MCViewPoint

Opinion from a Libertarian ViewPoint

Inflation Makes People Poorer (And It’s the Government’s Fault)

Posted by M. C. on August 17, 2022

Therefore, the poorest are the ones who actually pay for the government. It is precisely because of governments that the poor and the lower middle class, in most cases, don’t get richer. It is the government that perpetuate poverty, precisely to justify their existence by pretending to help the poorer. After all, if there were no monetary inflation created by governments, prices would tend to decrease as the productivity of the economy rose and the standard of living would rise.

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https://mises.org/wire/inflation-makes-people-poorer-and-its-governments-fault

André Marques

The Consumer Price Index (CPI) in the US was 9.1 percent in June. Taking into account that the government lies about inflation, it is better to consider Shadow Government Statistics’ CPI (based on the 1980s CPI methodology), which was (as of July 13) about 17 percent.

The government claims that this high CPI is due to Russia’s invasion of Ukraine (you could argue that, one of the reasons is the sanctions on Russia’s economy, which don’t do much to harm to the Russian government and hurts ordinary people both inside and outside Russia). But this is just an excuse for the government to not admit the blame. It is clear the war has an influence on the CPI, as it eliminates the supply of various goods and services, which ends up increasing prices. However, the CPI has been going up since February 2021.

The 2020 and 2021 lockdowns (and the followed supply shocks) were also a big factor, but the real reason prices are going up is the inflation (monetary expansion) created by the US government both in 2020 and 2021.

Yes, supply shocks cause increases in SOME prices in the economy, but not a general increase in the prices of goods and services. If there is a supply shock of certain goods (making their prices higher), but the money supply does not change, there will be a new equilibrium of supply and demand for the various goods and services in the economy (since the money supply is the same and individuals will have to change the allocation of their budget, so the prices of the goods that will have a lower demand will decrease).

Once the supply shock of these goods ended, their supply would increase, and their prices would decrease (changing the equilibrium of supply and demand once again). Only an increase in money in circulation can make ALL (or almost all) prices in the economy rise simultaneously, as the value of money decreases and more units of currency are needed to pay for goods and services.

Inflation (the expansion of the money supply) and the consequent increase in prices is a disguised tax. The US government increased its spending and its budget deficit. So, it issued more debt securities, which were mostly purchased by the Federal Reserve (Fed) through an increase in the monetary base (M0). Then, the government spent the newly created money, increasing the amount of money in circulation in the economy (M1 and M2), which tends to make prices higher.

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