On April 7, I reported for MRCTV that the Biden administration was recklessly and shamelessly laying blame for higher prices on “supply chain” problems (as if they’ve just “happened” and aren’t the result of government blockages) and on “Putin” (their infuriatingly childish mantra “Putin’s Price Hike” forgets months of price increases prior to the Russia-Ukraine conflict). In the piece, I attempted to address the Bidenista and pop media blindness to the meaning of the word "inflation," and to the fact that when they say the word, they usually, and mistakenly, are discussing the price increases resulting from an inflation of the money supply - an inflation caused by government or a government-created bank to facilitate profligate government spending.
Currently, that government-created bank is the Federal Reserve, which consists of 12 branches, and, as many economists and economics-reporters know, the counter-intuitive fact is that, occasionally, these branches produce reports that contain very valuable stats about how screwed-up the economy is.
This is one of those times.
As Eric Boehm writes for Reason, four economists at the Federal Reserve Bank of San Francisco recently reported the obvious, that federal “COVID Relief” checks likely contributed to inflation.
(I)nflation is running higher in the United States than just about anywhere else right now. Why's that? According to a new paper from four economists at the Federal Reserve of San Francisco, it's because the American government was relatively more generous during the pandemic, borrowing and spending trillions of dollars to not only fund COVID-19 relief efforts but to line the pockets of Americans with direct payments that enlarged the money supply and overheated the economy.
Boehm cites one of the most striking statements from the SF Fed report:
’Inflation rates in the United States and other developed economies have closely tracked each other historically,’ the economists write in an analysis published this week. ‘However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic's economic effect may have contributed to this divergence.’
But, remember to forget! The tax-consumers in the Biden and Trump administrations - and their bedfellows in Congress and the mainstream media - appear to prefer that you overlook what they’ve done, to overlook the fact that critics warned this would contribute to price increases. They, the authoritarians, were “being kind” – even as most of them pushed to shut down businesses, sent payoffs to big corporations, made you pay for mRNA injections, mandated masks, and mandated those mRNA injections if you wanted to work, hire someone, shop, or even go to church.
Some promoters of this welfarism claimed that the payments were necessary specifically BECAUSE the federal and state governments were the sources of the lockdowns. But this misses two points.
First, many of the payments went to people who weren’t shut down and who did not lose their jobs.
As Boehm observes:
Though each round of direct checks had slightly different parameters for determining who would get the payments, much of that $817 billion landed in the bank accounts of people who had never lost their jobs and were well above the poverty line. Households earning as much as $160,000 in joint income were eligible for the final round of direct payments disbursed during the first half of 2021—and many progressives in Congress thought the cutoff should have been even higher.
As far as the “cutoff” goes, the feds don’t have any constitutional power to hand out cash (or pay for mRNA jabs) in the first place, so a “cutoff” overlooks the rules, not to mention the immorality of cash redistribution and inflation. This is something that David Crockett noted on the floor of Congress during his second term as a rep, from Tennessee, circa 1830, but, evidently, few people in either major political party have learned the lesson.
The second point missed by pushers of the “PPP” (Paycheck Protection Program, as part of the COVID relief idiocy of 2020) and corporate “COVID” bailouts is that the effects of money-printing become even worse when an economy is not productive.
So, for example, when I stand at a blackboard in front of economics students, I draw horizontal time axis heading to the right, and a vertical axis pointing up at a right angle from the “zero” of the time axis. The students already know this, but we discuss that, over time (headed right on the bottom axis), people get better at what they do, they devise more efficient ways to produce, and they compete with each other for customers (who want lower prices). This results in an upward productivity curve.
If money is stable, and not being created out of thin-air, prices should DECLINE. And that isn’t “deflation”, it’s just productivity getting you more, letting your money be more powerful.
But if the government pumps more units of cash into the system, not only does it eat up that productivity curve, it can actually rise more steeply than that curve, which is even WORSE than the typical low-level inflation seen year-upon-year thanks to central banking.
This is what Americans experienced beginning in 2020, as lockdowns and mandates didn’t flatten any “virus curve”, but, instead, flattened the normally up-tilted productivity curve.
And the government kept pumping money into the system.
We're now reaping what Congress sowed. All that excess cash is chasing the same number of goods. That's a recipe for inflation straight out of any economics textbook. The four economists conclude that ‘U.S. income transfers may have contributed to an increase in inflation of about 3 percentage points by the fourth quarter of 2021.’
Boehm might not be precisely right when euphemistically saying, “the same number of goods,” but the point about the money supply spiking as productivity was smothered by politicians is key.
And even some left-leaning folks warned of the danger.
Larry Summers, one of the Obama administration's top economic advisers, was warning about rising inflation more than a year ago. Passing another stimulus bill in the spring of 2021, Summers warned in a Washington Post op-ed, ‘will set off inflationary pressures of a kind we have not seen in a generation.’ Other top economists, including a former chairman of the International Monetary Fund, offered similar warnings. The Biden administration and Democrats in Congress did not listen, and now here we are.
But we must remember, it was not only the Biden administration thugs who are guilty of this malfeasance and this breach of the US Constitution. During the Trump Administration, most members of the GOP establishment supported the PPP, rather than economic wisdom and their Constitution.
And now, we learn, tasting the bitter fruit they’ve sown, and it is going to get worse, as Biden continues his attacks on supply chains and pushes even more spending atop the fools-gold already thrown at us by the government.
This is a time to learn about economics and ethics, and to teach others, because the politicians clearly do not grasp the sheer vastness of their mistakes.
Or, if they do, they don’t care.