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INFLATION! No, no, it isn’t the stimulus.

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INFLATION! You can hear it now, can’t you? The sound of hands wringing in concert.

The GOP is owned by the very rich. And the rich are terrified that you ever-so-slightly will narrow the Gap between you and them.

So their GOP flunkees, having already given a huge tax deduction to their rich patrons, now will tell you that the Democrats’ stimulus packages are wrecking the economy and causing not just inflation, but hyperinflation.

It’s all a great big fat lie, a repeated myth designed to calm your requests for more stimulus dollars to flow to your benefit.

It goes like this:

  1. Because the unemployment benefits are too generous, people won’t come back to work. So the GOP solution is to cut benefits, thereby starving people into working for low pay at unpleasant jobs.
  2. The inflation theory is that increasing the supply of dollars when the demand for dollars remains constant, reduces the value of the dollar, and that reduction is known as “inflation.”
    The GOP solution to inflation and unemployment.

Nice hypotheses, except:

  1. There is a way to pay people good wages and also encourage work, and
  2. The value of dollars does not decrease just because the supply increases.

Dollars are not like oranges, oil, or opera tickets. Money is a unique commodity. Increase the supply and people want still more.

Give a person a million or a billion, and he will want yet another million or billion. Ask Jeff Bezos, Elon Musk, Mark Zuckerberg, or Warren Buffet. They all still work — for money.

The one thing that affects the demand for money is the reward for owning money, i.e. interest rates, and that effect is modest. So, though interest rates today are quite low, the demand for dollars remains high.

As I have demonstrated in previous posts, inflations have not been caused by federal deficits. Nor have hyperinflations. All have been caused by shortages.

Inflations are caused by shortages, not by money supply.

If deficit spending (red line) caused inflations (blue line) you would expect to see the two lines reasonably parallel. But there seems to be no relationship between the lines. Cuts in deficit spending lead to recessions (gray bars).

The shortages that most likely to lead to inflations involve food, energy, and personnel.

 Consumer prices surge again, rising 5% over the past year
By Martin Crutsinger Associated Press
WASHINGTON — American consumers absorbed another surge in prices in May — a 0.6% increase over April and 5% over the past year, the biggest 12-month inflation spike since 2008.

The May rise in consumer prices that the Labor Department reported Thursday reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy.

The increased consumer appetite is bumping up against a shortage of components, from lumber and steel to chemicals and semiconductors, that supply such key products as autos and computer equipment, all of which has forced up prices.

And as consumers increasingly venture away from home, demandhas spread from manufactured goods to services — airline fares, for example, along with restaurant meals and hotel prices — raising inflation in those areas, too.

Among specific items in May, prices for used vehicles, which had surged by a record 10% in April, shot up an additional 7.3% and accounted for one-third of May’s overall price jump. The price of new cars, too, rose 1.6% — the largest one-month increase since 2009.

The jump in new and used vehicle prices reflects supply chain problems that have caused a shortage of semiconductors.

The lack of computer chips has limited production of new cars, which, in turn, has reduced the supply of used cars. As demand for vehicles has risen, prices have followed.

But higher prices were evident in a wide variety of categories in May, including household furnishings, which rose 0.9%, driven by a record jump in the price of floor coverings. Airline fares rose 7% after having increased 10.2% in April. Food prices rose 0.4%, with beef prices jumping 2.3%. Energy costs, though unchanged in May, are still up 56.2% in the past year.

The problem isn’t excessive money. Furnishings, floor coverings, airline tickets, beef, and oil prices all reflect the lack of production or availability, which in turn reflects the lack of demand during COVID-19.

Only now, is supply beginning to grow to meet demand.

From the cereal maker General Mills to Chipotle Mexican Grill to the paint maker Sherwin-Williams, a range of companies have been raising prices or plan to do so, in some cases to make up for higher wages they’re now paying to keep or attract workers.

The GOP’s solution to the shortage of workers is to stop paying unemployment compensation.

For the benefit of the rich, the GOP wishes to starve the people until they are forced to return to low wages and poor working conditions.

That “solution” is a disgusting, medieval approach when a modern solution is available.

The solution is not for the federal government to pay the unemployed instead of salaries, but rather for the government to pay everyone in addition to salaries.


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    • raburgeson

      The 1% will gobble up the money. Half of it will not even reach the economy. You will pay the price for filling their wallets.

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