South to the Future

New Way to Ease New Economy's Inflation Threat: Release Nonviolent Inmates

February 23, 2000

WASHINGTON -- When U.S. Federal Reserve Chairman Alan Greenspan hinted last week that he would continue to boost interest rates to reign in record consumer spending and the hottest stock market in decades, venture capitalist Hawkins Josseph shook his head.

Like a growing number of economists, Josseph, who until five years ago taught economics at the University of Chicago, believes that raising the rate at which banks lend to one another is not the nation's best defense against inflation. Instead he advocates a macroeconomic theory that has become quite popular in academic circles, even though it has never been tested. Josseph wants to raise the unemployment rate.

By releasing nonviolent prison inmates.

According to Josseph, pushing unemployment rates upward will arrest inflation and promote general economic growth without need of interest rate hikes. What makes his theory seductive is its simplicity.

Most economists, Alan Greenspan included, cite the U.S.'s low unemployment rate of 4.1 percent as a harbinger of inflation. In this tight job market, Silicon Valley CEOs have demanded greater access to the foreign labor supply and have lobbied intensely to increase the number of temporary immigration visas available. Current Federal Reserve policy calls for raising interest rates to levels that dampen business activity, lower demand for workers, and, therefore, lessen inflationary pressures on the economy.

But Josseph argues that continued interest rate hikes could actually be catastrophic for the economy, and that there is another way to hike unemployment rates: increase the labor supply, creating a safety valve that allows the red hot economy to proceed apace without the danger of overheating. And where would Josseph find more unemployed workers to throw into the labor force?

In the prison system.

Citing a recent study by labor economists Lawrence Katz and Alan Krueger, Josseph points out that one of the main factors pushing the unemployment rate to its lowest level in three decades is the nation's growing inmate population. According to the U.S. Department of Justice's Bureau of Justice Statistics, a black male has a one in four chance of being incarcerated in his lifetime and a Hispanic male one in six. Currently, 1.7 million people are incarcerated in the U.S., and, because prisoners are excluded from employment calculations, the unemployment indicators would be significantly higher than 4.1 percent if prisoners were taken into account.

"I'm not talking about a radical emancipation program," Josseph says, "but if we scale back our sentencing requirements, institute treatment programs instead of jail time for drug offenders, and stop sending underage offenders to adult prisons, we can substantially grow the unemployment rate with minimal social impact."

Josseph's proposal could have appeal to both conservative and liberal agendas. Several prison reform groups, including the influential Criminal Justice for Criminals, embrace Josseph's plan as an impetus for revamping a penal system that they believe is discriminatory at its core. Some conservatives, among them the Brookings Institute and former Reagan domestic policy adviser Don Gaiger, also laud the "less inmates and lower interest rates" approach as a nonintrusive answer to the impending inflationary dilemma. The libertarian-leaning Gaiger has been lobbying the Senate Republicans to sponsor a scaled-down version of Josseph's plan.

"This is a win-win proposition," says Gaiger, who cites statistics that show the percentage of violent offenders in prison has declined over the past 25 years, while the total prison population has tripled. "The results are positive across the board: You have stronger communities where men can participate in the lives of their families, you have less unchecked spending on gargantuan prison facilities, and you reduce the only threat against the longest economic winning streak in the history of the United States."

Despite calls for an increase in unemployment rates by other means, analysts expect the Fed to raise interest rates by a quarter of a percentage point at its next meeting on March 21, with an additional half-point increase to come by summer. But with consumer confidence riding high, even elevated interest rates may not have the expected effect of slowing investment and spending. Stock prices have been mixed following news of the expected rate hikes. The Dow Jones Industrial closed yesterday down 122.84 points while the technology-heavy NASDAQ composite enjoyed a modest gain of 21.27 points.

South to the Future's stories contain fictional and factual elements. Except when public figures are being satirized, any use of real names is accidental and coincidental. Comments? Holler@sttf.org.

 
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