My friend the New York Times reader calls my attention to this article called “Americans Are Flush With Cash and Jobs. They Also Think the Economy Is Awful.” The suggestion is that Americans are too dumb to realize how prosperous they are.
The author cuts Americans some slack, though. He blames our misperception of how we’re doing on inflation. His thesis is that when prices are rising, we’re misled into thinking there’s a problem with the economy.
The Times-man bases this argument on one truth about inflation — that inflation, in and of itself, doesn’t take money out of the economy. It just redistributes money:
To economists, higher wages and higher prices for consumer goods are two sides of the same coin, and a spurt of inflation creates both winners and losers. In the last few months at least, the public hasn’t appeared to view it that way — and inflation and related shortages seem to loom particularly large in their overall perception of the economy.
Any group of individuals might end up better or worse off in a time of elevated inflation, depending on whether they’re debtors or creditors, and whether their wages rise faster or slower than the particular goods they buy.
A restaurant worker who has received an 11 percent pay increase over the last year — the average for the leisure and hospitality sector, according to government data — probably has higher spending power despite high inflation.
But many people are losers in times of rising prices — and even those who may end up being net winners can end up feeling the pain of higher prices more intensely than the benefit of higher wages or more manageable debts.
The left favors income redistribution providing the winners are from the right class of people. When old, mostly white people on fixed incomes lose out to fast food workers, for example, leftists are apt to be pleased.
But the other main truth about inflation is that it’s disruptive. Rising prices make it difficult for people to plan. Low income, middle income, and even some upper income households operate on a budget. They need to know what they will spend on food, for example, each month. Inflation thwarts that goal.
Manufacturers also need to know what the things they use to make stuff are going to cost. So do others who invest capital. They also want to know what the interest rates are likely to be going forward. When they don’t know these things, they may hesitate to invest or make inefficient investments and other poor decisions.
Thus, at a certain level, inflation doesn’t just redistribute money, it is also a drag on the economy. This may be why the Washington Post’s Catherine Rampell, in an article along the same lines as the Times’, concedes that “that inflation is real [and] it’s painful. . .for businesses, consumers and workers.” Thus, she concludes that it’s “unhelpful — both economically and politically — to pretend” that inflation isn’t harmful.
Rampell claims that Biden isn’t pretending this. She presents evidence that he’s starting to give lip service to the problem of inflation, as well he might given a poll in which 60 percent of Americans said the president isn’t paying enough attention to inflation.
But actions speak louder than words, and pumping trillions of dollars into the economy is likely to accelerate, not stem the inflationary tide.
UPDATE: This just in from AP:
Inflation at the wholesale level rose 8.6 percent last month from a year earlier, matching September’s record annual gain and offering more evidence that inflationary pressures are not yet easing.