His thoughts — Government created inflation and loves it
Published 12:00 pm Saturday, July 23, 2022
I wish I was as upbeat about inflation as President Biden’s spokespeople. The June report showed a 9.1% increase over the last year, declaring the highest inflation in 40 years.
The President’s folks quickly pointed out that gasoline prices were 40 cents less than a month ago. Most of us understand that gasoline is still 96% higher than a year ago.
Those who have gone to the grocery store in the last six months look at that 9.1% figure and wonder how that could be. Everything they buy is far more, from meat to beans to peanut butter. Instead of everybody talking about their own favorite statistics, we should look at the true facts.
CONSUMER PRICE INDEX
Prior to 1980, inflation was based on the cost of buying one of everything. Since none of us buy everything every month or even every year, Congress made changes to how the inflation is calculated, therefore, in 1980, they changed the formula calculated each month. Some changes made sense, others not so much.
One area where everyone makes multiple purchases monthly is groceries. Consider these changes: steak in January 2021 was about $11, June 2022 about the same; bacon up 27%; coffee up 27%; eggs up 75%; chicken breasts 40%; ground beef 23%; and bread 9%. This is a sampling of items over 17 months, but it shows you that true inflation is higher than reported.
Many factors can create shortages that tend to drive the prices of items. As an example, when COVID-19 struck, many businesses were forced to stop production. During that period, lumber prices skyrocketed. Loggers couldn’t harvest, while workers who couldn’t go to work decided to do home projects. Likewise, car manufacturers were unable to get computer chips needed in all new vehicles, bringing new car sales to a halt. This in turn drove the price on used cars through the roof.
GOVERNMENT RELATED FACTORS
The biggest factor in all inflation is always the government! Government likes to spend money. At the state and local levels, spending is limited to tax receipts. The federal government is not. They spend if the president and Congress can agree. When COVID-19 began and businesses were closing, it made sense to send checks out to everyone, however, once that immediate problem was addressed, commonsense should have kicked in. It didn’t! The feds continued to send checks out indiscriminately. Those who continued to work got checks, those on pensions who had lost no income continued to receive government checks.
The result of all that extra money resulted in situations such as the home projects mentioned above that helped drive up the cost of lumber. This extra income increased the demand for many other items while manufacturing was limited; this drove up prices.
At the same time, state and local governments were passing laws requiring private employers to pay higher wages without an expectation that workers produce more for that salary. This alone drove up the price of every item, small businesses especially, sold.
As everyone has seen, when President Biden came into office he immediately took executive actions to cut off the supply of fossil fuels from exploration and shipments to refineries. In addition, he created more layers of regulation negatively affecting producers. This signaled to the world that America’s highest priority was not reasonably priced energy. OPEC and Russia began raising prices. American producers were forced to compete with their hands tied. Meanwhile, investors shied away from investing in the long-term capital needed for increasing production.
WHO WINS WITH INFLATION
I mentioned only a few reasons on how the government creates inflation, but the dirty secret is that the government loves inflation. When they force personal income higher, it accomplishes several goals. Those who get raises are happy they got a raise. They are, at least, until they realize the cost of living is also rising. Meanwhile, as one’s income rises, their payroll and sales tax obligations rise. This in turn gives the government more money to spend on projects they perceive as important.
Slowing inflation is far more painful than it was in creating the problem. The Federal Reserve Bank is in the process of doing that now by raising interest rates. The last time they took drastic action was in the 1980s; interest rates went to 18%. Hold on to your hat!
Frank Ruff Jr. represents Charlotte in the state Senate. His email address is Sen.Ruff@verizon.net.