“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”
Sam Ewing
Recently I had to mail a letter. After waiting in line at my local post office and then stumbling to the front counter to purchase postage, my first-class stamp cost me 73 cents! I was shocked. I don’t often have to mail letters, but it seems like the last time I did, cost was not much more than two quarters. Chalk it up to dreaded inflation.
Not long ago, I needed some tomato plants. Three healthy tomato plants purchased from our local Home Depot cost me $25! I was dumbstruck. Every trip now to the grocery store ends in a gut punch at the register. Prices are 30%, even 40% higher than they were not long ago.
Pondering inflation prompted a recent visit to McDonald’s for research. I’m not a big fan of McDonald’s. I do love a good hamburger but am much more of an In-N-Out guy (In-N-Out -best burger chain on planet Earth). At McDonald’s my Big Mac meal cost me a few pennies under $12. Some quick online review revealed the average cost of a Big Mac meal just four years ago was $7.89. My rudimentary math skills tell me this is over a 40% increase. What the heck is going on? The simple answer is inflation. Or, I should say, stupid politicians who bring us inflation.
You might be asking, what causes inflation? It’s pretty simple actually. The great economist Milton Friedman perhaps said it best, “inflation is always and everywhere a monetary phenomenon.”
The primary cause of inflation is an increase in the money supply which results in the value of your dollar decreasing over time. Too many dollars chasing too few goods reduces the purchasing power of your money. If there is more demand than supply, prices rise.
We should go a bit deeper here though. There are actually two types of inflation. The first is non-monetary inflation. This is the result of external events. For example, if you have a hurricane in the Gulf that interrupts fuel production, reducing gas supplies for a time, prices at the pump will rise. Usually, non-monetary inflation is temporary. There are exceptions, however. The current war on fossil fuels (in its various forms) has increased the price of gas and diesel in this country. Because fuel prices affect the cost of everything we buy, fostering increased oil production could quickly bring some prices down. The increased cost of gas in recent years has simply added fuel to the fire of inflation.
The second, and primary, type of inflation is monetary inflation where your dollar loses its value when government policies increase the money supply. The money supply is increased to fund necessary, and often unnecessary, programs instituted by the talking head politicians.
Thanks to Richard Nixon, in 1971 the U.S. ditched the gold standard. Until then, every dollar was represented by physical gold held by the government. With the government tethered to the gold supply, there was a limited ability to increase the money supply. Once we discarded the gold standard, the government could increase the money supply as much as they wanted. Lacking a physical commodity to back our currency, we now have fiat money. With the ability to print money at will, the tendency is for our comb-over politicians to push high spending policies. One little known factor that is feeding this unbridled government spending is a popular concept known as Modern Monetary Theory (MMT).
MMT is increasingly evident within the bowels of our government. Adherents to MMT argue that countries that issue their own currency can never run out of money. Money is printed as needed, without regard to the money supply or inflation. This policy model is evidence of economic illiteracy, and I would argue, should be discarded completely.
Inflation has been a problem throughout history. Inflation contributed mightily to the downfall of Rome. During the American Revolution, the Continental Dollar was so over printed that the new country collapsed into hyperinflation. America was only saved when Alexander Hamilton, our first Treasury Secretary, linked the U.S. Dollar to gold. In the 1920s rampant money printing by the Weimar Republic in Germany caused hyperinflation, economic collapse, and ushered in the rise of Adolph Hitler and the Nazi party. Once prosperous Argentina has never recovered from the wild money printing that took place in the 1950s. Today the country of Zimbabwe, struggling under the weight of massive hyperinflation, issues a 100 trillion-dollar bill.
Inflation is dangerous and is usually the source of societal collapse. Maybe we need to go back to the gold standard.
© 2024 Jody Dyer
typewriterweekly.com
