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Monday, May 24, 2021

OPINION:

In 1981, during his Inaugural Address, President Ronald Reagan uttered this famous phrase, “Government is not the solution to our problem, government is the problem.”

Forty years later, the same can be said. Although I would replace “government” with “stimulus.”


Why the subtle change? One word: inflation.

Most Americans are well aware that inflation, which many economists call a “hidden tax,” has arrived (again) in America.

According to the Bureau of Labor Statistics (BLS), inflation is up across the board.

Per the April BLS report, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March. … Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.”

Unfortunately, as the report states, “The index for used cars and trucks rose 10.0 percent in April. This was the largest 1-month increase since the series began in 1953.”

“The index for all items less food and energy rose 0.9 percent in April, its largest monthly increase since April 1982.”

“The energy index rose 25.1 percent over the past 12 months. The gasoline index rose 49.6 percent over the last 12 months, its largest 12-month increase since the period ending January 2010. The index for natural gas increased 12.1 percent, and the index for electricity rose 3.6 percent over the same period.”

And, “The index for all items less food and energy rose 3.0 percent over the past 12 months; this was its largest 12-month increase since January 1996.”

So, what is driving the out-of-control inflation? Too much stimulus.

Although it is impossible to pin rising inflation on one single factor, the flood of federal stimulus money that has been created out of thin air is at least a major, if not defining, reason.

Since the pandemic, the U.S. government has unleashed the currency printing presses like never before. Over the past 15 months, the U.S. government has showered the economy with more than $5.4 trillion in pandemic-related “relief” funds. And that comes on top of the $4 trillion annual spending budget for the U.S. federal government.

It doesn’t take a Harvard-trained economist to understand the simple notion that when the government floods the economy with trillions more dollars, the value of existing dollars decreases. And prices rise.

Even worse, as the U.S. government is saturating the economy with trillions of dollars, it is actively suppressing productivity with policies that incentivize Americans to remain out of work. More dollars chasing fewer goods and services is a recipe for economic disaster, aka stagflation.

From the $300 per week federal unemployment bonus that runs until September to the host of new anti-free-market regulations introduced during the first few months of the Biden administration, the federal government is making inflation worse.

What’s more, it is not just those on the right who are touting the fears of stimulus-induced inflation.

Lawrence Summers (an actual Harvard-trained economist), who served as President Clinton’s Treasury secretary and President Obama’s director of the National Economic Council, recently warned the wave of stimulus could “set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”

Summers added that “given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply. Stimulus measures of the magnitude contemplated are steps into the unknown.”

If that doesn’t make Americans think twice about the wisdom of unfettered stimulus, perhaps we should consider another Reagan quip: “When a business or an individual spends more than it makes, it goes bankrupt. When government does it, it sends you the bill. And when government does it for 40 years, the bill comes in two ways: higher taxes and inflation. Make no mistake about it, inflation is a tax and not by accident.”

• Chris Talgo (ctalgo@heartland.org) is senior editor at The Heartland Institute.


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