Sunday, October 30, 2022

Inflation is a concern

Yes, inflation is a concern and should be.  But the focus needs to be much deeper.  First it is a global problem.  Blaming Joe Biden for the global inflation is extremely short sighted and virtually pointless.  His opponents are very vocal criticizing, but very short on realistic solutions.  We need to take a closer look.


 

We are not yet out of the Covid pandemic.  A lot of fear and resentment has been generated.  Some politicians tried to ignore it and one mocked honest efforts to control it.  That one person was Donald Trump.  There was already in motion other results from the pandemic that could only be mitigated.  Many people died and others were fearful and governments around the world took steps before we understood many details.  Social distancing had proven to be effective which meant controlling both crowd situation, consumer and retailer contacts and even walking down the street.  Masking was mandated to minimize risks.  These steps were resented and resisted by many people, especially those following the lead of Donald Trump.

There was a race to develop a vaccine and that already had resistance with those who felt vaccines were unsafe and many who just plain feared them.  Donald Trump apparently did get vaccinated, but it was relatively quiet and not supported by many of his followers.

Supply chains were disrupted, partially due to consumers cutting their spending.  Another problem was workers who either couldn't get to work or were too fearful.  Restrictions and practicalities on international trade caused further supply chain tightening.  Many companies, mostly relatively small went out of business.  Even some crops were not picked.

Many governments around the world felt they had to protect both consumers and retailers and gave out money which had to be borrowed.  The large companies that survived found they could increase their prices disproportionately and the government would be blamed.  Reports coming from companies on stock exchanges are of increased profits.  What most of them are doing with this extra money is stock buybacks and increased dividends.  CEOs on many companies have been able to increase their share of the profits at the expense of their lesser employees.  Again another factor increasing inequality.  Their reduced taxes increased their leverage.

It turns out inflation is a mechanism for increasing inequality.  Those in the bottom 90% find themselves with squeezed budgets forcing difficult decisions.  Those at the top are well insulated from such stresses.  There are no pain free solutions.  One strategy is to curb consumer spending which means higher interest rates as one tool.  It is very easy to criticize governments, but very short sighted.  The wealthier families did better with education than their poorer counterparts which has long term consequences for everyone.

Politicians  in opposition parties are very willing to criticize.  One of their solutions is to stop spending.  It is true that is important, but who is going to decide where the cuts should come from.  Many Republicans for example feel free to suggest social programs that benefit the masses, climate change efforts, inspectors, etc.  They are always pushing tax cuts and deregulation pointing out that the wealthy are the job creators.  Actually job creators are consumers.

Compounding the situation has been the unprovoked invasion of Ukraine.  It will push energy prices everywhere.  It also will have a direct impact on wheat and sunflower oil, but that will most hurt poor countries. 

There are no easy answers, but listening to the critics is counter productive.  Some of them should look in their mirror.  Higher tax rates on the wealthy have had a positive influence on inflation.  With extreme high tax rates for the very wealthy it makes more sense to keep employees happy. 

In the meantime the pandemic has not disappeared.  The virus has mutated with new variants.  We need long term solutions, not the short term  that too many resist.  Respect for scientific experts needs to be enhanced.    

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