Social justice inflation — Is that the plan?

(A 2021 reprint that shows "I told ya so!")

(Note: This is an older article, reprinted here because it is even more relevant that in 2021. But also, when people “forecast” the future — whether meteorologists, fortune-tellers, stockbrokers, or lawyers drafting contracts, the proof is in the pudding: were they accurate? I have warned for years about Vermont’s unsustainable pensions, healthcare system, and tax structures, yet those who ignore math and facts press on with their ideological fantasies in derogation and destruction of the very programs they bloat in the name of “social justice.” I republish this article here because hindsight now proves I and other economists have been correct — Biden’s so-called “inflation reduction” policies have thrown fuel on the fire of inflation, just as Vermont’s progressive supermajority has aggravated the economic situation in the Green Mountains by ignoring common sense and basic economics, not at their own peril but of the citizenry they have utterly failed to serve. Inflation will get far worse, and we must recall who got us here in order to understand which moronic policies must be reversed to cure these ills.)

Social justice inflation — Is that the plan?

Most Americans are aware that inflation is on the rise, and not just at the gas pumps. This is unsurprising given the flood of money being printed as so-called “COVID relief.” The impact on the economy is evident — workers are staying home, businesses are struggling, even as consumer spending climbs fueled by citizens flush with COVID cash. The future impact on the American economy is uncertain — or is it? Increasingly this irresponsible money-dumping appears to be a deliberate effort to transfer wealth and expand government power, consistent with the Social Justice ideology embraced by extremist Joe Biden.

It is axiomatic that increasing the money supply is the root of inflation. There are three ways this is fueled:

Demand-pull inflation occurs when an increase in the supply of money and credit stimulates overall demand for goods and services in an economy to increase more rapidly than the economy’s production capacity. This increases demand and leads to price rises…. Cost-push inflation is a result of the increase in prices working through the production process inputs… Built-in Inflation [is when] workers and others come to expect that they will continue to rise in the future at a similar rate and demand more costs or wages to maintain their standard of living.

Americans should be alarmed that all three are now impacting the economy. Also, there is a huge divergence between “core” inflation and consumer goods (including gasoline and wages, which in turn nurture cost-push inflation in the costs of goods, creating a dangerous cycle). This divergence is itself a warning sign, as inflation …

drives up some prices first and later drives up other prices. This sequential change in purchasing power and prices (known as the Cantillon effect) means that the process of inflation not only increases the general price level over time, but it also distorts relative prices, wages, and rates of return along the way. Economists, in general, understand that distortions of relative prices away from their economic equilibrium are not good for the economy, and Austrian economists even believe this process to be a major driver of cycles of recession in the economy.

Inflation is quite high at present, but the Federal Reserve states that it is unconcerned. Though this year’s inflation is the largest jump since August 2008,

Chairman Jerome Powell and other officials acknowledge the recent acceleration in prices but believe that the inflation is “transitory” and that prices won’t continue to increase at their current pace for too long.

But consumers have a different perspective:

But consumers—who actually drive inflation—seemed unfazed, apparently already operating with the understanding that prices were rising fast, and would continue to do so. Homeowners remodeling their homes during the pandemic were aware of historically high lumber prices. Home cooks felt the impact on food prices. Buyers of both new and used cars saw prices surge due to a shortage of computer chips.… This diversion in inflation views between policy makers and consumers is notable and runs deep, says Chicago Booth’s Michael Weber. Central banks and shoppers are living, to some extent, in different worlds—focusing on different things, and forming expectations on the basis of those.

This is a volatile difference, given that the purpose of the Fed is to influence markets (consumers) to preventinflation. The Fed has employed as rationale that there is a divergence between expected and actual inflation, yet that is no longer the case. Indeed, the Fed forecast in April that Personal Economic Expenditures (PCE) “would be 2.4% for 2021, [and] decrease to 2.1% by 2023”:

Different agencies’ predictions differ, but most put US CPI inflation within the range of 1.6% to 2.8% in 2021 and around 2% in 2022.

This forecast has already proved wrong, but this has not budged the Fed out of the “transitory inflation” camp. Some economists forecast higher inflation is here to stay; others say long-term inflation is a mirage. The future will reveal whether this is a short-term burden, or a launch off a fiscal cliff (as I have elsewhere argued). But if it proves to be a cliff-jump, one must query whether that was deliberate.

The Biden administration has distributed “an unprecedented amount of money” to states. Republicans have denounced this as profligate since COVID was waning, but Democrats persisted:

Democrats have called the bill necessary to sustain the economic recovery [and] mitigate the pain caused by a year of economic restrictions. More than 20 million people are still receiving some form of unemployment benefits, and millions of households are struggling to afford food and housing…. Democrats also pointed to the bill’s potential to slash child poverty.

There it is right there — the social justice justification to destroy the nation. Why merely staunch COVID when government can solve other problems with printing presses on the way? Any “slash” to child poverty will be short-lived, followed by those children being burdened by greater debt than any in human history. Money does not solve problems, human capital does.

