For all you youngsters out there who missed out on the glories of the Carter Administration, Obama has decided to take us down memory lane – from the Washington Post:
Inflation is back, with higher prices for food and fuel hammering American consumers, and this time it really hurts.
It’s not just that prices are rising — it’s that wages aren’t.
Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent…
Other sources I’ve seen indicate we’ve had better than 8% inflation so far this year – but, even nearly 6% is bad enough when your wages are flat or falling. A gigantic squeeze is being put on working Americans – the poor will get by ok on welfare, the rich won’t hardly notice it…the rest of us will feel this and its going to hurt a lot.
Many reasons are given for this state of affairs, but it can really be boiled down to two things:
1. Lack of production in the United States. We don’t create wealth like we used to. As I keep endlessly yammering on about (and will keep doing so until everyone agrees with me, because I’m right about this) we don’t make, mine and grow enough of our own stuff. If we don’t produce more – if, that is, we don’t create ever larger amounts of wealth – then it is impossible to have rising wages.
2. The Federal Reserve has gone on binge after binge of money printing. Here’s your example of what this has done – for all my adult life, the Canadian and Australian dollars have been worth a fraction of the US dollar…now, both are worth more than the US dollar. It isn’t so much that Australia and Canada are doing so much better, but that we’ve obliterated the value of the dollar by making trillions of them without any new wealth to back them up. As dollars decline in value, producers of goods – which, as I’ve noted, ain’t us any more – demand more and more dollars for their goods…and, so, inflation.
And when you combine stagnation with inflation, you get “stagflation”; a word first coined during the Carter Administration as people tried to figure out how we could have what Keynes said was impossible – high inflation and a stagnant economy. All that money printing by the Fed and borrowing by Uncle Sam were supposed to stimulate the economy by inflating the value of things. Guess what? It didn’t work. Just as it has never worked before and never can work…money is a store of value, not a thing of value, itself. There can be only as much money as there is value in an economy…have more money than value, and money will become worth less. This is just common sense – and thus it entirely escapes most economists and all liberals.
The GOP spending plan gets us on the road to resolving the government borrowing as well as encouraging wealth creation – that will allow wealth to be produced and wages to rise. The other part of the equation – Fed money printing – is a bit harder to fix. Really, it depends on Ben Bernanke – who seems convinced that it will actually work and who shows no real sign of ending it for good. While wealth creation will help tame inflation in and of itself, until we get back to sound money, inflation will remain – and will continue to deform economic decisions, leading to less wealth creation than there otherwise would be.
As usual, these days, the cure is to get rid of Obama as well as his Democrats and then reform (or, better, abolish) the Federal Reserve. There is no need, in a sense, to “fix” the economy – all you need do is get out of the way and stop distorting things with government borrowing and money printing. There is, unfortunately, little chance we’ll actually do any of this until Obama is gone…and, so, to work for 2012.
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