Some Bad Ideas Just Won’t Die
This may be the dumbest thing you read today. Not my words, but this CNN article I’m about to tell you about.
Americans are struggling under the weight of inflation. The official CPI for February came in at 7.9%. Measured honestly, CPI is above 15%. So, what’s the best way to help consumers deal with rising prices?
That’s the idea floated by Mark Wolfe in his CNN op-ed.
The fastest and most effective way to protect vulnerable citizens from the impacts of global economic instability is to provide a direct payment through the IRS, similar to the three stimulus checks that were sent to families during the height of the pandemic.”
I told you it was dumb.
By the way, this guy is an “energy economist.”
Now, I’m sure a lot of Americans would get on board with another round of stimulus checks. They enjoyed all three rounds of stimulus during the pandemic.
But you know what they’re not enjoying?
Paying for those stimulus checks.
Because that’s exactly what they’re doing today through these soaring prices.
So, Wolfe wants to address the inflation problem by literally creating more inflation.
Now, he would probably tell you that the rising prices we’re seeing today are the result of the pandemic, or supply chain issues, or maybe even Russia. These are certainly factors in the rising prices of some goods. But at the core, the general rise in prices is the result of the Federal Reserve printing trillions of dollars out of thin air and the US government handing out that money in the form of stimulus checks.
When you have more dollars chasing the same amount of goods and services, prices generally rise. This is economics 101. (Except apparently at whatever school Wolfe went to.) The government lockdowns during the pandemic exacerbated the problem by constricting supply. So, while supply shrank, demand actually increased because everybody had more dollars in their pockets even though they weren’t going to work. In effect, we had more dollars chasing fewer goods and services. Prices went up. This is entirely predictable — unless you are an energy economist.
Now, you’ll hear a lot of pundits telling you that inflation is the result of increased demand. That’s not entirely wrong. But what created the demand? Stimmy checks! In fact, it was by design. Stimulus is meant to stimulate demand. That’s the whole point.
My point is that yesterday’s stimulus checks were a major factor in today’s inflation problem.
Now, our intrepid energy economist wants the government to hand out more money that it doesn’t have to help Americans cope with the cost of handing out money that it didn’t have over the last couple of years.
Of course, that will necessitate more borrowing, meaning the US government will have to sell more bonds.
And who is going to buy those Treasuries?
Over the last two years, the Fed has been one of the biggest buyers. It prints money to buy these bonds. And that — by definition — is inflation.
Do you see? Wolfe’s “solution” is really the root of the problem.
The Fed has launched a war on inflation that is supposed to include shrinking its balance sheet. But how does the Fed shrink its balance sheet when the US government needs it to keep buying bonds to create the artificial demand necessary to continue funding its massive deficits?
Here’s a truth you should always remember – whatever the government puts in your left pocket, it took from your right pocket. You ultimately pay for every government action. You might pay through direct taxation. Or your kids might pay if the Treasury borrows the money. Or, you’ll pay through the inflation tax. Regardless, you’re going to pay.
Americans are paying for coronavirus stimulus today. If Wolfe has his way, you’ll pay for inflation relief with more inflation in the years to come.
But so much that is dumb is politically viable, so I wouldn’t be surprised if this notion gains steam.