Milton Friedman once said, “inflation is taxation without legislation.” That being the case, Americans could be in store for some hefty tax hikes in the months ahead.
According to the latest Bureau of Labor Statistics inflation report, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in June on a seasonally adjusted basis after rising 0.6 percent in May.”
It gets worse. “This was the largest 1-month change since June 2008 when the index rose 1.0 percent. Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment; this was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008.”
Below are some of the lowlights from the June report.
“The food index increased 0.8 percent in June, as did the food at home index.”
“The index for used cars and trucks continued to rise sharply, increasing 10.5 percent in June.”
“The gasoline index rose 2.5 percent in June.”
“The index for all items less food and energy rose 0.9 percent in June.”
As if that were not bad enough, here are a few 12-month trends.
“The all items index rose 5.4 percent for the 12 months ending June; it has been trending up every month since January, when the 12-month change was 1.4 percent.”
“The index for all items less food and energy rose 4.5 percent over the last 12-months, the largest 12-month increase since the period ending November 1991.
“The energy index rose 24.5 percent over the last 12-months, and the food index increased 2.4 percent.”
For the vast majority of Americans, these price increases are neither affordable nor sustainable.
They are like a tax that increases every month, eating up more and more precious disposable income.
Yet, despite the writing on the wall, there seems to be little discussion about what is causing this sudden rise in inflation. There seems to be even less discourse concerning how to address the untenable situation.
Without a doubt, the driving factor of the current inflation stems from the federal government printing/borrowing mountains of “new money” since the COVID-19 pandemic.
Over the past 15 months, the federal government has unleashed the printing presses like never before, save for perhaps World War II. In fact, through May 31, the federal government has showered the economy with $4.5 trillion in COVID-19 relief funds alone.
But that is not the end of the money printing spree. Far from it, actually.
Since taking office less than seven months ago, President Biden has already signed the $1.9 trillion American Rescue Plan while promoting his $2.7 trillion American Jobs Plan and $1.8 trillion American Families Plan.
Keep in mind, all of this new spending comes on top of the annual federal budget, which now tops $3 trillion per year.
So, over the past year and a half, the federal government has spent trillions propping up an economy that it simultaneously shut down. This means that those trillions of new dollars were chasing fewer goods and services, which means that prices are likely to keep increasing.
The federal government has taken a sledgehammer to the law of supply and demand. And the result is a sick economy that is wrought with inflation and all sorts of supply-chain problems.
Yet, despite this, there doesn’t seem to be a peep from the Biden administration about the presence of inflation, let alone how to solve it.
Fortunately, there is a time-tested method to wring inflation from the economy. In the 1980s, President Ronald Reagan inherited an economy suffering from massive inflation and high unemployment, aka stagflation.
To cure the inflation that was ailing the economy, then-Federal Reserve Chairman Paul Volcker did what had to be done: he raised interest rates.
However, the current Federal Reserve Chairman, Jerome Powell, has been unwilling to give the economy the medicine it needs: higher interest rates.
Until the administration cuts back on modern monetary theory nonsense, and the Federal Reserve does what needs to be done, the American people will continue to bear the brunt of the inflation tsunami that could eventually swamp our entire economy.
- Chris Talgo (firstname.lastname@example.org) is senior editor at The Heartland Institute.