Inflation is defined as a significant increase in the price of most goods and services in an economy over a short period of time. No controversy. Or, is there? And, … since inflation is likely but an effect, a symptom; the real question might should be, “What are the causes of inflation?” It is always better to address the cause rather than the symptom, is it not?
Sometimes, in hard times when there isn’t enough money to go around, in an effort to give the public the wherewithal to buy the necessities, a country’s government will attempt to offset a bad economy, perhaps even kick-start that economy, by ‘printing’ money. Invariably, it takes more of this so-called printed money to pay for the same amounts of goods and services; ergo, their prices increase significantly over a short period of time – voila, inflation. So, was the cause of the inflation the ‘printed’ money? Or, was it the bad economy? Is this even an example of real inflation?
Is it a more real inflation when a war causes shortages which cause scarcities which causes some prices to increase? During war times, the governments at war enter the market in a big way. This increase in demand pulls a gap between supply and demand — causing the prices of those goods the government is purchasing to increase. Usually, rather quickly the price of all goods and services increases by similar amounts – enter the greed factor. Other those increases directly attributable to scarcities, the rest of the price increases go to profits. In such scenarios, beyond the scarcity’s initial spark, seems most of the cause of the inflation, as defined above, is greed.
The price of everything else going up does raise the question, “Is inflation contagious?” Evidently, governments think so. In times of war, they usually invoke some form of wage & price controls in an effort to keep inflation in check.
We are asked by some to believe that any increase in any form at any time in government spending (Social Security benefits, unemployment benefits, emergency relief funds, etc. for example) can cause inflation; that an increase in government spending, in whatever form, directly or indirectly, increases the purchase of goods and services, i.e., the increased government spending skews the market by increasing demand. ??? — Are these folks implying that demand should always be less than supply?
Government spending is only one way for a government to put more money into an economy. Tax cuts decrease government withdrawals from an economy. Tax cuts and increases in government spending are in many ways the same thing. What difference if the government puts a $Billion into the economy or does not take a $Billion out of the economy? Tax cuts leave taxpayers with more money to spend – put more money into the economy; as does increased government spending. Is government spending vs. tax cuts a distinction without a difference? Not really. It all depends on to whom they are accorded, what conditions apply.
Most of the working poor make too little to benefit from most tax cuts. Even if they get a tax cut/refund, their needs are such that any tax cut/refund they might get would most likely go towards necessities. Implying that demand was artificially low before the cuts because many of them didn’t have the wherewithal to buy the things they needed; that demand was being kept down by their low wages. Plus, given the amounts involved, there seems little likelihood that a tax cut/refund to the working poor would provide meaningful stimulus to an economy.
A tax cut going to the better-paid might well lead to their buying more things that weren’t necessarily necessities. And, might well provide the spark to set off a round of inflation. If well-tailored, such a tax cut might also provide an effective stimulus to a weak or sluggish economy.
We are being asked, most likely by the same some, to believe: That tax cuts for the wealthy inspire them to invest the $Billions saved on taxes into the production of goods and services (supply side economics) which would provide more jobs which put more money in the pockets of consumers which would increase demand to take up the increase in supply, i.e., close the gap between demand and the newly increased supply. That the additional taxes from increased corporate profits and increased individual income taxes from the additional jobs will more than offset the revenue lost from the tax cuts.
A tax cut for the very wealthy can easily be worth $Millions, is tax free income that probably increases their wealth by $Millions. The wealthy got that way by increasing their wealth. If they get a $10Million tax cut and put it into a sock, that’s an increase in their wealth of $10Million. If they invested the $10Million tax cut into a goods and service producing asset and got a 10% return — they still have the net increase in net wealth plus an additional income of $1Million less taxes from the return on investment. For sure, wealth disparity is increased.
