After almost a year of concerns over inflation and a hot economy, the Federal Reserve’s repeated interest rate hikes have slowed the economy and raised recession concerns. That was the point: The Fed’s actions were rooted in the decision that lower prices are more important than continued job growth.
This prioritization is the result of decades of choices that have pushed policymakers to see constituents primarily as consumers — with prices and market choice as their foremost concerns — and government as responsible primarily for maintaining consumer markets. These choices shifted both understandings of American citizenship and the very operations of the state over the past 80 years.
Since the 1940s, the federal government has been charged with promoting economic stability through “maximum employment, production, and purchasing power.” But, over the latter half of the 20th century, the Fed increasingly prioritized stable prices over maximum employment. This shift was not natural, but rather the result of decades of work by neoliberal theorists and conservative policymakers to prioritize stable prices and markets for corporations and investors rather than tight labor markets that empower workers.
In 1937, the Federal Reserve argued explicitly that “price stability should not be the sole or principal objective of monetary policy.” Rather, it defined economic stability as “full employment of labor and of the productive capacity of the country as can be continuously sustained.” The Board of Governors believed that goal might, in some instances, mean accepting inflation as a price of, not threat to, stability.
In early 1945, as World War II and the wartime full-employment economy both came to a close, Congress began to debate a full employment bill that proposed all men had a right to a job, and that the government take responsibility for creating those jobs where the private sector failed. This commitment proved a sticking point for many in Congress who believed the private sector, not the federal government, should create jobs. As a compromise, the final version of the bill, the Employment Act of 1946, encouraged consumption to drive employment and vice versa. The idea of a “consumer” moved one step closer to being at the very center of the American government’s management of the economy.