LEWISBURG, Pa. — As the U.S. heads into the hot summer “dog days,” the record inflation that has dogged Americans appears to be cooling. But after meetings with Congress last week, Federal Reserve Chairman Jerome Powell warned that America is a “long way” away from low inflation and “higher” interest rates may be necessary.
Bucknell University Professor Matías Vernengo, economics, believes what really needs to be higher is employment compensation.
“There’s not much that can be done [about inflation], in my view, other than to solve the problem that inflation causes — mostly, that workers lose with inflation in that their real wage goes down,” Vernengo says in this new video by the Institute for New Economic Thinking. “The best policy is to compensate workers for the effects of inflation.”
While Vernengo believes that price controls are an important tool for leaders, he points out that it’s harder in America’s free-market economy. In the short term, he doesn’t see a particularly good solution.
But he also doesn’t see inflation persisting.
He blames the rearrangement of the supply chains for the record inflation — something that started well before the COVID-19 pandemic.
“That had started even before the pandemic because of the geopolitical issues between the U.S. and China,” Vernengo says. “Those were intensified, particularly because of the zero COVID policy in China. So when a port closes completely, we’re now heavily dependent on these big ships with containers. Any snag in that ‘just in time’ sort of transmission of products leads to lots of problems, and we’ve had those — particularly in the microchip and car industries.”
You can read more on Vernengo’s views on the U.S. inflation problem in this Bucknell Magazine Q&A.
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CONTACTS: Matias Vernengo, 570-577-1939, m.vernengo@bucknell.edu; Mike Ferlazzo, 570-577-3212, 570-238-6266, mike.ferlazzo@bucknell.edu