Inflation is the worst in 40 years.
The price of cars is up 37%. Gas is up 49%.
During the last few years, as politicians spent ever more money, experts told us not to worry.
Jerome Powell, chair of the Federal Reserve, said inflation would be “transitory.”
Treasury Secretary Janet Yellen said, “I don’t anticipate inflation is going to be a problem.”
Now she says, “I’m ready to retire the word transitory.”
What went wrong?
“Big corporations have taken advantage,” says Rep. Ted Lieu.
Sen. Elizabeth Warren tweeted: “greedy corporations are charging Americans extra.” It’s “price gouging.”
This is nonsense.
“Greed is constant,” says economist David Henderson in my new video. “If it’s greed, how do we explain prices falling?” When oil prices fall, is it because “oil companies just suddenly decide, ‘I’m gonna be less greedy’?”
Prices change because of supply and demand.
Inflation results “from too much money chasing too few goods,” explains Henderson. “If government’s spending more money, that’s more money chasing too few goods.”
Lately, government borrowed from the Fed, and spent much more money. Under President Donald Trump, the national debt rose $7.8 trillion. Under President Joe Biden, it’s grown $2.2 trillion in just one year. Biden wants to spend even more — a record $6 trillion this year.
Where will they get the money? Government has no money of its own, so increased spending means politicians must borrow more, tax more, or, easiest of all, create money out of thin air by just printing it.
In the last few years, that’s what they did. In an untested experiment, the Fed printed more money than ever in history.
All this new money sloshing around the economy makes money we have less valuable. You notice the price increases, but you may not notice the damage inflation does to your savings.
If you put $10,000 under your pillow, 7% inflation will reduce that to $2,342 in just 20 years.
If you were counting on those savings for retirement, too bad. Most of your savings will be gone.
Yet today’s politicians want to spend even more.
Biden claims his spending bills will “reduce inflation.”
“Biden’s wrong,” Henderson responds. “There’s no economic theory that says when the government spends a huge amount more money, prices fall.”
Some people want government to stop inflation by imposing price controls.
That would be “horrible,” says Henderson.
Price controls were tried before. In 1971, President Richard Nixon ordered a freeze on all prices.
It sounded reasonable. Too much inflation? Our intuition tells us that government can fix that with a price freeze. But “that’s where people’s intuition goes wrong,” says Henderson.
Wrong because prices are not just money; they are also information.
“Prices are signals … that guide people,” explains Henderson. “Mess that up, you’ve really messed up the economy.”
Price changes tell buyers what to avoid and sellers what to produce. When COVID-19 hit, the price of face masks rose sharply. Immediately, producers made more. New Balance switched from making footwear to making masks.
Flexible pricing gets suppliers to produce what people really need.
Now there are shortages of some products because COVID-19 interrupted supply chains.
Price controls would make the shortages worse.
Soon after Nixon froze prices, there were shortages of gasoline. I drove around, wasting gas, searching for gas stations that had it.
“Price controls are like saying it’s really cold and I’m going to solve that by breaking the thermometer,” says Henderson. “It’s actually worse than that because breaking the thermometer doesn’t reduce the temperature, whereas price controls cause actual shortages!”
Venezuela’s price controls led to a shortage of food. And yet inflation got much worse. 270%, 700%, eventually 400,000% inflation!
Once inflation starts, it’s hard to stop.
In Zimbabwe, President Robert Mugabe couldn’t collect enough in taxes to pay for his grand plans, so he printed more money.
A few years later, Zimbabwe was printing 100 trillion-dollar bills.
Such drastic inflation hasn’t happened here. It probably won’t because recently the Fed reigned itself in.
But with Democrats and Republicans eager to spend more, it could happen here.
If Biden wants to curb inflation we have to make those refugees who came across the border work on piers opening up the supply chain. Pumping gas from closed down pipe lines would help. Stop supporting people who are able to work who choose not to work. These are a few of my suggestions
To bad people as ignorant about economics and real work and government interferrence.
We are experiencing to dislocation of production and delivery of products due to the covid pandemic. Analogies to hyper inflation in Germany, Zimbabwe and Venezuela are completely inaccurate. Raising interest rates is not going to have much effect economically as people aren’t borrowing in order to buy less, they are are using their income which is financially distressing. Given the improved earnings from company selling products would indicate a fair amount of opportunistic pricing which is tantamount to gouging.
Thanks for falling for the MSM narrative. Check your history and do a little research. Inflation is never a good thing. California was causing it’s own back-ups of supplies because it changed it’s policies on trucking equipment having to be up to it’s green new policies. Companies weren’t willing to put the money into and/or didn’t have the money for new fleets when in a couple of years they would have to be updated again. There’s far more than just Covid involved, it was an excuse to explain away inflation and supply issues.
People never learn from history. Germany after 1929. And I just happen to have a Zimbabwe 100,000 note. Every politician that blamed corporate greed is just playing the blame game.
Thank you for still being an actual journalist.
Story idea #1 – Please do a report on tax returns this year! How can a mother of 3 who made $16000 get back $19k? We are paying her medical, housing, and food! How can this be stopped?
Story idea #2 – Fox News brought a story of 100 illegals coming across our border in one night, just one incident! Their names were taken, they were processed and released into the country per our Border Patrol Officers! I would like to know how much those 100 illegals cost us in one month! Plus how much would it cost us to send them back to their country of origin!
Love the story above! But, what can we do to change things? I’m reminded of the victory gardens Americans grew to survive and how all pitched in during the war to help out! Now it’s just gimmie, gimmie and I want more!
…so better to spend your cash NOW to get the most value…and add demand…and contribute to inflation….
No, better to invest your money in hard assets that hedge against inflation. If you have $10k cash it will buy only $9k of goods next year, but if you spend it you’ll have $0 spending power. Invest it at 10% return and you can at least beat this inflation.
Thanks John, your voice and efforts are greatly appreciated…
I really appreciated this common- sense explanation of inflation and government spending. I am going to share this with my kids to hopefully help them understand why we can’t just ” keep printing more money” to fix this mess.
What worries me is that our “elected leaders” actually believe what they’re telling the “press”.
Gold st $1900 a Troy ounce. That’s a safe haven until there is a rush by everyone to get it. When that happens watch our government say you cannot own gold which they did in 1934 until 1974. Gold stocks would be the key to invest. In fact, gold even though outlawed had the highest rate of return from 1929 to 1948. Actually though be on silver as well
I find it amazing how people who cross our border are the problem. The problem is two fold. 1 when citizens refuse to do jobs illegals are hired. How many Americans are picking strawberries, washing dishes, cleaning your cars or working in low paying jobs? 2.employers who hire illegals and pay cash so they can skirt tax laws!
Diggin the beard John and your reporting! Common sense is in short supply. We have more information at our disposal than ever before but our society has never been dumber. Critical thinking has been muted. Parents, stop worrying about PC and teach your children well.. wait, wasn’t that a song?
Since the government produces no goods or valuable services, that means every dollar it creates is producing inflation. But’s it’s especially obvious when the market has been shutdown by the government so that it can’t make goods or services either.
A great story that could be told about ANY country in the world.
Really interesting post!