”The Wall Street Journal, in fact, was one of the few, if only, newspapers whose editorials opposed the idea that high wages were a cause of inflation. It, like Milton Friedman, thought of inflation as always a monetary phenomenon. It had no fear of high wages any more than it did of immigrants. So began our long association with the Forward and the campaign to defend labor in the battle over inflation.It’s rarely been more relevant than now — all the more so with the cop-out by Mr. Powell, in his remarks at the Brookings Institution Wednesday, when he groused how “the labor market is incredibly strong.” He clarified that it’s “too great in a way, because it’s going to be adding to inflation.” In short, the Fed chairman is blaming the job markets’ resilience for defying the Fed’s effort to curb the inflation the central bank itself unleashed.You don’t have to be a Marxist like Senator Warren to look askance at the Fed’s logic here. First, the central bank racked up almost $9 trillion in assets as part of an unprecedented monetary experiment called Quantitative Easing. It stood back while the Democrats in Congress poured trillions in unneeded stimulus into the already-recovering economy early in 2021. Then, as inflation reared its head, the Fed tried to palm it off as “transitory.”After all that, now the Fed is asking America’s labor force to bear the brunt of the pain, in the form of more unemployment and slower wage growth, while the central bank attempts to mop up its monetary mess. Since March the Fed has boosted the federal funds rate to 4 percent from nearly zero in an effort to tamp down inflation rates not seen in four decades. Even with all that, it’s far from clear the anti-inflation drive will succeed.America’s labor force didn’t cause the inflation. Wages haven’t even kept pace with the escalation in prices caused by the plunge in value of Federal Reserve Notes. If Mr. Powell gripes that too many potential employees are sitting out the job market, why shouldn’t they, we’d ask, when the Fed chairman is declaring that while “we want wages to go up strongly,” wages have “got to go up at a level that is consistent with two percent inflation.”Where in any parchment is that written? At two percent inflation, a working stiff’s savings would be gone in 50 years. The idea that the chairman of America’s central bank is trying to dictate the pace of wage growth would, we imagine, startle the Framers who thought they were creating a federal government that was limited. They wrote a Constitution that gave 100 percent of the monetary powers it granted the government to the Congress.When the legislators transferred those powers over to the Federal Reserve they did so with the understanding that the central bank would maintain constitutional money in the form of a currency defined by specie. That America now finds itself in a position where an unelected official like Mr. Powell is trying to manipulate the labor market in an effort to fix the Fed’s mistakes is a plot twist beyond the imagination of even I.B. Singer himself.

Wages of the Fed

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