This column will discuss some federal government policies impacting our economy. Policies have different consequences for different people. However, the column is not about Economics 101. Instead I hope to raise some ethical questions. If more people benefit than lose because of a policy do we support what’s best for the majority? What if the majority gains a little but the minority loses a great deal? Is saving an existing job by limiting imports more important than creating new jobs due to increased exports? What must we do to make sure that the highly visible rate of inflation does not blind us to the less visible rate of unemployment? Many times the consequences of policies are uncertain. How do we weigh the importance of uncertainties?
Inflation is bad. Who pays for controlling it? The Federal Reserve is tasked with controlling the rate of inflation. To do that it raises interest rates to cool down the economy. The reason why that happens is beyond the scope of this column .
Let’s say that Jones has a large debt to repay at a fixed rate of interest. If inflation exceeds the interest rate of the loan Jones will be paying the loan back with cheaper dollars. In terms of his debt Jones is happy. However the people who lent the money to Jones are losing a much as he is gaining . Smith lives on a retirement pension that is not adjusted upward for inflation. Inflation will decrease the purchasing power of his pension for the rest of his life. Smith is understandably very upset about that.
The impact of inflation on home mortgages can be significant . Higher interest rates on mortgages make potential first-time home buyers more reluctant to enter the home market. As a consequence the selling price of houses would tend to go down. Phillips is happy because he needs to buy a new home for his new job in a different city. However, Jennings is very unhappy. He wants to sell his house but will now have to moderate his asking price. Jennings is especially upset because he bought his home at the top of the market.
For me the worst result of raising interests rates is that it can increase unemployment. If consumers cut back on credit card spending and buy fewer products employers will need to have fewer employees to meet the now reduced demand for goods. Green and his marriage partner have secure jobs so unemployment rates don’t bother them. Brown and his marriage partner have insecure jobs. They are now saving more and spending less in case one or both loses their job. If a growing numbers of Browns spend less, it would tend to lead to more people losing their jobs.
Are Tariffs Good or Bad? A tariff is a tax imposed by a government on goods imported from other countries. That serves to increase the price of imports and make them less competitive versus domestically produced goods. This is good for many workers who will have increased job security because of protection against imports. However, tariffs are not good for consumers because they will have to pay more or buy a different product than they wanted.
Tariffs on steel imports were removed as part of a free trade agreement. This devastated the steel industry and destroyed jobs for hundreds of thousands of workers. Lewis is upset because his town’s life blood was the steel industry. However, products that use steel became relatively cheaper. George is happy because his family is in the business of selling products that contain steel. He might sell more of them now due to lower prices. If that happens, George may decide to hire more employees to deal with the increase in business.
Allowing imported clothing into our country was good for consumers but devastated the domestic textile industry. If the Blues become unemployed or were already living on a low income inexpensive clothing is the best they can afford. On the other hand, Gray doesn’t care about the price of clothing. He doesn’t want any tariffs imposed because that would probably result in a retaliatory tariff imposed by other countries. That would be bad for Gray and the workers he employs because most of his company’s products are for export.
Designing public policy is a difficult endeavor. Making ethical decisions can be even more difficult. However, there is one ethical thing we can all strive to do: Take into account those who be hurt by the policies we advocate.