Is it possible to fight inflation without putting thousands out of work? Here’s what Catholic social teaching says.
The national unemployment rate rose slightly in October, to 3.7 percent, but U.S. employers added 261,000 jobs in the same month, a sign of continued labor market strength despite several recent hikes in interest rates by the Federal Reserve. President Biden was quick to celebrate the job-growth news, released by the U.S. Bureau of Labor Statistics on Nov. 4, pointing out in a statement that jobs have been added “every single month of my presidency, a record-setting 10-million job increase…[with] historically low Black and Hispanic unemployment rates, the gross domestic product increasing and incomes on the way up.”
So was the report good news? Well, yes, if you are a U.S. worker. A continued low unemployment rate means that it is harder to hire or replace you, and that should mean better wages—though so far wages are lagging behind inflation significantly.
The report was not so good for Federal Reserve Chair Jerome Powell. Mr. Powell has been hoping for some sign that federal monetary policy is beginning to cool down the U.S. economy. The U.S. central bank has now issued four consecutive hikes of 0.75 percentage points this year, raising the short-term borrowing rate to a range of 3.75 percent to 4 percent. That is its highest level since January 2008.
Central bank rate hikes are intended to suppress aggregate demand and make it less likely that U.S. businesses and manufacturers will expand production and hire more workers.
Those central bank rate hikes are intended to suppress aggregate demand and make it less likely that U.S. businesses and manufacturers will expand production and hire more workers. Rising unemployment would be one indicator that the monetary policy is beginning an economic feedback loop that should slow inflation and perhaps signal that Mr. Powell could consider more moderate adjustments in the near future.
Many of the economists sympathetic to Mr. Powell’s aims are essentially rooting for more people to lose their jobs. But is higher unemployment really the best mechanism for thwarting inflation, considering the suffering it would mean for hundreds of thousands of U.S. families?
Tony Annett, the author of Cathonomics: How Catholic Tradition Can Create a More Just Economy, says that some economists have calculated that getting inflation back down to the 2 percent rate sought by Mr. Powell would mean putting 1.5 million people out of work in the United States. He recently spoke to Sebastian Gomes, the host of America Media’s “Voting Catholic” podcast,
Hard-boiled types might call that a desirable outcome; Mr. Annett, a senior advisor at the Sustainable Development Solutions Network, said it would be “a human tragedy.” Rather than viewing low unemployment as a worrisome indicator demanding a more ruthless response from policymakers, “we should be very happy…that unemployment is at a 40-year low, and we want to keep that.”
“We should be very happy…that unemployment is at a 40-year low, and we want to keep that.”
He thinks the church has wisdom to share with policymakers like Mr. Powell. Its appreciation of the common good can unite individuals and families from every class and can guide social and economic policy in times of distress. In an economy guardrailed by Catholic social teaching, he said, policymakers would have to keep humanitarian effects at least as high a priority as the inflation rate. The church’s preferential option for the poor would demand that U.S. policymakers dovetail inflation-fighting with credible investments to sustain the unemployed.
The preferential option judges all policies “first and foremost by how they affect the least among us,” he said. “With inflation, that’s especially important because when inflation is being driven by especially high food and high energy costs, that constitutes a large share of the budgets of the poorest people in the country.”
Catholic social teaching, Mr. Arnett said, tries to steer between twin ideological rocks that can shipwreck a nation—on one side a communist collectivism that obliterates the individual and on the other a libertarianism, or free market ideology, that obliterates the communal good. “Politicians that take a sensible middle,” he said, “use the power of the government to cushion people from bad economic effects.
“So, for example, what policies are being proposed to shelter the poor from continued high inflation? What policies are being proposed to keep unemployment low?”
Unfortunately, the United States has so far not shown an interest in that kind of humanitarian U-turn. In fact, policies instituted during the Covid-19 pandemic that were demonstrably effective in reducing poverty—like converting the annual child tax credit into prorated monthly installments—have already been abandoned.
And in terms of social assistance for laid-off workers or other people struggling to find a job, the United States ranks near the bottom on per capita spending among other advanced economies. If fighting inflation remains the top priority of U.S. political leaders, that suggests the newly unemployed may be left to weather this monetary storm on their own.
Inflation is surely hard on working people; harder still is being put out of work. Options that distribute the economic pain of inflation-fighting to people with deeper pockets (for example, by restraining corporate profiteering), as well as targeted investment on infrastructure aimed at breaking supply-chain bottlenecks, should be prioritized before accepting a brake on inflation driven by job loss.