Inflation: Why?

They got us in the system Why they gotta do us like that? Why?

This weeks inflation report has sent shockwaves across America. It marks one of the most significant increases in inflation since last year, leaving Americans deeply concerned as gas prices at the pump are approaching record highs again. Many of us this weekend are left pondering, “Why,” like in the song by Jadakiss, "Why do we have inflation? Why is inflation considered good by some? Why do we continue to repeat the mistakes of history?” Why can’t we solve this?

Why Do We Have Inflation?

Inflation, in contemporary terms, refers to the steady increase in the prices of goods and services over time. However, the original definition of inflation centered on the expansion of the money supply. But why does it happen? The primary reason is the government's ability to increase the money supply. But how does this occur? Government programs are funded through taxation, programs we voted for. When politicians promise new programs without raising taxes to cover the costs, the government resorts to printing money to bridge the financial gap such as this year where the deficit will be just shy of $2 trillion. This injection of additional currency into the economy, without a corresponding increase in goods and services, inevitably leads to rising prices as the market seeks a new equilibrium.

So, why do governments follow this practice? One major reason is that politicians have learned that directly raising taxes on individuals can lead to electoral defeat. Since most people don't fully understand this inflationary process, governments often shift blame to external factors such as corporate greed, a strong economy, or geopolitical issues. This allows them to continue printing money, as we witnessed this year.  An interesting side note: the last U.S. president to directly raise taxes on the population, George H.W. Bush, who lost his reelection bid in 1992.

Why Are We Told That Inflation Is Good?

Is inflation ever a good thing? Some argue that low inflation is favorable, but the truth is that no inflation at all is the ideal scenario. While some believe that inflation encourages consumer spending and business investments, it's worth noting that major shopping events like Black Friday, the biggest shopping day of the year, feature falling prices, not rising ones. This challenges the notion that inflation necessarily drives consumer spending.

Why Don't We Learn from the Past?

  History provides a sobering lesson about the destructive potential of unchecked inflation. From the Romans debasing their currency by diluting silver content to the Weimar Republic's hyperinflation in the 1920s when money became so worthless that people carted it around in wheelbarrows, the consequences of runaway inflation are dire. Recent examples from Turkey, Zimbabwe, and Venezuela remind us of the tragic repercussions: soaring prices, vanishing savings, and social upheaval. So why do we repeatedly ignore these historical warnings?

Why Do Keynesian Economists Support Inflation?

Keynesian economists often advocate for policies involving a controlled level of inflation. They argue that moderate inflation can stimulate economic growth and reduce unemployment. They fail to mention other issues of having constant inflation like major boom and bust that the US economy has experienced since 1913.

In conclusion, the question of "Why?" concerning inflation is not just about why it's bad or why the government creates it; it's also about understanding the impact on our lives. At the Federal Reserve's target inflation rate of 2%, your dollars today lose 50% of their purchasing power in 36 years. Sadly, since we abandoned the gold standard in 1971, average inflation has been 4%, meaning your dollars lose 50% of their purchasing power every 18 years. This continuous erosion of wealth, especially for the middle class, has far-reaching consequences, including a decline in middle-class status.

As Jadakiss says, "All that I've been given is this pain that I've been living. They got me in the system. Why they gotta do me like that?" - Let's continue to explore these questions together, seeking a better understanding of the complex world of inflation and its effects on our lives.

**The Coastal Journal encourages you to stay informed, engage in conversations about the implications of monetary policie

s, and hold our leaders accountable for the betterment of our society.