Letter: Don’t raise interest rates
Thank you for your editorial (Monitor Opinion, July 30) pairing the rebellion of Market Basket employees with the possibility of a shift back to a healthier distribution of national income.
Consider this also:
When the share of the yearly increases in national income that ended up in the pockets of ordinary people dropped from 60 percent to 40 percent in 1980, the change coincided with the decline of manufacturing jobs and of union membership, as you note. But something even more immediately powerful happened at the same time.
In 1979, the Federal Reserve began systematically increasing the interest rate to slow down economic growth whenever wages began to go up. Establishment economists calculated that a steady unemployment rate of 6 percent was necessary to head off inflation, and that became the Fed’s target. But economic studies have over and over again established that when unemployment increases, wage increases shrink.
At 6 percent unemployment, there is no need for employers to offer increases that keep up with inflation to keep workers. Employees get poorer, and because a bigger percent of the cash sales of the goods they produce goes to profit, the income share of the owners of large businesses and stock portfolios goes up.
That is why it is so important we support Janet Yellen’s resistance to pressure to raise interest rates now that the unemployment rate has dropped into the 6 percent range. For unless we allow unemployment to fall to a healthier level, the economy will remain too slow to grow enough jobs and the income gap is guaranteed to keep going up.