Bad policy causes inflation and opens the door to worse ideas

For someone who regularly buys groceries or refuels their car, the price hike isn’t surprising. Inflation is running at its fastest pace in 40 years, eating into savings, taunting budgets and fueling concerns about viability. It is infuriating that those rising prices are largely the result of foolish policy choices, and that voters are actually doubling down on political interference in the economy to further limit our freedom and prosperity.

“The public sees inflation as the number one problem facing the U.S. — no other problem compares to it,” Pew Research Center reported last week“Seven in 10 Americans believe inflation is a very big problem for the country, followed by health care affordability (55%) and violent crime (54%).”

After another month of rising prices, the focus on inflation is understandable.While the consumer price index shows annual inflation has fallen a bit 8.3% from 8.5% in March In April, it was still “the largest increase in 12 months since the end of April 1981” according to to the Bureau of Labor Statistics.

The decline is largely attributable to lower energy prices, which are still 30% higher than a year ago. Gasoline prices were 43% higher than in April 2021. Food, a purchase almost all of us can’t avoid, saw prices rise by 9.4%.

Analysts hope inflation has peaked 4% annual interest, which is still above the Fed’s 2% target.But the producer price index is considered to be Leading indicators of prices paid by consumersstand 11%, suggesting that we experience more pain before enjoying moderate relief. It’s maddening that these soaring prices are at least partly the result of government officials trying to “help” us through the pandemic and enforced lockdowns.

Òscar Jordà, Celeste Liu, Fernanda Nechio, and Fabián Rivera-Reyes wrote in an article: “Since the first half of 2021, U.S. inflation has increasingly outpaced that of other developed countries. March Analysis for the Federal Reserve Bank of San Francisco. “Estimates suggest that fiscal support measures designed to offset the severity of the economic impact of the pandemic could lead to this divergence, raising inflation by about 3 percentage points by the end of 2021.”

Fed economists sought to soften their criticism, arguing that “without these spending measures, the economy could slide into outright deflation and slower growth.” But that’s speculative. Perhaps the ill effects could be avoided if harsh interventions in the economy, such as closing businesses, were lessened, or offset without flooding the world with dollars. After all, much of the planet has avoided similar price increases.

“Of course, governments around the world are spending huge sums of money to fight the pandemic, but few are giving out cash directly to citizens like the U.S. government has done,” he said. reasonEric Bohm famous.

Jordà, Liu, Nechio and Rivera-Reyes are not alone in drawing conclusions about overconsumption.

“Beginning in March 2020, in response to the disruptions of Covid-19, the U.S. government created about $3 trillion in new bank reserves, the equivalent of cash, and sent checks to individuals and businesses,” Hoover Institution Economics HomeJohn Cochrane Arguing in a recent paper“Treasury then borrowed another $2 trillion or so and sent more checks. Total federal debt was up nearly 30%. Is it surprising that inflation exploded a year later? Hard to ask for a clearer proof Fiscal inflation, a huge fiscal helicopter drops.”

“As U.S. prices continue to rise at rates not seen in decades, it’s clear that the cost of stimulus is huge and unexpected: inflation,” agree Santul Nerkar and Amelia Thomson-DeVeaux for five thirty-eight“It’s not clear if inflation has peaked, but what’s happening right now is economically and politically harmful, which has many of the same policymakers, advocates and economists now questioning whether the stimulus checks were a mistake. “

Not only is the situation economically and politically toxic, it doesn’t need to happen, and “it’s not backed up by evidence or economic calculations. It’s shaped by politics.”

this five thirty-eight The writers noted that Democrats pushed for bigger stimulus checks as part of their efforts to win the Georgia Senate runoff. Giving people free money seems like a promising way to buy ongoing support. As of February 2021, 78% Democrats and 64% Republicans Strongly support the idea of ​​getting a fat test. But a flood of new money into the economy can erode purchasing power.

Nerkar and Thomson-DeVeaux added: “Voters don’t appear to be rewarding Democrats and Biden for the extra money provided by the stimulus package.” “Most voters blame Biden for inflation — including a sizable chunk of Democrats — and Disapprove of his broader approach to economic issues.”

The president is in trouble across the board, but really clear politics his average poll Economical treatment At present, Biden’s approval rating is only 37.1%.

Unfortunately, early political tinkering in the economy opens the door for later political tinkering as the situation deteriorates in ways that the public does not always provides an opportunity to be exploited by dictators want greater government control Production, purchase and sale.

“The prices Americans pay for groceries and other necessities are at an all-time high,” Sen. Elizabeth Warren (D-Mass.) Out of breath last week. “One of the reasons? Big companies are pumping up prices and making record profits. We need to stop gouging by companies that drive up home prices.”

As economists point out, that’s crap. But it’s a way for Warren and her ideological allies to blame the private sector for government failures. They propose punishing businesses for responding to a decline in the purchasing power of the dollar with “unconscionably excessive price increases,” a term that “does not have any disturbing definition in the legislation.” famous reasonLiz Wolfe.

If producers cannot recover their dollar-denominated costs, which are depreciating every day, the result of another intervention in the market is less likely to be lower prices, but less supply of goods. No doubt politicians will see this as yet another reason for them to blame scapegoats and push to expand their power. When politicians destroy the economy, they hurt us in the short term, but also create opportunities for future harm in the name of undoing the damage they caused.

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