Connecting the Dots About Inflation 2022
You’ve probably noticed by now that prices for many consumer goods have gone up significantly (if they are available at all). The Labor Department recently reported that the producer price index for wholesalers increased by 9.7% in 2021. Major news outlets report inflation at its highest level in 40 years.
So, what’s going on? Pundits variously attribute the inflationary upsurge to a range of factors: supply-chain issues, corporate greed, minimum wage increases, Covid-related factors, uncooperative workforce and the like.
While these all likely have some bearing, there is a simple factor being largely overlooked — probably due to our national commitment to status quo capitalism. Or more specifically, to an ethic bluntly summarized years ago by former president Ronald Reagan: “Most of all, I think of America as a place where someone can always get rich.”
Alongside the alarming headlines about inflation, there have been multiple reports of the staggering levels of wealth increase for the billionaire class during the pandemic (70% as of October 2021, according to Forbes data).
Are there any dots to connect here? Following is an attempt to show how the needlessly excessive accumulation of individual and corporate wealth directly leads to inflationary pressure.
The Nature of Today’s Money
Complex a topic as economics and monetary policy can be, the problem and its solution can be summarized in a few paragraphs: Go back to the Economics 101 definition of inflation: “Too many dollars, chasing too few goods and services.”
If the need for goods and services has not declined (in fact, in an ever-growing economy, it will always increase) the critical question is then why there are “too many dollars” — and how does that become a problem?
Today, we have a debt-based currency system that depends upon monetary cycles. New money enters the economy through government spending and loans through the banking system. This money fuels the economy, but then has to exit the system so the next round of financing can happen.
This is important enough to restate: government spending is how money gets into the economy in the first place. Accordingly, a high level of federal debt is not the horror that many claim, but simply indicates high levels of economic activity (something we want). The critical issue however, is what the money is being used for. Does it benefit the country at large or is it simply enriching a relative few?
At the bottom of the cycle, the outstanding “old” debt is supposed to be retired through a combination of loan repayment and taxation. However, as the Middle Class shrinks and real wages stay flat in an expanding economy, tax revenue shrinks and debt repayment is increasingly hampered. At the other end of the spectrum, the uber-wealthy are reluctant to give up even a penny of wealth, so find ever more clever ways to evade taxation.
The result? Like a clogged drain, money builds up in the system and inflation is the result. Over-abundance for the few ironically leads to austerity for the many.
When there is a need to retire debt-money from the system, clearly, the solution is not to burden those struggling to get by with an income tax, but instead go to where most of the money is via a wealth tax — especially instances of extreme, underutilized wealth. Basic morality suggests that those who benefit most from the system ought to pay back in kind to keep it strong.
This is not about “punishing success” — everyone above the poverty line ought to pay into the system on a progressive basis. This simply enables success to be more broadly shared.
And wasn’t that a founding ideal of this country to begin with?