FRED ABRAHAM: Uninformed opinions about economics troubling | Columnists
It’s frequently troubling to me when I read the Letters to Editor on the Courier op-ed page. I am a strong supporter of the First Amendment and believe people have the right to express their opinions on just about any issue. However, the troubling aspect of this is when the opinions are so inaccurate. Many times they are little more than rants against some evil, usually a perceived one, that is not necessarily real or accurate.
As you might imagine, I am most frustrated by the opinions spouted about economics. They are usually contrary to what economists have discovered and use to predict economic behavior.
For example, we have been hearing a lot about inflation lately and blaming president Biden for it. The reality is unless presidents can control Congress and the Federal Reserve (called the Fed), they have extremely limited impact on the economy.
Economists identify several causes of inflation and seldom mention presidents in our models. To be clear, economists don’t have complete agreement on how the economy works. Economics is complicated. We understand the overall picture but struggle with the details
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Inflation can be a function of several things. Massive government spending when an economy is close to having everybody who wants to work employed could cause it. An overly loose monetary policy of the Fed is probably the biggest concern. But also, what about supply chain issues? What can the president, or indeed anyone, do about oil refineries that shut down or produce less gas? Very little. And food shortages can have an enormous impact on prices. Further, we don’t have much control over what happens on the international scene and that has a big impact on our prices. Computer chips are in short supply world wide and we use millions of them.
So what can we do? We recently passed the Inflation Reduction Act designed to curb inflation. However, it’s misnamed. The law will have almost no effect on inflation but it will have a large impact in restructuring tax policy, environmental issues, and energy concerns.
The Fed is probably the most effective entity against inflation. By causing interest rates to rise, spending is reduced and inflationary pressures eased. The Fed will be meeting next week and will probably raise its interest rate target to cool inflation. As a reminder, recall that the Fed is a pretty independent organization, answering to almost no one.
My concern is so few people understand what and who can affect inflation. Blame becomes highly political and far removed from the actual economic causes. Those stickers you saw on gas pumps that said “Thanks Biden” were entirely political and made no sense. Just another ill-advised and stupid political criticism having nothing to do with inflation or the president’s role in its cause.
If someone wants to criticize an elected official, they have that right. But if they intend to criticize leaders for poor or misguided economic policy, they should understand economics and not rely on lunch or barroom conversations. Maybe take an economics course at one of our local colleges before going down that path. Or call me and we can discuss it.
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Fred Abraham is professor emeritus at the University of Northern Iowa. The opinions expressed in this article are those of the author, and do not reflect those of the university.