Both the out-of-touch Biden administration and our betters at the Federal Reserve Board continue to assert that inflation’s no big thing. They’re right. It’s not, unless you work for a living. Then it’s a very big thing indeed.
We were told by all the best “experts” that inflation is ephemeral, a mere blip. The Fed keeps telling us the recent jump in prices is “transient.” Democrats and many of their media friends continue to insist it’s not an issue. Just keep spending, they say. Stimulus!
But calling the recent burst in inflation “transient” or any other such euphemism to suggest it’s like a brief summer cold is not exactly accurate. In fact, it’s wrong.
The recent surge in inflation isn’t likely to go away anytime soon. Indeed, it’s even worse than the numbers now indicate.
In the most recent Consumer Price Index data, year-over-year inflation hit a tad above 5%. That’s the biggest spurt since 2008. In April, it hit 3.6%, nearly twice the recent average. Meanwhile, core prices (excluding volatile food and energy) are rising at their highest pace since 1992, when then-Fed chief Alan Greenspan was forced to nearly double interest rates to kill what many feared would be a bad bout of inflation.
This is no coincidence. In May, real average hourly earnings fell 2.8%, even as employees worked more hours. Let that sink in: Those earning an hourly wage actually took home less pay for working more.
As inflation rises, real wages — that is, earnings adjusted for inflation — inevitably go down. Just as in the 1970s, low-skilled, less-trained and less-schooled workers can’t keep up. Their wages fall behind. That’s the real danger here.
And inflation is likely to remain entrenched. As the widely respected economist John Cochrane, a senior fellow of the Hoover Institution at Stanford University and professor at the University of Chicago Booth School of Business, noted recently:
For 25 years inflation has seemed stuck on a downward trend. Those of us who worry about it seemed like end-of-the-world sign-holders that couldn’t leave the 1970s behind. It’s hard to buck the trend. A famous economist advised me to give up studying inflation — inflation is 2%, he said, that’s all you need to know. Apparently a new constant of nature.
Well, apparently not. Inflation can happen, and there is an economics of inflation. Right now it’s pretty obvious — supply constraints both natural and artificial, coupled with rampant demand.
Cochrane calls it “the end of ‘the end of inflation’.”
It may be even worse than it seems. Consider the following:
As home prices soar into the stratosphere, by 12.5% over the last year alone, the Bureau of Labor Statistics maintains that housing costs are up just 2.2% this year and rents up just 1.8%. This is farcical.
And it isn’t just housing.
“The BLS also claims food prices are up 2.2% year over year,” according to a report from Phoenix Capital Research. “Anyone who’s been to a supermarket in the last few months knows this is a load of bull.
“Case in point, agricultural commodity prices (the stuff that is used to MAKE food) are up over 50% during the same time period. Corn prices are up 75%, Soybean prices are up 46%, Livestock prices are up 30% and Sugar prices are up 18%.”
Oil is up. Many of the mainstays of our economy are surging. We hope we’re wrong, but this has the look of a trend, not a blip.
Give credit to the Washington Post’s Heather Long, who tweeted this:
What costs more now? It’s murky to compare to May 2020, but people still feel these increases.
Car rental 110% (y/y)
Used cars 30%
Laundry appliances 27%
Auto insurance 17%
Whole milk 7.2%
So this sudden surge of inflation means that working men and women are actually earning less in inflation-adjusted terms since last year, despite working more hours.
As most economists rightly note, inflation once entrenched isn’t easily eliminated. It tends to hang around. Anyone who was an adult in the 1970s can tell you how pernicious and persistent the rise in inflation was.
Why should you care? Because in 1973, when inflation first became a serious problem, the U.S. and much of the western world sank into a productivity and growth slump that really never ended. Before 1973, GDP rose at a rate of 3.8% a year; since then it’s grown 2.6%. Productivity, the main driver of standards of living, grew 3.8% before 1973; about 1.6% after.
This is what you get, inevitably, from so-called progressive economic experiments conducted by the far left, which now means the entire Democratic Party. Massive amounts of spending. Suffocating regulation. High taxes. More out-of-control money printing by the Federal Reserve. Severe wage controls and, eventually, price controls.
And, eventually, failing companies will be taken over by big government. It’s official: We’ve now forgotten all the lessons of the 1970s and 1980s about the evils of big government and socialism.
Inflation is merely a symptom of all this. Just like respiratory distress is a symptom of COVID-19.
And, just as with COVID-19, we have a vaccine against inflation. It’s called deregulation, low taxes, spending cuts, rule of law and sound money. Together, these things can beat inflation, restore growth and productivity, and put Americans back to work. If not, our inflation pandemic will only get worse, and last for years.
— Written by the I&I Editorial Board