Control inflation while reducing inequality

America’s GDP per capita is at a record high.

Inflation is climbing.

Immediately we know that the issue is a soaring demand curve, with a supply curve which is struggling to keep up.

So the answer to controlling inflation is pretty easy, either reduce demand (which would also harm GDP) or increase supply.

Unemployment is at 4.6% so there really aren’t very many people to bring into the labor market right now.

Our employment-population ratio is nearing 60% again, which has been the low end of the range since 1983. There really aren’t very many Americans who want to work who are not working.

We need more workers in order to keep up with rising demand (and those workers will themselves demand goods and services, because duh).

Inequality has stayed in the 40-43 range since 1993. Many Americans (myself included) are concerned with continuously high inequality.

So what we really want to do is raise wages for low income and middle class households, increase the labor supply. there are two ways to do this, we can either subsidize child care and pay for it by raising taxes on the rich, which is two birds with one stone because it reduces inequality while also increasing the labor supply.

The other option is to increase the number of available work visas.

You can only increase child care so much, but we should obviously do it.

These would help solve the labor crunch, but these policies will not solve inflation.

When we look however at where inflation is concentrated, it’s highly concentrated in the energy sector. The price of oil has skyrocketed over the last year, increasing from under $50 per barrel to $80 per barrel today.

The President of the United States, nay, the entire United States government has very little control over the price of oil. It is a global market, and the United States has less than 2% of the world’s proven oil reserves. We also have one of the highest drilling rates in the world as a percentage of oil we have. We are a small fish in the oil market, and we are depleting our proven reserves at a faster rate than any other country.

1/3 of global oil production is in Russia and Saudi Arabia alone.

Of the top ten countries by proven oil reserves, only one of them is a democracy, and that country is Canada. While Canada has vast oil reserves, it has a relatively small population and much of the oil is in Alberta. To put that climate in perspective, Edmonton has an average daily temperature below freezing from November through March, 5 months out of the year. This oil is located under land which is frozen for several months out of the year. I’m sure this is part of the reason why Canada has the second lowest extraction rate out of the world’s 17 largest oil producers, second only to Venezuela which is an economic and political crisis.

Despite the United States having the third fastest extraction rate, we are still in a global market, and we still have no control over the oil price.

What makes this even more dire, is that we will run out of current proven reserves in the United States in less than 10 years unless if we find a significant amount of oil reserves hidden somewhere in the United States somewhere very soon.

If Canada were to increase its current oil extraction to the same rate as the United States it would last for 66 more years. Saudi Arabia and Venezuela are significant outliers in terms of their oil supply.

The harsh reality is that as long as the United States stays dependent on oil, our economy will be under the control of countries which are hostile to democracy. It’s just that simple.

We need to transition off of oil and continue to expand renewable energy as fast as we possibly can. That is the only way we can protect our economy from hostile foreign actors.

That is the only way we can protect our economy from inflation caused by hostile foreign actors.

References:

https://en.wikipedia.org/wiki/Oil_reserves

https://fred.stlouisfed.org

https://data.bls.gov/timeseries/LNS12300000

19 comments

  1. Agree with you about the oil/petroleum dependence.

    I recognize that you may be including improved pay for childcare workers, but felt it was important to explicitly state the need for it, and the potential outcomes. I put this reply in facebook, and here it is for more permanence:

    In addition to simply subsidizing childcare, we need to make careers in childcare as important as any other educational career. People who care for our infants and young children are literally preparing them to be successful in school – which is a prerequisite in our society for success in life. Childcare, like elementary and secondary education, are not merely about warehousing youngsters until they are able to be useful… And, of course, if we pay an actual living wage to the people working in childcare (or as paraeducators in schools, or as nurses aides, or any of a number of low-wage but essential jobs), then the quality of care is likely to improve along with the interest of people to consider those jobs as viable choices.

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