• Tag Archives inflation

  • Inflation Will Cost the Average Household an Astounding Amount in 2021, Ivy League Analysis Finds

    Posted on by Azrael Comment

    The most widely-used metrics of consumer price inflation are hitting their highest levels in decades, with the Consumer Price Index rising 6.8 percent just from November 2020 to November 2021. These severe price hikes sound abstract—but a new Ivy League analysis shows how the ongoing rise in prices will hurt average households.

    The Wharton School of Business at the University of Pennsylvania ran the numbers to analyze what American households will have to spend in 2021 to maintain the same living standard from 2020 or 2019. Their analysis reports that “inflation in 2021 will require the average U.S. household to spend around $3,500 more in 2021 to achieve the same level of consumption of goods and services as in recent previous years.”

    That’s right: Thanks to the ongoing price inflation, families basically just got $3,500 poorer. The Wharton analysis also notes that lower-income households will be hit even harder by these price increases than higher-earning families, because lower-income families tend to spend relatively more of their money on particular goods that have seen the heaviest price hikes.

    As families across the country are realizing, inflation is not just some abstract economic phenomenon. It hurts the finances of struggling Americans and makes it harder for families to put food on the table. But there’s another element of this that the public needs to remember: Today’s inflation is ultimately rooted in government policy choices.

    Chiefly to blame is the Federal Reserve’s decision to engage in unprecedented digital money-printing to “stimulate” the economy during the COVID-19 recession. As FEE economist Peter Jacobsen has explained, “If more dollars chase the exact same goods, prices will rise.”

    This graph shows just how drastic the money-printing binge was:

    The increase in prices that stems from increasing the supply of money, as discussed above, is how free-market economists define inflation. But the broader increase in consumer prices captured by the Consumer Price Index also includes price increases influenced by other causes. 

    For example, during the pandemic, different levels of government all enacted restrictions on economic activity. By reducing Americans’ ability to produce goods and provide services, the government decreased supply. This, rather predictably, leads to higher consumer prices when the things people want become harder to come by. 

    This isn’t technically “inflation,” but it influences consumer prices and hits Americans in the wallet nonetheless. Regardless, at the end of the day, most of the price increases hurting families right now ultimately trace back to government policy choices in one form or another. 

    So, the $3,500 cost being imposed on average American families is not just an unlucky occurrence. It is effectively a “stealth tax,” a way the government is taking from us to fund its various schemes while making it look like private companies are the cause of the problem. You don’t need to be an Ivy League economist to see why that’s such an outrage. 


    Brad Polumbo

    Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.


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  • St. Paul Just Implemented the Nation’s Strictest Rent Control Law. It’s Already Backfiring Tremendously

    Posted on by Azrael Comment

    A Swedish economist once remarked that rent control “appears to be the most efficient technique presently known to destroy a city—except for bombing.” Unfortunately, we may soon see the destructive consequences of laws limiting rent increases running rampant in St. Paul, Minnesota. 

    The city just approved a rent control measure that will limit landlords’ ability to increase rents on its 65,000+ rental properties. They will not be able to increase prices by more than 3 percent each year under the new law. Controversially, the initiative does not account for inflation and applies to new construction, not just existing properties. This makes the St. Paul rent control measure one of the strictest in the US—if not the world.

    Opponents of the measure made all the usual critiques. They pointed out, for example, that a supermajority of economists, 81 percent per one survey, oppose rent control because of its long-run consequences. Yes, some renters save money in the short term by enjoying artificially low rents. But the restricted prices limit future construction and housing supply which ultimately leads to a housing shortage and less affordable housing in the long run.

    In St. Paul, these consequences are already starting to materialize.

    “Less than 24 hours after St. Paul voters approved one of the country’s most stringent rent control policies, Nicolle Goodman’s phone started to ring,” the Star-Tribune reports. “Developers were calling to tell the city’s director of planning and economic development they were placing projects on hold, putting hundreds of new housing units at risk.”

    “We, like everybody else, are re-evaluating what — if any — future business activity we’ll be doing in St. Paul,” major developer Jim Stolpestad told the newspaper.

    Another major developer, Ryan Cos, has already pulled plans for 3 new buildings, according to the Pioneer Press. 

    Critics of the rent control initiative, understandably, feel vindicated. But this is just the beginning. If nothing changes, investment and construction of new housing will continue to collapse thanks to this short-sighted reform.

    There is still hope, though. The new law doesn’t go into effect until May 1, 2022. That means St. Paul still has 5 months to correct its grave mistake.

    Brad Polumbo

    Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.

