Groundwork’s Lindsay Owens on Inflation: “You don’t ‘fix’ an economy by making people poorer…This isn’t rocket science”

Groundwork’s Lindsay Owens on Inflation: “You don’t ‘fix’ an economy by making people poorer…This isn’t rocket science”

Yesterday, the Federal Reserve cut interest rates for the first time since 2020 as inflation is under control and the labor market remains strong. Groundwork Collaborative’s Executive Director Lindsay Owens reacted with the following statement: 

“Over the last few years we have heard countless experts insist that it would be impossible to get inflation under control without sacrificing the livelihoods of millions of Americans. Putting aside for a moment the cruelty and inhumanity of that position, we can now evaluate it purely on the economic merits. It was flat-out wrong.

“You don’t ‘fix’ an economy by making people poorer. You don’t ‘fix’ an economy by throwing people out of work. You don’t ‘fix’ an economy by pulling back on critical income and food supports that families need to keep food on the table and a roof over their heads.

“Economic policy works when it supports people because people power our economy. Period. It’s time to stop indulging any theory that suggests otherwise. This isn’t rocket science.”

Email press@groundworkcollaborative.org to speak with one of Groundwork’s experts about inflation and the Fed.

BACKGROUND

• Groundwork has made it clear since 2022 that you do not need to force millions of people out of their jobs and raise the unemployment rate to tame inflation, stating, “We can have a strong job market, higher wages, and lower inflation.” In November 2023 as inflation fell, Groundwork repeated, “We never had to throw millions of people out of work under the banner of price stability.”
• The myth of the Phillips curve, which is at the root of these bad predictions, has officially been busted, as explained by Employ America.
• The White House Council of Economic Advisers highlighted how important this evidence is for future policy responses: “This widespread forecasting error is not simply an academic debate; it means millions of workers and their families have not had to experience the pain of unemployment and recession in order to get inflation back down.”
• In June 2022, former Treasury Secretary Larry Summers stated in a speech that “we need five years of unemployment above 5% to contain inflation – in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment.” That would have meant nearly 17 million people out of work.
• Staff economists from the International Monetary Fund estimated that the unemployment rate may need to reach as high as 7.5% to lower inflation.
• John Cassidy, The New Yorker: “How did both sides get it wrong? Part of the problem was reliance on oversimplified textbook models, such as the Phillips curve, which posits that there is a straightforward relationship between inflation and unemployment. Misreading history was another issue. A long period of low inflation and low unemployment before the pandemic led policymakers to underestimate the possibility of inflation surging. After it started to do so, hawks invoked the experience of the nineteen-seventies, when prices and wages chased each other upward, and the inflation rate rose to more than ten per cent.”