AMAC Exclusive – By Ben Solis
President Ronald Reagan once compared inflation to a violent mugger, a scary armed robber, and a hitman that preys upon someone’s life.
If he were alive today, Reagan would be loudly sounding the alarm about the new mugger on the loose as inflation steadily gets worse. The Bureau of Labor Statistics reported last month that inflation rate rose to 6.8% last year, the highest level seen since 1982. 2021 also ended with six straight months of price increases in sectors like food and housing, including a 57.5% increase in the price of gasoline between November 2020 and November 2021. In short, Americans are paying significantly more for basic goods and necessities now than they were just a year ago, struggling to make ends meet even as the Biden administration continues to pump money into the economy, further devaluing Americans’ paychecks.
To understand some of the primary causes of rising inflation, we must understand the interplay between the amount of money in circulation, the amount of credit extended to borrowers, and the development of new and affordable energy supplies.
As Nobel Prize-winning economist Milton Friedman taught, an increase in the money supply as new credit-based upon factors such as new wealth creation and productive business endeavors will enhance and accelerate new capital formation while keeping inflation low. Consistent with that understanding, the consensus of many economic historians is that the American economy was able to rise to extraordinary heights after John D. Rockefeller’s oil company provided “oil for the poor man” that was “cheap and good.” Put another way, government policies that encouraged capital investment (low taxes and less regulation) greased the wheels of the American economic machine, while cheap, reliable energy provided the fuel to supercharge the engine.
During his first few hours in the White House, President Joe Biden took the exact opposite approach to both Friedman’s principle for expanding the money supply and Rockefeller’s example of how expanding affordable energy can lift up the poor (and everyone else). With executive orders that revoked a permit for the Keystone XL Pipeline and ended oil and gas exploration on public lands, thus destroying U.S. energy independence and once again leaving the country at the mercy of foreign suppliers, Biden paved the way for dramatic hikes in energy prices and rising inflation.
But the price hikes didn’t stop with energy. The black clouds that formed over the White House after Biden’s inauguration are now storming across the American heartland and beginning to envelop the rest of the world, robbing the poor and middle class of their ability to make a living. Mr. Biden famously declared during the 2020 presidential campaign that his policies would help the poorest of the poor. Instead, the inflation monster unleashed by President Biden and Democrats in Congress is making the poor poorer, which happens anywhere inflation is on the rise. A few examples illustrate how:
Karen Dixon, who works at a warehouse near Knoxville, Tennessee, received a pay raise this year, but her expenses increased faster. Her $1.75 per hour raise is offset by higher health insurance costs and costlier food and gas.
A pastry business owner in Stockbridge, Massachusetts, James Lawson, is facing higher food prices – of an average of 25 percent – reducing his monthly production of croissants and wedding cakes. His business suffered 30 percent to 40 percent losses compared to the previous year.
Jack Bernstein, a farmer in California, learned that the California Tomato Growers Association had increased the price per ton of tomatoes to $105. That represents a 24.3 percent increase in the price per ton from earlier in the year – but any potential revenue gains were erased by rising production costs due to inflation.
To make inflation matters worse for hourly workers, President Biden also signed an executive order requiring all federal contractors to increase their minimum wage to $15 an hour. This one step alone has triggered a significant expansion of the money supply, contributing to the explosion in inflation. Moreover, this hike in the minimum wage is leading to crushing labor costs for small businesses, forcing many of them to close or shed workers. Large firms will now opt to replace some workers with robots and amortize these capital costs over time, while smaller firms cannot. This dynamic will impede economic growth, not boost it, and drive the few remaining mom-n-pop shops out of business. It will also lead to more unemployed Americans, not greater job opportunities.
In December, the University of Pennsylvania Budget Model indicated that the Biden inflation required that the average U.S. household spend around $3,500 more in 2021 to achieve the same level of consumption of goods and services as during the Trump era.
The good news is that at least we know what first steps are required to defeat the inflation monster, even if it is unlikely Biden and the Democrats will change course. First, Biden needs to reverse the anti-fossil fuel and anti-American energy policies he has imposed since the start of his term. There will be no greater boost to the economy, manufacturing employment, and to the taming of inflation than setting producer and consumer expectations that abundant, low-cost energy is encouraged and supported by federal laws and regulations. Second, Biden must identify and remove every disincentive to work that has been added to the federal register since his arrival in office. More working Americans will ease inflationary pressures from high welfare spending. Third, Biden can announce that he will abandon all efforts to raise taxes as well as impose a freeze on new economic regulations. Tax and regulatory certainty for business will drive greater investment spending in personnel and material to more speedily remove supply chain bottlenecks that are also contributing to inflationary pressures.
If he can find the political will, Mr. Biden can catch and cage the deadly hitman of inflation about whom Ronald Reagan had presciently warned and perhaps stave off looming disaster in the 2022 midterms. But given the administration’s seemingly complete capitulation to the anti-capitalist strain of leftism now so popular with today’s liberals, such a turnaround at this moment seems unlikely.
Ben Solis is the pen name of an international affairs journalist, historian, and researcher.