With Growth Slowing and Inflation Rising, What’s the Administration’s Plan?

For the last several years, with the economy growing more than 3 percent a year, job creation has been slow and most people’s wages and incomes have hardly gained at all.  So, what can we expect now, with the overall economy slowing down?  Industrial production is falling, so business investment is likely to lag; retail sales are flat, so consumer demand and spending will also slow; and home construction has plummeted.  It looks like we’re in for a spell of much slower overall growth -- 1.5 to 2 percent growth is a good guess. And that will mean even slower job gains and, in all likelihood, lower real incomes for average families.  What does the administration propose to do about it?  In a word, nothing.

A second shoe is also dropping: Inflation is up, even with energy prices generally behaving themselves.  A lot of it is fast-rising health-care costs, which again this administration has ignored for six years.  Some of it is the impact of last year’s higher energy prices now making their way through the economy – for which, again, this administration has no answer.  Some of it is food prices, driven up by bad weather and the unintended effect of government-directed demand for ethanol, which drives up the price of corn that goes into animal feeds and sweeteners, as well as the price of other gains as farm businesses shift from them to corn.  And some of it is higher import prices from last year’s weakening dollar.

The upshot of this inflation that even as growth slows, the Fed can’t cut interest rates – which means no relief from the slowing growth.

If the administration won’t take this seriously, Congress can do so.  Let’s not wait for the next election to see those who would be president submit real plans to contain rising health care costs, reduce our economy’s fossil-fuel dependence, and increase opportunities for average workers to improve their IT skills.