INFLATION! No, no, it isn’t the stimulus.

INFLATION! You can hear it now, can’t you? The sound of hands wringing in concert.

The GOP is owned by the very rich. And the rich are terrified that you ever-so-slightly will narrow the Gap between you and them.

So their GOP flunkees, having already given a huge tax deduction to their rich patrons, now will tell you that the Democrats’ stimulus packages are wrecking the economy and causing not just inflation, but hyperinflation.

It’s all a great big fat lie, a repeated myth designed to calm your requests for more stimulus dollars to flow to your benefit.

It goes like this:

  1. Because the unemployment benefits are too generous, people won’t come back to work. So the GOP solution is to cut benefits, thereby starving people into working for low pay at unpleasant jobs.
  2. The inflation theory is that increasing the supply of dollars when the demand for dollars remains constant, reduces the value of the dollar, and that reduction is known as “inflation.”

    Whip Whipping Hand - Free vector graphic on Pixabay
    The GOP solution to inflation and unemployment.

Nice hypotheses, except:

  1. There is a way to pay people good wages and also encourage work, and
  2. The value of dollars does not decrease just because the supply increases.

Dollars are not like oranges, oil, or opera tickets. Money is a unique commodity. Increase the supply and people want still more.

Give a person a million or a billion, and he will want yet another million or billion. Ask Jeff Bezos, Elon Musk, Mark Zuckerberg, or Warren Buffet. They all still work — for money.

The one thing that affects the demand for money is the reward for owning money, i.e. interest rates, and that effect is modest. So, though interest rates today are quite low, the demand for dollars remains high.

As I have demonstrated in previous posts, inflations have not been caused by federal deficits. Nor have hyperinflations. All have been caused by shortages.

Inflations are caused by shortages, not by money supply.

If deficit spending (red line) caused inflations (blue line) you would expect to see the two lines reasonably parallel. But there seems to be no relationship between the lines. Cuts in deficit spending lead to recessions (gray bars).

The shortages that most likely to lead to inflations involve food, energy, and personnel.

 Consumer prices surge again, rising 5% over the past year
By Martin Crutsinger Associated Press
WASHINGTON — American consumers absorbed another surge in prices in May — a 0.6% increase over April and 5% over the past year, the biggest 12-month inflation spike since 2008.

The May rise in consumer prices that the Labor Department reported Thursday reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy.

The increased consumer appetite is bumping up against a shortage of components, from lumber and steel to chemicals and semiconductors, that supply such key products as autos and computer equipment, all of which has forced up prices.

And as consumers increasingly venture away from home, demandhas spread from manufactured goods to services — airline fares, for example, along with restaurant meals and hotel prices — raising inflation in those areas, too.

Among specific items in May, prices for used vehicles, which had surged by a record 10% in April, shot up an additional 7.3% and accounted for one-third of May’s overall price jump. The price of new cars, too, rose 1.6% — the largest one-month increase since 2009.

The jump in new and used vehicle prices reflects supply chain problems that have caused a shortage of semiconductors.

The lack of computer chips has limited production of new cars, which, in turn, has reduced the supply of used cars. As demand for vehicles has risen, prices have followed.

But higher prices were evident in a wide variety of categories in May, including household furnishings, which rose 0.9%, driven by a record jump in the price of floor coverings. Airline fares rose 7% after having increased 10.2% in April. Food prices rose 0.4%, with beef prices jumping 2.3%. Energy costs, though unchanged in May, are still up 56.2% in the past year.

The problem isn’t excessive money. Furnishings, floor coverings, airline tickets, beef, and oil prices all reflect the lack of production or availability, which in turn reflects the lack of demand during COVID-19.

Only now, is supply beginning to grow to meet demand.

From the cereal maker General Mills to Chipotle Mexican Grill to the paint maker Sherwin-Williams, a range of companies have been raising prices or plan to do so, in some cases to make up for higher wages they’re now paying to keep or attract workers.

The GOP’s solution to the shortage of workers is to stop paying unemployment compensation.

For the benefit of the rich, the GOP wishes to starve the people until they are forced to return to low wages and poor working conditions.

That “solution” is a disgusting, medieval approach when a modern solution is available.

The solution is not for the federal government to pay the unemployed instead of salaries, but rather for the government to pay everyone in addition to salaries.

Don’t compensate people for staying home. Compensate people for being people. Institute Social Security for all.

That way, there would be no temptation to stay home (when salaries are lower than the unemployment pay), and the public would be enriched, which means the entire economy would be enriched.

This week, for example, Chipotle Mexican Grill announced it was boosting menu prices by roughly 4% to cover the cost of raising its workers’ wages. In May, Chipotle had said that it would raise wages for its restaurant workers to reach an average of $15 an hour by the end of June.

Andrew Hunter, a senior U.S. economist at Capital Economics, noted that the price category that covers restaurant meals jumped 0.6% last month. He took that as evidence that labor shortages at restaurants, hotels and other service sector companies are beginning to fuel wage and price increases.

The best cure for inflation, i.e. the best cure for shortages, is for the federal government to spend more either to obtain and distribute the scarce goods or to encourage the production of the scarce goods.

Rather than paying people to be unemployed, let employment serve as the marginal reward for labor.

And finally, the purpose of federal taxes is not to supply money to the federal government, which already has the unlimited ability to create money.

The purpose of federal taxes is to discourage what the government doesn’t want by taxing it, and to encourage what the government does want by giving tax breaks.

So why does the federal government tax businesses? To discourage the profits that pay salaries? It makes no sense.

Rather than discouraging business profits by taxing, encourage business profits and salaries by eliminating business taxes.

Punishing the poor to send them back to work, is a solution only in the eyes of the rich and the GOP.

SUMMARY

  1. Federal deficit spending does not cause inflations. Shortages of goods and services cause inflations.
  2. Cuts in federal deficit spending lead to recessions and depressions.
  3. A Monetarily Sovereign federal government can prevent/cure inflations by more spending to cure shortages
  4. Paying people not to work (unemployment compensation) should be eliminated in favor of Social Security for All.
  5. The purpose of federal taxes is not to provide the government with spending money, but rather to discourage what the federal government wishes to limit.
  6. Federal taxes on businesses should be eliminated

Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

 

 

3 thoughts on “INFLATION! No, no, it isn’t the stimulus.

  1. Very well-said, Rodger! Indeed, UBI or Social Security for all, with no strings attached, instead of unemployment benefits, would eliminate the perverse incentive of unemployment benefits, as there is no longer any *marginal* disincentive to work (i.e. no loss of money upon returning to work, only gain). You really hit the nail right on the head!

    And now that the economy is improving, the FED can perhaps very gingerly raise interest rates as well from the current rock-bottom level of zero, where it has been parked since March 15, 2020. For example, they could mmediately raise the Fed Funds Rate to 0.5%, then to 0.75% or 1.0% a week or two later, then wait and see, then perhaps raise by 0.25% every week or month or so until the interest rate exceeds the inflation rate, and/or the inflation rate drops. If inflation really heats up, then raise it even faster, and so on. Then drop it again when inflation drops. Problem solved.

    Like

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