Columnist Richard Fein: Economic Policy and Ethics


Posted: 08/28/2022 16:03:53

Modified: 08/28/2022 16:00:13

This column will discuss some federal government policies that impact 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 from a policy, are we supporting what is best for the majority? What if the majority gains a little but the minority loses a lot?

Is saving an existing job by limiting imports more important than creating new jobs through increased exports? What should we do to ensure that the highly visible inflation rate does not blind us to the less visible unemployment rate? Often, the consequences of policies are uncertain. How to assess the importance of uncertainties?

Inflation is bad. Who pays to control it? The Federal Reserve is responsible for controlling the rate of inflation. It does this by raising interest rates to cool the economy. Why this happens is beyond the scope of this column.

Let’s say Jones has a large debt to pay off at a fixed interest rate. If inflation exceeds the interest rate on the loan, Jones will repay the loan with cheaper dollars. In terms of debt, Jones is happy. However, the people who lent Jones money lose as much as he wins.

Smith lives on a retirement pension that is not adjusted upwards for inflation. Inflation will diminish the purchasing power of his pension for the rest of his life. Smith is understandably very upset about this.

The impact of inflation on home loans can be significant. Higher mortgage interest rates are making potential first-time home buyers more reluctant to enter the residential market. As a result, the sale price of houses would tend to fall.

Phillips is happy because he has to buy a new house for his new job in another 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 house at the top of the market.

For me, the worst result of raising interest rates is that it can increase unemployment. If consumers reduce their 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 partner have secure jobs, so the unemployment rate doesn’t bother them. Brown and her marriage partner have precarious jobs. They now save more and spend less in case one or both lose their jobs. If an increasing number of Browns spent less, it would tend to cause more people to lose their jobs.

Are the rates good or bad? A tariff is a tax imposed by a government on goods imported from other countries. This serves to increase the price of imports and make them less competitive with locally produced goods. This is a good thing for many workers who will benefit from increased job security thanks to import protection. However, tariffs are not good for consumers as they will have to pay more or buy a different product than they wanted.

Customs duties on steel imports have been removed as part of a free trade agreement. It devastated the steel industry and destroyed jobs for hundreds of thousands of workers. Lewis is upset because his town’s blood was the steel industry. However, products using steel have become relatively cheaper. George is happy because his family sells products containing steel. It might sell more now due to lower prices. If this happens, George may decide to hire more employees to accommodate the increased business.

Allowing clothing to be imported into our country was good for consumers, but devastated the domestic textile industry. If the Blues find themselves unemployed or already living on a low income, cheap clothes are the best they can afford. On the other hand, Gray does not care about the price of clothes. He does not want tariffs imposed, as this would likely result in a retaliatory tariff being imposed by other countries. This would be bad for Gray and the workers he employs, since most of his company’s products are for export.

Designing public policy is a difficult undertaking. Making ethical decisions can be even more difficult. However, there is one ethical thing that we can all strive to do: take into account those who are hurt by the policies we advocate.

Richard Fein holds a Master of Arts in Political Science and an MBA in Economics. He can be reached at [email protected]


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