No normal person who drives a car, eats three meals a day, and lives under a roof needs to see the latest Consumer Price Index to know that it takes
an ever-increasing stack of dollars
to fund a no-frills family budget.
But it bears repeating that May’s CPI
just registered
an 8.6% year-over-year increase, the largest jump since 1981.
Gasoline,
food, and shelter were the big drivers. Quite understandably, the University of Michigan’s much-followed consumer sentiment index has also fallen — and to the lowest level since it was first published in the late 1970s.
The average wage-earner is getting poorer, the pace of change is quickening, and the prospects for enrichment are not very bright. This, coupled with mass shootings, the continuing war turmoil in Ukraine, and constant discussion of the Jan. 6 Capitol attack, make it hard for even the most committed optimist to keep a happy face. Of these maladies, inflation is perhaps most frequently encountered by the average person and the easiest to understand and resolve, at least theoretically. But for reasons to be discussed here, political incentives make it practically impossible.
Why do politicians in power ignore genuine solutions and therefore refuse to take meaningful action to lift the burden of inflation from the shoulders of ordinary citizens?
First off, we should again acknowledge that finding inflation’s source is not that complicated. Credible analysts who focus on the role played by the amount of money circulating in the economy, determined by the Federal Reserve in conjunction with government stimulus programs, have warned for months that an inflation calamity was in the making. After all, an inflated money supply chasing the same (or fewer) goods causes inflation. Controlling it requires controlling the rate at which printing-press money enters the economy.
This is all perfectly logical to students of monetary economics and, really, to anyone paying attention. But as
set forth
in 1911 by economist Irving Fisher, knowing as much provides little succor for politicians whose stock-in-trade involves shipping money to consumer interest groups, an example of the phrase “pouring oil on troubled waters.”
When asked, Biden administration leaders counter that any troublesome price increases will be temporary, that supply chain hiccups (the “real” source of the problem) will soon pass, and a stronger, more resilient post-pandemic economy will surface. We are assured by the political leadership that our encounter with inflation has nothing to do with the sudden injection of trillions in stimulus dollars into the economy not long ago.
Sometimes, it seems, there will be a breakthrough of enlightenment. Treasury Secretary Janet Yellen, once a cheerleader for the “inflation is transitory” school of thought, now admirably confesses that she was wrong and that high inflation is embedded in the economy and is not likely to pass anytime soon. Yet while recognizing the inflationary element in the room, Yellen refuses to say that the Biden stimulus program is the major source. On another front, when grilled about rapidly rising gas prices, Commerce Secretary Gina Raimondo admitted that there’s nothing the federal government
can do
to bring immediate consumer relief.
If experienced political leaders understand the linkage between money and inflation, yet they won’t acknowledge it or resist the democratic clamor for government relief for every problem, what are the realistic prospects for preserving the dollar’s purchasing power? Given all this, inflation may wax and wane — but it will always be with us.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, a dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
