Liberals Call Inflation Scaremongering

Invest in inflation. It’s the only thing going up. – Will Rogers

World War II ration card

The left is trying to justify the escalation of inflation as “Inflation isn’t inexorably a bad thing. In fact, it used to be considered good.” This is another overt attempt to habituate American consumers to soaring prices and to a new low standard of living and to shortages food, goods, and services, a diminished quality of life. What scaremongering about inflation gets wrong - The Washington Post

Inflation represents economically a rapid rise in prices caused by a range of factors. The rate of inflation is calculated by averaging the percentage growth rate of the prices of a selected sample of commodities, traditionally called a “basket of goods.”

There is not much good about inflation but plenty of bad: financial costs and a social cost. Even Keynesian economists recognize that inflation is damaging to the economy in general and to society.

Bondholders, for example, are exposed to losses from inflation. If the overall price level rises, the purchasing power of $1,000 for example, at bond maturity, diminishes, making bond investment an uncertain proposition.

Rising inflation makes it risky to enter any long-term contracts. Lending and borrowing money are also a big gamble – neither lenders nor borrowers would be eager to enter such long-term contracts. But investment becomes impossible without long-term loans. This results in a stagnant economy. A stagnant economy with high inflation then experiences stagflation.

Inflation causes consumers to change their behavior and no longer shop where they used to, they look for bargains elsewhere. Businesses engage in similar practices, they start shopping around for cheaper suppliers; businesses experience rising costs as well, which then slows down the efficiency of the economy.

Low inflation does not necessarily lead to high inflation in theory. In practice, we have seen what happened with hyperinflation in Zimbabwe, in Venezuela more recently, and in the Weimar Republic. There are pictures from that period of a man pushing a wheelbarrow of currency (Deutsche Marks) to buy a loaf of bread and of children building a pyramid of cash during the hyperinflation of the 1920s because it was just as cheap as using sticks or other materials.

In 1989 an article described how Nicaraguans stopped using piggy banks to save coins because due to the 161% inflation for a two-week period – a “penny saved is a penny spent.” Even offering 70% interest rate per month for saving accounts at banks did not persuade Nicaraguans to save money, they spent it as soon as they got it before more inflation deteriorated its value. (New York Times, June 22, 1989, p. 2)

A wise sage, Yogi Berra, allegedly said long ago, “A nickel ain’t worth a dime anymore.”

Indexing (adjusting monetary payments to the reported inflation rate) “seeks to reduce the social costs of inflation” for two reasons: 1) to reduce the capricious redistribution of income caused by inflation; and 2) to reduce the blow caused by our tax system which levies taxes on nominal interest (no adjustments are made for the decline in the purchasing power of money) and nominal capital gains (the difference between what an investor pays for an asset and what it sells it for, again, not taking into account the loss of purchasing power of money).

Inflation strips the purchasing power of wages. Seldom do wages rise faster than inflation but they do occasionally. Keynesian economists believe that in the long run “wages tend to outstrip prices if new capital equipment and innovation increase output per worker.”  Democrats, however, have been telling us since Obama that we must get used to “the new norm” of a lesser standard of living, a low growth economy, and a diminished country.

Inflation has been measured with the traditional basket of goods, food (at home, cereals, bakery products, meat, poultry, fish and eggs, dairy products, fruits and vegetables, other foods, away from home, alcoholic beverages), housing (shelter including rent, homeowner costs, fuel, fuel oil, coal and bottled gas, piped gas, and electricity), clothing (men’s women’s, boys’, girls’, footwear), transportation (private and public), medical care (hospital stays), entertainment (ticket prices), other goods and personal care services (shampoos, toothpaste, soap).

The Consumer Price Index (CPI) is used to make cost of living adjustments to wages and pensions each year. However, seldom do cost of living increases match the actual inflation rate.

The CPI market basket was altered in 1986 to reflect higher spending on housing and food eaten away from home. During the Obama administration, the way inflation has been calculated, “core inflation,” has omitted prices for groceries and gasoline, a move that makes inflation rate appear lower than it is.

The excuse for this omission was that food and gasoline prices are “sensitive to external shocks.” The price of gasoline and food are often the result of fiscal and monetary policies (money printing ad nauseam) by administrations in charge, both Republican and Democrat.

The escalating prices of food and the disruption in the supply chain world-wide has been the result of the pandemic created by globalists with a gain-of-function Corona virus which caused unnecessary deaths from purposeful lack of proper medical treatment and bankruptcies of millions of small, medium, and large businesses across the globe. Americans were also paid by a Democrat regime to stay home, leaving millions of jobs available and unfilled.

The fact that globalists are trying to destroy the fossil fuel industry is no longer a conspiracy theory as President Biden has closed the XL Keystone pipeline on the first day of his presidency, sending oil prices into shock, doubling gasoline prices at the pump, and changing the American status under President Trump from an oil exporting country to an oil importing country again dependent on the OPEC cartel and its oil production manipulation.

The calculation of CPI understates inflation by “excluding housing prices” but not rent and “hiding enormous increases in health care, schools, prescriptions, and higher education.” … What scaremongering about inflation gets wrong - The Washington Post

The Bureau of Labor Statistics uses the Laspeyres formula on:

-          Selected shelter services (housing at school, excluding board)

-          Selected utilities and government fees (electricity, residential water and sewage maintenance, utility (piped gas service, state motor vehicle registration and license fees)

-          Selected medical care services (prescription drugs, physicians’ services, hospital services, dental services, services by other medical professionals, and nursing homes and adult day care) Calculation : Handbook of Methods: U.S. Bureau of Labor Statistics (bls.gov)

The CPI, if used correctly, is a prime indicator of inflation and recession. It reflects economic trends but influences them as well.

When inflation becomes galloping inflation as it did at the turn of the twentieth century, one mark in 1918, at the time of the Armistice, was worth 726 million marks in late 1923. Germans burned their marks as it was cheaper than buying wood for their stoves.

Inflation is an ancient problem. When Emperor Valerian was captured by barbarians in 259 A.D., Romans rushed to turn their money into goods, thus creating a rate of inflation at 1,000 percent over 17 years (too much money chasing too few goods).

Emperor Diocletian tried to curb inflation by passing an edict which fixed maximum prices (price fixing) on 1,000 goods, food, raw materials, textiles, wages, and transportation. It was an utter failure even though the punishment for violating his edict was death.

This is nothing new as our Federal Reserve System (the Fed), in control of our monetary policy (money stock and interest rates) is printing too much money to help pay our Democrat government’s bloated spending and debt to support their globalist mantra, Build Back Better. It should be more aptly renamed, Build Back Broke.

The Biden regime claims that inflation is 7 percent - the highest it has been since 1982, but is it only 7 percent? How accurate is this CPI? Go to the grocery store and the gas station and you decide.