The wealthy don’t even need the additional ~$1Million return for necessities. If they do spend it, it will likely go toward such luxury items as additional homes, yachts, etc.; any one of which might be product of another country’s economy. If a government is wont to give tax cuts to the very wealthy, it might be, at a minimum, prudent to impose conditions on those tax cuts. For example: The very wealthy only get a tax cut if they invest in startups, R&D, etc.; things that might stimulate the economy in-country. If they want to invest their tax cuts in hedge funds, student loan debt, offshore investments, luxuries, etc., then – no tax cut.
The current worldwide inflation is entirely attributable to Russia’s invasion of Ukraine. Crude oil and natural gas went up because Russia is a major supplier of crude oil and natural gas. World Crude went up 30%; the price at the pump went up 100%. So, too, natural gas. The price of crude was used as an excuse to gouge consumers. Today, in California, under threat of audit, pump prices are now going down significantly, doing so rapidly.
Both Russia and Ukraine are major world suppliers of grains; between the two, they supply some 40% of the world’s wheat and corn. As to be expected; the price of these two grains and their substitutes have risen significantly following the invasion. The shortages of crude oil, wheat, and corn were the spark set off the current round of inflation; provided an excuse for the profiteers. Today, extra thick rolled oats are $4/lb at Safeway and Target; up from <$2.00/lb before the invasion. Oats spiked up ~25% just after the invasion, are now down 50% from what they were before the invasion. Walmart is still selling extra thick rolled oats for $2/lb. Safeway and Target are price gouging.
Price increases due to scarcity seem legitimate; bring market forces to play. If world crude is up 30%, the price of its products would be expected to go up about 30% of crude’s share of production costs. Beyond that, the suppliers are applying the dictum – whatever the market will bear— are price gouging.
Price increases due to scarcities, relative to the scale of the scarcity are merely much vaunted market forces at play. Beyond that, price increases are price gouging driven by greed. Greed that extends indirectly to all 401k holders, to all shareholders.
Price increases brought on by increased demand or shortages are market forces at play; should be defined as being just that. Inflation should be defined as the price gouging that takes advantage of such perturbations as scarcity, inadequate supply, etc. Inflation thus defined isn’t caused by demand. It is a product of corporate, and shareholder greed.
Lowering demand is a very poor way of addressing price gouging, profiteering, inflation. To address price gouging inflation, the government should go after the profiteering. Profiteering that is at the expense of those who can least afford it, those with little or no income who were struggling to make ends meet before inflation struck. Supply-side economics is but a way of justifying greed, of rationalizing the imposition of a preferred social order, of transferring more wealth to the wealthy.
Market forces can and sometimes seemingly do work wonders. They can also be catastrophically ineffectual. Their effectiveness depends on the application, the situation, the scale of the problem, etc. There are essential necessities, e.g., healthcare, housing, education, etc., that the market is not good at providing. Beyond that, there are times, e.g., scarcities and shortages caused by wartime, economic failures, government failures, crop failures, etc., when the market is incapable of making the needed corrections;. At such times, the government needs to step in with changes to its economic policy – impose wage and price controls, etc.; with provision of the essential necessities.
The currency of a nation is representative of that nation’s wealth which is a function of its economic power, economic stability, political stability, military might, intellectual capital, etc., etc. When a nation’s currency loses value, it is due to the diminishment of one or more of the above. Venezuela isn’t experiencing inflation; it is experiencing a failure of government that led to (caused) the failure of its economy. The distinction is important. Important for making the right decisions, for taking the right corrective actions. Given that all things are possible; addressing the symptoms might work, probably won’t. Better to address the cause.
True/real inflation is caused by the overcharging by suppliers for goods and services. That is overcharging as in price-gouging. This overcharging, profiteering, is what causes real inflation. Real inflation could/should be defined as the overcharging for goods by profiteers.
When price increases are driven by profiteering, best to punish the profiteers. Reducing demand by tightening the money supply is cruel, draconian. Tightening the money supply in order to decrease demand in order to lower inflation is a solution based on ideology rather than on reason; a solution that rewards those who can afford the price increases at the expense of the most vulnerable, those who were struggling before the price increases.