     


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  • Interview: Rand Paul Explains What’s Really Causing America’s Inflation Woes

    Posted on by Azrael Comment

    Consumer price inflation just hit the highest level in 30 years. Prices rose 6.2 percent from October 2020 to October 2021, according to new government data, prompting a new reckoning with “temporary” inflation that’s proving not so short-lived after all. I interviewed Senator Rand Paul, a libertarian-leaning Republican from Kentucky, to get his perspective on what’s driving our mounting inflation woes. 

    “I think inflation is pretty easy to explain and people need to know what causes inflation,” the senator said. “[The federal government] gets debt, then the Federal Reserve prints up new money to pay for the debt, that new money enters circulation, and that expansion of the money supply [leads to] inflation.”

    Paul argued that this kind of inflation, rooted in government policies, is a “bait-and-switch” form of taxation. 

    “Big government politicians offer you things they say are ‘free’: free childcare, free healthcare, free college, free cell phones, free this, free that—but it’s not really free,” he said. “Either someone else is going to pay for it through higher taxes, or they’re going to pay for it through borrowing and ultimately inflation. And it really is a bait and switch because often the same people that are being offered free stuff are also the ones who suffer most through the regressive tax that is inflation.”

    “We have to explain to people the second order of thinking that goes to understanding that it’s not free,” he concluded.

    But what, specifically, is driving the current inflation surge?

    “Really the inflation we have this year is probably a responsibility of both parties,” Paul said, referencing the trillions in deficit-financed spending Congress has passed since the COVID-19 pandemic began. “You know, both parties other than myself and a few others were for all the spending of last year. So we borrowed $3-4 trillion last year, and we’re set to borrow at least that much or more this year.” 

    “I think you may see inflation of 10% or 12% next year,” the senator cautioned. “Now they’re all saying the opposite. The Federal Reserve is saying it’s transitory, but I think the 6% that we’ve got now is based on last year’s borrowing. And I think there’s going to be significantly more borrowing this year. We’ve already spent an extra $2 trillion on a COVID bailout bill, which really didn’t have much to do with COVID, but it was more just a bailout bill, [and now] another trillion on infrastructure.”

    But it’s not just Congress, the senator explained, as the Federal Reserve itself shares a large portion of the blame. 

    “There’s joint blame: Congress is initially to blame for spending money it doesn’t have and then the Federal Reserve says, oh, it’s just our job to paper over this,” Paul said. “It’s our job to buy up that debt and as they do, they create the increased money supply. So really both Congress and the Fed are to blame and they go hand in hand.”

    “If we ran a balanced budget, we wouldn’t necessarily need a Federal Reserve,” he continued. “Basically we have a Federal Reserve to pay for all that debt.”

    Paul warned that if inflation continues unchecked, we could see a “loss of confidence” in US currency and “people fleeing the dollar.” The senator stressed that with the advent of cryptocurrency, people have more alternatives—taking away protection the dollar may have enjoyed in the past.  

    I asked Senator Paul about President Biden’s argument that in order to combat inflation, the federal government actually needs to spend trillions more on his “Build Back Better” climate change and welfare agenda. 

    “President Biden has no idea what causes inflation,” he responded. “I mean, someone should ask him that question. How does [the government] spending more money reduce inflation? How does borrowing more money reduce inflation? That’s some mental gymnastics. It’s hard for me to comprehend.”

    I offered the president’s counterargument, bolstered by liberal-leaning economists, that his bill would hugely increase productivity and thus lower inflation pressures over time.

    “I think productivity comes from ingenuity and market efficiencies, but I don’t think in any way, productivity is increased by government spending,” Paul countered. “In fact, you could probably argue the opposite.” 

    “If you had a million dollars and you wanted to let your representatives decide how to spend it, or a bunch of venture capitalists who look at profit and loss and look at markets and make estimates, neither are perfect,” he continued. “It’s all our guesses about the future. But my thinking is that when it comes to the government, it’s politicized. Whereas the investors will only look at profit and loss because their job is narrowly focused towards trying to invest in things that make money.”

    “The marketplace is always wiser and smarter than the government,” Paul concluded. “[Remember] what Milton Friedman used to say… that nobody spends somebody else’s money as wisely as their own. And that truism will always mean that the government lacks efficiency and lacks really the drive to make the best decisions for investing. So I would say productivity and the productivity of capital… always has to be less with the government.”

    So, the senator warned that if President Biden’s multi-trillion-dollar spending agenda was passed by Congress, it would only worsen, not help, our inflation problems. But Paul noted that this may not happen, because even some moderate Democrats like Senator Joe Manchin are acknowledging the reality of inflation and putting the president’s ambitions on pause. 

    Only time will tell. But if the federal government fails to rein in its reckless fiscal and monetary policies, we may well see inflation get even more out of control. And nobody will be able to say they weren’t warned.


    Brad Polumbo

    Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.


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