THE CAUSES OF INFLATION
Hint: Biden’s Policies Make it Worse
“Inflation is the result of demand exceeding supply.” – Andrew F. Puzder
Covid upset our economy in so many ways, in part because of the overwhelming response from our government. The mandates and shutdowns shuttered businesses for far too long. People who lost jobs aren’t spending money they don’t have and those of us locked down weren’t spending either. Where could we go? People considering opening a business delayed it or dropped the idea. The government spent money they didn’t have giving out money without proving need. A long-term issue was the loss of years of education as the virtual public school simply didn’t work. How well will the Covid generation do in the work world? Will they be ready?
Economics 101
I never took an Econ class, though I did some reading of Milton Friedman and Thomas Sowell to get a basic understanding. However, when the recent inflation crisis hit, I didn’t know enough to understand all the factors. All I could see was the government spending too much and the Fed creating money which brought down the value of the money I had. Turns out it’s simpler than that, but with a few more factors.
The quote above is a good guideline. Many people found themselves with lots of unspent money as the pandemic waned. They also found there wasn’t much to buy. I saw that for myself. During the beginning of the shutdowns, my furnace and my water heater went out. There was still supply, and local workmen anxious to make money when few of us were buying. A year later, it was common to wait at least six months for an appliance and sometimes longer for a serviceman.
People are ready to spend now and get back to things like travel and entertainment. However, the intermittent difficulties in getting the things we want is because global supply chains are still struggling. This pushes prices higher for consumers, but also for the businesses who struggle to get the supplies they need to make what we want to buy.
Many people got used to getting money without working and became more demanding about what a job should give them. Others simply liked not working. Right now, the US has 4.6 MM more job openings than workers. We’ve all seen the signs, “Please be nice to those who showed up today to work.” Services and products remain in short supply because there aren’t enough people to provide them.
The Fed has “boosted” the economy with around $5TT which also pushes the prices up as it trickles into the system.
What Should Have Been Done
As the deaths due to the pandemic wound down, the government should have stopped sending out checks and incenting people not to work. Those who had not returned should no longer have been allowed to stay in rentals, damaging the economic futures of their landlords. Vaccines should have stopped being subsidized as their effectiveness waned. All government mandates should have ended (and most should never have been implemented in any event). We needed to boost supply (not dollars) to meet the increasing demand and this meant increasing the production of the “stuff” businesses needed as input to their products.
What Biden Did Instead
To start, I have to say that even Trump kept funneling money to people with no regard for their actual state of need. But Biden doubled down on this bad policy, far later in the game.
The two biggest factors are energy and labor. Companies need energy to run, as well as using petroleum products as input to their products. The products need to be delivered, which also requires energy. The higher the price of energy, the more everything will cost. You can’t provide products or services without labor. How much you have to pay for workers will also affect the price of everything. This is the definition of inflation.
Biden came into office, immediately dumping all projects that would have increased our energy supply. His big focus appears to be converting everything to requiring electricity, apparently unaware that electricity has to come from somewhere. All those non-polluting cars already did their polluting when they charged. We tend to forget this. He pissed off Saudi Arabia who continue to increase prices and reduce production (they tell OPEC what to do). Under Trump, we became a major oil and gas exporter; under Biden, we’re begging everyone for our power.
As mentioned before, we have too few workers to get our supply levels to where they need to be. This causes increases in wages, which sounds good, until you do the math. If someone gets $1 more in wages per hour, but prices go up faster, that employee ends up poorer. You can’t really catch up. Businesses have to pay workers, but they also have to pay for their infrastructure, inputs and transportation. So, when you get more money in a tight economy, you actually have less spending power. Minimum wage laws make this worse for everyone. (See the chart below)
As businesses struggle with both problems, they begin to shrink, which means laying off workers and shutting factories. That extra in your paycheck is now completely gone. Under Trump, people got more pay because companies competed for them. Now, we’re watching companies try to compete against government benefit programs. Not a fair fight. Despite what the Left says, you don’t have a right not to work. No one owes you a living. All those who can work should work.
Why Is Biden Doing This?
It’s odd that people vote for candidates who promise big changes/transformation, when normally those concepts terrify most of us. Biden’s goal is actually transforming us into a socialist country, where the vast majority of us will have the low standard of living common in Communist Russia, while the elite (Joe and Hunter) get very wealthy. All those governing us assume they will continue to enjoy their very capitalistic way of life and they don’t really care what happens to the rest of us.
We need to get rid of as many Democrats as possible. And even the moderates understand this, as some are beginning to change parties.
“If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.” – Milton Friedman
Well said