Proving that most people have no idea what causes inflation, the majority of Americans in a recent poll said they want the federal government to hand out stimulus checks to combat inflation.
In the poll commissioned by Newsweek, 63% of the respondents said they agreed that the feds should issue new stimulus checks to tackle inflation. Forty-two percent said they “strongly agree” while only 18% disagreed. Fifteen percent said they neither agreed nor disagreed.
The results of this poll reveal the effects of redefining “inflation.”
Properly defined, inflation is an increase in the money supply. Rising consumer prices are one symptom of inflation. But the government has effectively redefined inflation as “rising prices.” In effect, most people think a symptom of inflation is inflation. As a result, most people have no clue where inflation comes from.
This was on purpose.
Of course, when you accurately define inflation, it becomes crystal clear who is to blame — the Federal Reserve and the US government.
Economist Ludwig von Mises explained exactly why this redefinition of inflation is so pernicious.
People today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”
Today, people aren’t even asking the government to fight inflation. They just want Uncle Sam to hand them money in order to mitigate the pain of rising prices.
Ironically, stimulus during the pandemic is one of the factors causing the high prices today.
The Federal Reserve pumped over $3 trillion into the economy after the 2008 financial crisis through quantitative easing. It also stimulated credit creation with 0% interest rates that lasted more than a decade. During the pandemic, the Fed doubled down, pumping nearly $5 trillion more into the economy and dropping rates to zero again.
The federal government exacerbated the situation during the pandemic by handing out three rounds of stimulus money, along with trillions in other aid. This enabled consumers to keep spending even though they were sitting at home playing Xbox and not producing anything. With more dollars chasing fewer goods and services, a massive spike in consumer prices was entirely predictable.
And that’s exactly what we got. And it hasn’t abated. October CPI came in at 8.2% on an annual basis.
Meanwhile, wages aren’t keeping up with rising prices. Real average hourly earnings decreased by 3.0% from September 2021 to September 2022.
It’s no wonder people are clamoring for more stimulus. But it will only make the situation worse. In the first place, it will put more dollars in consumers’ hands without any corresponding increase in the supply of goods and services. That’s a recipe for even more price increases.
Furthermore, the US government doesn’t have any money to hand out. It just ran a $1.3 trillion budget deficit. In order to give everybody stimmy checks, the government would have to borrow more money. The Treasury market is already reeling due to rising interest rates. Ultimately, the Federal Reserve would almost certainly have to monetize that new debt with more quantitative easing. The only other alternative would be to let interest rates soar, making the interest payment on the debt even higher.
Stimulus checks might provide a little temporary relief, but they would ultimately make inflation worse and prices would rise even higher in the future. But most Americans don’t understand that. They don’t understand inflation. They just know they’re struggling and they want government to “make it better.”
The problem is the government never makes it better. It always makes things worse. And it’s important to remember you never get more government for free. You always pay.
You’re paying for your COVID stimmy checks today through the inflation tax. If you get another stimmy check tomorrow, that will mean an even bigger inflation tax increase down the road.
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