It has been several decades since Americans dealt with the specter of inflation. However, according to several economic benchmarks and commonsense, inflation is oozing into the American economy like poison ivy into an open wound.
The last time the U.S. economy was overrun with inflation occurred during the dark days of the late 1970s. For example, in December 1979, as disco music rocked the nation, the annual inflation rate reached a staggering 13.3 percent.
As Treasury Secretary Janet Yellen recently said during a House of Representatives hearing, “I came of age and studied economics in the 1970s and I remember what that terrible period was like … No one wants to see that happen again.” I doubt Yellen was referring to disco.
While no American surely wants to experience the degradation of inflation, the bad news is it is already occurring, albeit not as bad as it was in the 1970s — at least not yet.
According to the Bureau of Labor Statistics, “The Consumer Price Index for All Urban Consumers increased 5.0 percent from May 2020 to May 2021. Prices for food advanced 2.2 percent, while prices for energy increased 28.5 percent. Prices for all items less food and energy rose 3.8 percent for the year ended May 2021, the largest 12-month increase since the year ended June 1992.”
Although we are not currently suffering under 1970s levels of inflation, we are definitely on a dangerous trajectory.
At this point, many Americans are rightfully wondering if there is anything the federal government can do to arrest the rise of inflation. The answer is obvious: Yes.
The most impactful thing the federal government could do that would stop inflation in its tracks would be to stop printing/borrowing trillions of dollars.
According to the law of supply and demand, when the federal government floods the economy with trillions of new dollars, the value of each and every dollar decreases.
Moreover, when this phenomenon occurs in the aftermath of an unprecedented nationwide economic shutdown, you get the worst-case scenario of more dollars chasing fewer goods and services. This typically produces a vicious inflationary spiral, wherein price, wage, and cost increases build on each other.
Unfortunately, this simple concept seems to not resonate with many of our so-called leaders, who are willing to mortgage our future (and present) in their misguided attempt to “reimagine” the American economy and society.
For instance, Sen. Bernie Sanders, chairman of the Senate Budget Committee, has proposed a mind-boggling $6 trillion spending bonanza to “address the crisis facing working families, to rebuild our crumbling infrastructure, to deal with climate change, to deal with the needs of children and parents to deal with the affordable housing crisis.”
Keep in mind, Sanders’ $6 trillion budget blowout comes only months after the federal government showered the economy with $4.5 trillion in new spending in response to the COVID-19 pandemic.
The profligate spending on behalf of both political parties is the problem. However, in recent months, the Democratic Party has taken this to a whole new level.
Since taking office a little more than six months ago, the Biden administration has unleashed a plethora of spending plans that make the George W. Bush and Trump administrations appear somewhat fiscally responsible.
To date, President Joe Biden has already signed the $1.9 trillion American Rescue Plan. And his administration is doing all it can to ensure his $1.8 trillion American Families Plan as well as his $2.7 trillion American Jobs Plan pass Congress before the end of summer.
If Biden is successful, and his trifecta becomes law, it is all but assured inflation will rise faster than Richard Branson’s Virgin Galactic spacecraft.
Yet, unlike Branson’s recent foray into outer space, this bumpy ride will last far longer. And the effects will be much more painful, without the adrenaline rush or out-of-this-world view.
In 1919, John Maynard Keynes, not a fiscal conservative by any stretch of the imagination, wrote, “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”
In other words, big government benefits from big inflation. And it is we the people who pay the price—literally.
Chris Talgo is an editor at The Heartland Institute. He wrote this for InsideSources.com.