If someone entered your bedroom and stole over $1,000 from your sock drawer, you’d call the police and likewise be very upset that your hard-earned money is probably never to be seen again. But, if you lose more than $1,000 cumulatively in 2021 because the products you buy every day, namely gasoline and groceries, are all increasing in price, good luck calling the police on that one. But your money is still gone, gone to something we haven’t seen much of since the days of Jimmy Carter. Welcome to inflation.
Inflation can be described very simply— too much money chasing too few goods. When I was a high school teacher, I used to show my students a video where a teacher gave everyone in the class a few dollars each to spend.
They were then allowed to bid on bagels.
The average price of a bagel was about 75 cents. Then, the experiment. The amount of money each was given was tripled. As you might have guessed, the price of a bagel soared to three times the original price. The lesson was simple, and it shows what happens when too much money is around.
Money has grown faster than our economy’s ability to produce new goods and services. Where has the money come from causing today’s inflation?
The culprits, or offenders, are two. One is Congress, who, through three rounds of stimulus from 2020-21, sent as much as $3,200 per person and $6,400 per couple (thousands more if the family had children) plus unemployment bonuses over and above regular benefits to millions of Americans. While most economists thought the first two rounds of stimulus had merit given the global pandemic, the third round is proving inflationary.
It passed in March 2021 with Democrat votes only. That third round is causing not just price spikes but shortages, as people bid up the prices on what few goods are around. Just try buying furniture for delivery in the next few months. There isn’t any to be had. No chlorine tablets for pools. Ketchup packets? Nope.
The list is long.
The other offender here is The Federal Reserve Board, which is in charge of the nation’s monetary policy.
People like cheap money, as in low-interest rates. That allows us to buy big-ticket items (cars, homes, boats, etc.) where cash is often prohibitive. But when interest rates are kept too low for long periods of time, people keep borrowing and spending. Prices rise.
Home prices almost everywhere across the U.S. have skyrocketed. It’s great if you’re cashing out to downsize, but it’s not great for buyers who keep bidding home prices still higher. Of course, the shortage of labor in the construction industry (and all other sectors too) from unemployment bonuses coupled with high prices and lack of adequate supplies of lumber are making new home construction problematic.
The other way to look at inflation is the value of the money you have in your wallet or sock drawer is worth less each month. That is because the same $20 you have now will buy fewer goods in a few months under inflation. You can have five pork chops, but not the six you’ve always bought before. The $40 that used to fill your vehicle’s tank gets you just past ¾ of a tank now. Some retail products are even shrinking in size, as manufacturers hope consumers don’t notice they are getting a few ounces less in orange juice, canned vegetables, or pasta sauce.
Nobody likes to see their possessions go down in value, of course. Some things naturally decline in value over time, such as clothes and automobiles. That’s depreciation and is normal. But to see money going down in value is downright discouraging.
What can be done? Not much. The horse is out of the barn. Too late to close the door. People have the stimulus money. But if bonuses to not work were rescinded, people would have to go back to work.
And they would find employment, as there are currently 8.1 million openings nationwide— a record in the U.S.
A total of 25 states have said no more federal unemployment bonuses, all in states led by GOP governors.
Inflation is an illness or disease, and like any, is best prevented before fully taking hold. Once a patient gets gravely ill, the medicine that can cure the disease can be awfully harsh. For people who have seen someone go through chemotherapy for a cancer diagnosis, they understand the analogy. Just look back to 1981-82. The only way the double-digit inflation was finally wrung out of the economy was a recession purposely induced by the Federal Reserve Board led then by Chairman Paul Volker.
Interest rates climbed to an almost absurd 21%.
It was the only way to stop people from buying goods and services, thus driving higher prices.
But the cost was nearly 11% unemployment and two years of recession and misery. The medicine worked, but let’s hope we never have to go down that road again to rid us of a disease that this time government itself is needlessly and carelessly causing.
Jeff Szymanski works in political communications at AMAC, a senior benefits organization with 2.4 million members. He previously taught high school economics for 15 years.
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