Economist Thomas Sowell explains:

Missing in most “social justice” arguments for a redistribution of wealth is the question of the extent to which such a redistribution is even possible, in any comprehensive, long-term sense. Certainly there have been many examples of times and places where money or other physical wealth has been confiscated by governments or looted by mobs. But physical wealth is a product of human capital — the knowledge, skills, talents, and other qualities that exist inside the heads of people — where it cannot be confiscated. Confiscating physical wealth for the purpose of redistribution is confiscating something that will be used up over time, and cannot be replaced without the human capital that created it. (Discrimination and Disparities, p. 216).

Social Justice Ideology collides with math, economics, and history — but that doesn’t stop utopian fantasists from setting out to destroy us all. As Ryszard Legutko relates in his book “The Demon in Democracy” (p. 49):

Economic liberals could not get over the popularity of socialism, which they considered a completely irrational idea, but for reasons with which they were never satisfied managed to touch the hearts and minds of millions of people throughout the world. This tremendous success of their main enemy made them critically reassess the previous methods by which the free marketers wanted to win popular support…. And so they concluded: if the free market is presented not in a timid, apologetic, and cowardly way, but in proud openness as an optimal answer to every important problem, if it officially, as it were, entered into an ideological race with socialism as a superior all-encompassing formula, it must and would win. Once the economic liberals drew this conclusion, they deliberately and consciously started using the term “utopia” for what they were advocating. After all, what can be more attractive than a utopia that works? And work it must — they said. Some liberals could not even conceal their bewilderment that such a fantastic project as theirs, giving everyone, literally everyone, the freedom to pursue their own desires, had not yet caught human imagination strongly enough….

When the COVID “relief” funds run out, the unemployment problem will abate as workers are no longer rewarded for staying home. But at the same time, they will have less disposable income and consumer spending will decline. This will mean that the Biden Social Justice machine will have to print yet more money, with less economic benefit. The acknowledged expert on inflation is Milton Friedman, who warned strongly in his book “Money Mischief: Episodes in Monetary History”:

Inflation in the range to which we have become accustomed, let alone in the hyperinflationary range, became feasible only after paper money came into wide use. The nominal quantity of paper money can be multiplied indefinitely at negligible cost; it is necessary only to print high numbers on the same pieces of paper…. Whatever its proximate source, inflation is a disease, a dangerous and sometimes fatal disease, a disease that, if left unchecked, can destroy a society…. No government willingly accepts the responsibility for producing inflation even in moderate degree, let alone at hyperinflationary rates. Government officials always find some excuse….Inflation is not a capitalist phenomenon. The recognition that substantial inflation is always and everywhere a monetary phenomenon is only the beginning of an understanding of the cause and cure of inflation. The more basic questions are: Why do governments increase the quantity of money too rapidly? Why do they produce inflation when they understand its potential for harm? (pp. 190-193).

Americans can see the political ideology in their midst that explains “why” the Biden administration would deliberately increase money supply rapidly. Americans are being set up for economic implosion:

So, did states receive too much money in the Biden rescue plan? The answer is definitely yes, given that state revenues never declined very much, coupled with the federal government’s assistance in offsetting the spike in Medicaid, and the fact that the current recovery will be robust in terms of state revenues all support this conclusion….. Once the federal money is all spent, many states may be looking at a serious budget problem: not enough money to support the spending levels they’ve assumed in their fiscal year 2022 budgets. That will likely happen when the economy slows and actual revenues fall short of the levels assumed in their budgets.

Many Americans lack historical awareness either of how high interest rates can climb, or how dangerous inflation truly is. The annual inflation under Donald Trump in 2020 was 1.2%. Those who refer current rates back to 2008 link to a monthly rate: the last year for which inflation was as high as currently was 5.45%, in 1990. The rates under stagflation were 11.3% in 1979; 13.5% in 1980; 10.3% in 1981.

Since toying with quantitative easing in the 2007-8 crisis, the Fed has found it needed to go even further:

In the past decade or so, the Fed has seemed to lose some of its influence in controlling inflation…. Thus, the Fed has embraced what watchers call unconventional monetary policy to maintain its influence. It has bought trillions of dollars’ worth of assets to get financial institutions moving and money flowing through the economy. And it has used forward guidance to tell the market, and the public, what it thinks is going on, with the goal of influencing their spending decisions…. [But i]t can’t use forward guidance as an effective policy tool unless it can get consumers on the same page.

So the Fed has decided it can control inflation using forward guidance that is ignored; and its hands are tied from raising interest rates because “core” inflation is soft while consumer spending is rampant. America is on thin monetary sand, shifting further under fantastical notions of ending all poverty and injustice forever, just by printing money.

High inflation will result in a massive wealth transfer from elderly Americans to young, as savings and retirement incomes whither while housing and food prices skyrocket. Young Americans will be supported with printing presses, and have paltry liquid assets at risk — though their student loans will slowly vanish. The federal government’s trillions of dollars of entitlement obligations will shrink in real value, and be “honored” using increasingly worthless paper dollars. This would accomplish a massive redistribution of wealth while bypassing the ballot box completely.

They wouldn’t knowingly do such a thing, would they?

(Previously published at True North Reports on November 10, 2021.)