Angry Consumers
The American consumer is not happy. Weekly grocery shopping has become an exercise in anger management. What is happening? In 2019 a dozen eggs cost approximately $1.22. The same dozen eggs in August 2024 have risen to $3.08.
Name the commodity: food items, gasoline, housing, clothing, etc. and the result is much the same. The culprit driving these cost increases is the most insidious of all taxes: INFLATION.
Inflation Basics (It Is Government Driven)
Short term inflation is commonly caused by an increase in production costs (known as “push” inflation) or increased demand for goods and services (known as “pull” inflation).
“Push” inflation was experienced during the Arab oil embargo of 1973 when corporations passed on rising energy costs to consumers.
“Pull” inflation occurred in the real estate markets during the housing bubble of 2003-2007. Surging demand for home ownership propelled a 25% increase in home prices in less than four years.
“Structural” inflation is, as its name implies, an inflation effect due to structural inefficiencies. In an advanced society like the USA this is rare BUT not unknown (as will be described). Structural inflation is usually seen in poor nations with weak supply chains.
In the USA “push” and “pull” scenarios, while painful, are short term because market forces quickly adapt to realities and institute needed adjustments. “Structural” inflation was perceived to be non-existent due to highly developed American supply chains.
With the exception of “structural” inflation, typical American inflation cycles only become “persistent” when the quantity of money is increased regardless of other economic factors. Only one actor can change the quantity of money: The Federal Government.
Pre-Covid-19 Low Inflation (The Goldilocks Period)
The three years prior to the pandemic (2017-2019) were notable for sustained economic expansion (2.5 to 3.0% GDP growth), rising wages, reduced taxes and low inflation. This was achieved by restricting government’s influence in markets and citizen’s lives.
Individuals and corporations saw:
- Tax rates cut
- Expanded domestic energy production
- Reduction in federal regulations
- Record low unemployment
An expanding economy is susceptible to higher demand “pull” inflation if monetary policy fails to adjust money supply proportionately ($1 of “money” for each $1 of economic (GDP) growth). In the pre-pandemic years of 2017-19 the Federal government aligned the money supply with GDP growth. The Goldilocks economy and its benefits to the nation were not troubled by “persistent” inflation thanks to a Federal government staying in its lane outside of the free market.
The Perfect Storm (Temporary Problems Made Persistent)
The “Perfect Storm” of 2021-24 persistent inflation began with Covid-19 in 2020 and supply chain disruptions. Interruption of the delivery of goods and services resulted in a rare case of “structural” inflation impacting the industrialized world. Basic commodities (food, hygiene and paper products, etc.) became scarce and expensive as the supply chain faltered.
The emergence from Covid-19 in 2021 and the gradual repair of global supply chains released consumer demand for goods that were scarce in 2020. “Pull” inflation began to heat up with demand outstripping still weak supply chains. Then…government struck.
First, the executive branch put moratoriums on the Keystone Pipeline and on new federal property oil and gas leases. As the major commodity underpinning the entire American economy, the government’s attack on fossil fuels contributed to immediate “push” inflation.
Next, the government decided to make “structural, pull and push” inflation persistent by increasing the quantity of money to the tune of $1.9 TRILLION through the “American Rescue Plan” on March 11, 2021. Inflation, now persistent, reached 8.5% that month.
In a salute to insanity…(try the same thing and expect different results): The federal government passed the “Infrastructure Investment and Jobs Act” and added $1.2 TRILLION more in persistent inflation help. Year two of persistent inflation (2022) saw more of the same with the $1.1 TRILLION “Inflation Reduction Act.” No thinking person was surprised when inflation proved “persistent.”
Price Controls: Two Thousand Years of Predictable Results
As the nation approaches another general election, the government seeks to deflect from the real cause of expensive eggs by blaming “price gouging” for persistent inflation. Their “new” solution is government enforced price controls (aka “blame the evil corporations”).
Politicians NEVER learn. Price controls have been attempted by governments all the way back to Roman Empire days and the Emperor Diocletian. Notably, the attempt to regulate pricing by dictate has never, NOT ONCE in all of history, succeeded. Artificially capping the price of goods (and profits) discourages production since manufacturing costs are not similarly restrained.
Price controls simply ignite “pull” inflation by reducing availability in the face of constant or rising demand. It didn’t work for Nixon, Ford or Carter and history indicates it won’t work now.
COS Solution (Fiscal restraint)
One of the three areas of focus for the COS Article V petition is Fiscal Restraint. For too long the federal government has treated the Treasury of the United States as a slush fund for political manipulation. Whether it is overspending, monetary gimmicks, market interference or a host of other practices beyond the Founders’ vision, fiscal restraint is long past due.
Do you believe that the Federal government has meddled in market forces, and monetary policy, to the point of endangering the stability of our national economy? If you do, please add your name to the COS Article V petition and demand that our government return fiscal policy to the point where we can afford to buy eggs once again.
