@josie the discussion of inflation has been debated by economist for many years. Without a doubt, IMHO, the most compelling argument of economic policy and inflation comes from the late-great Milton Friedman. The ideas posed on this thread prove it true as well.
When we look at the recent mid-term election in November and one of the main issues and actions taken by Congress, reducing taxes, Friedman’s logic proves true.
“Before every election our representatives would like to make us think we are getting a tax break. And they are able to do it while at the same time actually raising our taxes because of a bit of magic they have in their kit bag. That magic is inflation. They reduce the tax rates, but the taxes we have to pay go up because we are automatically shoved into higher brackets because of the affect of inflation. A neat trick,” Friedman says.
“There are many traditional scapegoats blamed for inflation. How often have you heard inflation blamed on labor unions for pushing up wages. Workers, of course, don’t agree… Higher wages are mostly a result of inflation rather than a cause of it. Indeed, the impression that unions cause inflation arises partly because unions wages are slow to react to inflation and then there’s pressure to catchup. Another scapegoat for inflation is the cost of goods coming from abroad.
“Inflation, we’re told, is important, higher prices abroad driving up prices at home. It’s another way government can blame someone else for inflation. But this argument too is wrong. The prices of imports in the countries from which they come are not in terms of dollars. They are in terms of lira or yen or other foreign currencies. What happens to their prices in dollars depends on exchange rates. Which in turn reflect inflation in the United States.
“Since 1973, some governments have had a field day blaming the Arabs for inflation. But if high oil prices were the cause of inflation how is it that inflation has been less here in Germany, a country that must import every drop of oil and gas that it uses on the roads and in industry than, for example, than it is in the United States which produces half of its own oil? Japan has no oil of its own at all. Yet at the very time that the Arabs were quadruapling oil prices, the Japanese people were bringing inflation down from 30 to less than 5 percent a year.
“The fallacy is to confuse particular prices, like the price of oil with prices in general.”
Friedman goes on to explain how wage and price controls, which happened with POTUS Richard Nixon, are a lesson that seem to never be learned. He explains how spending your way out of a depression never works either. Inflation affects different groups in different ways. Some benefit. Some are harmed.
The whole problem is made far worse by the false cures governments adopts. Look at the recent snow storm and the turmoil when New York workers who felt the sting of wage negotiations, didn’t plow the streets properly. Who did that hurt? Their neighbors and friends in the communities who had snow piled up for days. Not the people who imposed the controls. Garbage workers and hospital workers who strike are other examples.
One group is set against another group. Men and women who behaved as a group in a way they would have never acted as individuals. “The social fabric of society is torn apart inflicting scars that it will take decade to heal. And all to no avail. Because the cures for inflation only make it worse.”
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