I was an Economics major at Fairfield University more than thirty years ago. I enjoyed the study of economics, particularly looking at rational and irrational behaviors in markets. I also learned a lot of basic concepts that help me today as I negotiate collective bargaining agreements.
I remember spending a lot of time on matters of inflation because we still were not too far removed from the Carter years of stagflation, gas lines, and staggering interest rates. But not too long after the Carter malaise, Paul Volcker took over the reins of the Federal Reserve. It seemed like policy makers got a stranglehold over inflation and inflationary pressures have been pretty stable since the mid-eighties.
Suddenly we have seen a couple of months of price growth in the five percent range, and we are hearing about inflation again. There is lots of liquidity in the market right now and prices are rising. Our buying power is declining as a result.
In the midst of increased government spending as a policy initiative to revive the post-Covid economy, California passed a law last week giving some residents a guaranteed basic income.
The guaranteed basic income, one of Andrew Yang’s main arguments in his presidential campaign, has been floating around as an idea over the last several years as the wage gap has widened and squeezed the middle class in America.
Under California’s law, which passed the legislature with bipartisan support, 35 million dollars has been set aside to be used for monthly cash payments for some pregnant people and other young adults transitioning out of the state foster care program.
The program is funded through tax revenues and there are no restrictions on how the money can be used by recipients, differentiating it from other entitlement programs like “food stamps” or housing assistance.
Monthly payments will range from $500 to $1,000 and will be administered by local governments and organizations who will apply to the state for the funding of their local programs.
The program implementation comes on the heels of recent federal programs designed to alleviate financial pressures associated with Covid. And the handouts have not been limited to one political party.
During the Trump administration, the federal government approved a plan to pay unemployed individuals an extra $600 a week on top of their state unemployment benefits. In addition, the Paycheck Protection Program made tens and hundreds of thousands of dollars in cash grants available to businesses without any required payback.
These programs played a major part in keeping the economy going while production and service provision slowed to a crawl. It is likely that the success of those Republican initiatives has helped support the recent programs coming out of Democratic state houses and the federal government.
There can be no doubt that putting money directly into the pockets of consumers, particularly those at the bottom of the American class structure, helps prime the economic pump. But the new policies are helping to create inflationary pressure unlike any we have seen in decades.
It seems like something’s got to give fairly soon. The question is whether or not the economy will be able to continue improve as money continually gets pumped into it. California’s experiment will be important to watch as policy makers attempt to address wage inequality and the recovery from Covid.