According to Bloomberg, Minneapolis is the first major city in the US to beat inflation, which is, for reasons that have more to do with superstition than reason, tolerated at 2%. The city that gave the world Prince presently has an inflation rate of 1.8%. And how was this done? By attacking workers with layoffs and low wages? The city actually raised its minimum wage for small businesses ($14.50) and large businesses ($15.19). But that minimum wage is only nominal. The real minimum for all businesses is $17 (“You can’t find anyone to work for minimum wage... We haven’t been paying minimum wage in our Cane’s in a long time”). This is incredible for the neoclassical school, which insists that prices go up because wages are too high and workers have too much freedom in the job market. The essence of the famous (and infamous) Volcker Shock of the 1980s is found in this faulty reasoning.

The 12th Chairperson of the Federal Reserve Paul Volcker defeated, it is claimed, the inflation that roiled the 1970s by raising the prime rate to a labor-breaking 21.5%. The story has a happy ending: Inflation was tamed and we entered a paradise called the Great Moderation. A crash in 2007 expelled us from this ersatz paradise. Then came the pandemic in 2020. And when the government declared we were over and done with COVID in 2022, the scourge of inflation returned. Blame for this horror of horrors was first directed at Biden's out-of-control spending, then the red-hot job market (too many openings; skyrocketing wages). The solution? Same old same old. The Fed began raising the price of money.

But how did Minneapolis beat the Fed's inflation target without crushing labor? The answer deserves Seattle's attention.


That’s largely due to a region-wide push to address one of the most intractable issues for both the Fed and American consumers: rising housing costs. Well before pandemic-related supply-chain snarls and labor shortages roiled the economy, the city of Minneapolis eliminated zoning that allowed only single-family homes and since 2018 has invested $320 million for rental assistance and subsidies.

The important message in this for Seattle, a city with a 4.6% rate of inflation, and a city whose main newspaper is obsessed with radicalized Portland ("A tale of two cities: Portland offers a worrying example for Seattle"), is its troubles are rooted in the management and priorities of its economy. This business of blaming everything that's wrong with this city and Portland on progressives, on socialists, on fellow feeling (called "sentimental"), and the insistence that everything can be solved by increasing the number and power of police officers and showing the homeless no mercy  whatsoever, makes no hard economic sense for the poor, the working poor, and much of the middle class. 

Now, the economist in you might argue that Minneapolis is a city, and so it could easily slip into the category of a special case. The economics of a metropolitan area of 3,682,928 can't be scaled up to the economics of a nation state. When it comes to macroeconomics, wages and worker freedom matter. There is a trade-off. This is the center-leftist's Phillips Curve. This is the right's Non-Accelerating Inflation Rate of Unemployment (NAIRU). The (post-Keynesian) left proper, however, very well knows that the fall of inflation in Minneapolis occurred precisely because its real source was addressed: profit and asset (also known as placement) inflation, which was managed not just by increasing housing supply (the urbanist solution) but making huge investments in subsidized housing (the socialist solution).

And this is exactly how Spain managed to be the first European country to beat inflation. It has a population of 42 million. Its economy is the 15th-largest in the world. Its inflation rate was near 9% in 2022. Its inflation rate is now below 2%. Why? Because, as The Guardian bluntly put it, "[Spain's government] stood up to business." The evidence is right there. Spain, then under a socialist government, "capped energy prices... lowered the cost of public transport, taxed excess profits and put in place limits on how much landlords can raise rents." This ultimately prevented "inflation from spreading more widely and more persistently than elsewhere." Indeed, in this result, we find an explanation for why Spain's right failed to win the recent general election. The mainstream press thought the game was up for the socialists. But that did not happen. The left and right are in a deadlock that's likely to go the former's way.     

In August 2022, the 16th Chairperson of the Federal Reserve, Jerome Powell, promised nothing but pain for American workers as he raised interest rates to "fight inflation." And yet, wages continued to rise, and, according to recent data, they are rising even faster than inflation (4.4% to 3%—this fact is almost never mentioned by the business press). The Fed has had no impact on falling inflation or the economy in general for one important reason: you can't run the economy with just one lever (interest rates).

And this is the most astounding and telling thing about our economic times. The Fed and all other central banks in advanced capitalist countries, believe they actually can manage the economy solely with the price of money. But why did the US's job market continue to grow as Powell tried to punish it with rate hikes? Because the White House's economic policy was not in lockstep with that of the Federal Reserve. The same can be said about Janet Yellen's Treasury. Powell is, policy-wise, isolated. The White House is presently expansionist, not contractionist. It has increased spending on capital-intensive projects. And much of this money has yet to come online. Without a policy consensus, the Federal Reserve is basically toothless. Indeed, only the banks are really benefiting from high rates. They are transferring close to nothing of the nearly dear price of money to their depositors. 


This is the Great Bank Robbery of 2023 — the yawning gap between what you are paid on your deposits and what banks are earning from other institutions when they loan out your money. It’s a caper that has quietly become a systemic upward transfer of wealth thrumming beneath the macroeconomy...

I will conclude with my deepest insight. Policy consensus among the key political DC institutions had only one function: to make interest rates the whole economy itself. Meaning, all other tools for the management of our society's wealth and its distribution were diminished, if not entirely removed. What remained? The religion of monetarism, the management of money. For this illusion to look real, the White House and related institutions needed to be committed to austerity (less social spending, more privatization, and so on), which reduced economic tools or possibilities to just one: imaginary inflation targets. The Fed has always known that it has nothing to do with inflation (it doesn't even have control of the money supply—the monetarists dream of dreams). As the Portland-based economist Eric Tymoigne explained in his superb post "The Volcker Myths," since the late 1970s, the Federal Reserve has caused all of this pain "for nothing."