A very good example of this is the current situation right now where we are facing rising oil prices and food prices -- including the highest inflation rate we've seen in decades. The rising inflation is primarily destructive to people who hold financial wealth and live off past accumulations of money.
The financial industry is harmed by inflation -- so are ordinary people whose wages and salaries are losing purchasing power. The idea that we would try to curb inflation through some kind of price-control policy on oil, for example, or some kind of curb on wages and prices to maintain economic growth (in the face of rising prices) is not even discussed. It's not on the agenda.
Instead, it's this feeling that if the Fed raises interest rates to try to slow the economy down enough, rising prices aren't passed through the economy and inflation doesn't accelerate. This is one of the ways in which the financial industry influences policy -- the idea that the Fed has the absolute authority and mandate to control inflation by slowing its growth down and by curbing wage growth is assumed, and that was not the case in the 1960s and 1970s.
Consumers are told that economic growth can't proceed unless Americans save more; yet they are also told that the world economy depends on American spending. Consumers have also been blamed for their irresponsible borrowing habits, yet they are told that any cutback in consumer borrowing will push the economy into recession. Why are such schizophrenic messages about saving and spending aimed at U.S. consumers? And which of these messages are actually true?
Well, they're both true. There are schizophrenic messages because there is the paradox of market economies. It's the structural paradox of the economic system. On one hand, we need sources of spending in order to have economic growth, but on the other hand, we need sources of saving in order to have economic security.
The ways to resolve that paradox involve government spending -- which has been off the agenda for a generation. So in the absence of government spending programs that would either serve as the engine of economic spending or serve as the engine of economic security, there's no other way to resolve the paradox. Consumers on one hand need to spend to promote economic growth, on the other hand, they need to save to promote individual economic security.
For the past generation, there has been political backlash against the government being either the source of economic growth or security. For example, consumers would worry less about economic security if the Social Security system were more stable and better financed and replaced a higher portion of people's wages. If the health care system were more stable and publicly financed, people would have less concern about bankruptcy or having to save for a major medical problem. ... But because the U.S. doesn't provide these sources of economic security, Americans feel they need to save for these things. On the other hand, if they save for these things, the economy slows down.