It wasn’t long after the inauguration of Joe Biden that we began to hear about inflation. Not only were we hearing about the inflated promises or ‘political inflation’ that so often accompanies an incoming administration, but we were also beginning to see the signs associated with economic inflation. Of course, political inflation is something we are very accustomed to managing. Why, this is the vitriol of virtually all political regimes who somehow believe that inflating their plans and then falling woefully short is somehow going to engender great approval and love of government. By contrast, economic inflation is something most of us less than 60 years of age have little experience dealing with since it has been literally over 40 years since inflation has been a significant economic problem.
Economic inflation is a normal part of business and life and is a reality that has existed since mankind began bartering as a means of exchanging goods and services. For example, a poor year in goat reproduction, given the same level of demand will ultimately result in an increase in the number of trinkets required to purchase a goat. By contrast, an oversupply of any good or service given the same level of demand will result in the cost to acquire such good or service to decline. And such is economics.
Today’s economics are certainly much more complex and interconnected, however the basic laws of supply and demand still apply. Beyond these universal laws, today we have government and other institutions with their fingers in the mix in essence interfering with the free market in an attempt to manage market activities and outcomes. This meddling has often had catastrophic results and history is replete with examples where government and non-government institutional action has actually exacerbated the challenges associated with tough economic times or as is the case today – caused them!
Let’s go back to the Biden Administration. When Joe Biden entered office, inflation was stable at around 1.4%. However, in less than two years, we saw this number move as high as nearly 9%. And for those of us who actually go to the grocery store, we recognize that 9% is what the government reports; the reality was more like 20+ percent! As recently as February 3rd, the Washington Examiner reported that Joe Biden takes no blame for today’s inflation. Typical politician! Critical in this discussion is the pervasiveness of today’s inflation. When tied directly to the free market, inflation is generally confined to select market sectors. It’s just not that often that all sectors of an economy, including goats, find themselves in limited supply or the value of a trinket collapses. However, because the overwhelming majority of today’s economy is highly influenced by energy; drive the price of energy up and you have the makings of what I call ‘Political Inflation’.
I call our current inflation ‘Political Inflation’ because the inflationary pressures we see across the entire economy are not largely being driven by natural market forces. They are deliberately being caused by our politicians through their reckless actions.
As evidence, look at the actions that the Biden Administration took upon entering office. Within the first 30 days of his presidency, Joe Biden launched a war against fossil fuel-based energy (the lifeblood of today’s economy); a war that continues to rage today. With the dramatic increase in energy prices, virtually all other goods and services were impacted for the simple reason that every product requires energy to be manufactured and energy to be transported to market. When traditional sources of energy are strangled, as has been the case, the basic laws of economics kick in and dictate that prices have nowhere to go but up.
Layer on top of this the unrestrained deficit spending of our Federal government which has the effect of de-valuing existing money in circulation and you have a formula for the current economic mess we find ourselves in today.
To be certain, while the Biden Administration deserves much of the blame for our current economic woes, they could not have pulled this off without the assistance of spend happy Republicans, particularly those in the Senate. The fact is that the U.S. Congress has been spending well beyond annual tax receipts for decades (see my recent blog next month on the Debt Ceiling). In doing so, they have consistently and irresponsibly increased America’s debt, placing this financial burden on America’s future generations who are now in debt to the tune of $93,000 per individual and counting! Is it any wonder we now have both high and persistent inflation?
While the Federal Reserve continues to raise interest rates (one of their only tools to fight inflation) in an effort to tighten the money supply and thereby bring a higher value to existing dollars in circulation, our politicians in both parties continue to spend beyond our means, call for taking on even more debt, and continue to keep their boot firmly planted on the neck of energy.
As easy as it might seem to chalk this up to our politicians being stupid, the reality is more sinister. Our politicians are not stupid, in fact, they are some of the most highly educated people in our nation. So why would they continue to engage in actions that are knowingly causing pain for tens of millions of American families and businesses across the country? I’ll let you draw your own conclusions.
Regardless of your view on the motivation of our politicians, what is beyond dispute is that the inflationary challenges we are facing are likely NOT transitory as we were originally told. In fact, I would argue that unless some serious changes are made to dramatically cut government spending and to lessen the choke hold on energy, Political Inflation will become persistent. In addition, with the recent failure of Silicon Valley Bank it is now questionable whether the Federal Reserve will continue its actions to raise interest rates for fear of additional bank failures. If the Fed halts interest rate action, we all better get used to crippling inflation.
And what are the ramifications of persistent inflation? Take a look at the list below courtesy of spend happy Republicans, Democrats and the Biden Adminstration. Maybe it’s time to tell our elected officials to walk in our shoes for a while. Maybe then we can bring an end to Political Inflation.
Key Economic Indicators Since Joe Biden Took Office
· Highest inflation in 40+ years
· Highest interest rates in nearly 15 years
· Energy Prices skyrocket due to Biden energy policy
· Huge increase in Food Prices since Biden takes office
· Huge decline in retirement savings
· Highest level of household credit card debt in U.S. history
· Highest credit card interest rates in U.S. history
· Real Wage Growth or should we say decline (23 straight months and counting)
· Over 60% of U.S. families living paycheck to paycheck
· Consumer confidence at its lowest levels in over 25 years
. Silicon Valley Bank Fails
How do you combat Political Inflation? Check out my related blog (Combating Political Inflation) for some suggestions.
Tired of the Washington establishment? If so, in addition to voting incumbent politicians out of office there is a way to lessen the damage being caused by lifetime politicians. It’s called the Article V Convention of States and it’s a movement of citizens of all political parties who are tired of the status quo. Article V of the Constitution provides a mechanism for the States to call for a Constitutional Convention to amend the Constitution. How do amendments for Congressional Term Limits and a Balanced Budget sound? If they sound good to you click here to sign the Article V Convention of States petition and begin putting pressure on your State legislators to call for a Convention.
May God Bless America!
Next Up: The Debt Ceiling