America
is seeing the economic recovery light brighten as the COVID pandemic is more
and more contained with vaccinations in the nation. This will be just one of
the long-haul patients shedding the effects that have been inflicted by the
disease. There are and will be lots of prognostications about how the Economy
will recover. But a significant issue that is emerging as a concern and also as
a bone of contention is Inflation. Part of the reason for concern is that there
is a need for some economic stimulus to help boost the economy from the hits it
has taken from the pandemic. The federal government provided funding during the
pandemic to help keep businesses, industries, and workers financially viable.
It has been recognized from past crises that not reacting or under-reacting causes
the economic problems from recessionary factors to take longer to recover or
more often than not to make the recession worse and more damaging to the nation.
Along with this governmental funding is a concern that the government will
over-heat the economy and produce inflation. That concern has a valid basis but
is also one of the reasons that the Federal Reserve is responsible to act to
contain and mitigate inflation from getting out of control and harming the
economy.
But
there is another aspect to Inflation which makes it a national issue. Inflation
is a political issue that is used to support or resist various legislative or
funding decisions by the government. Inflation is not a partisan issue. Both
Republicans and Democrats will use the specter of Inflation to support their political
positions and ideological views. Politicians’ respective views will swing like
a pendulum as the side that they support or resist works to advantage their
political campaigns.
None of this will take into account that there are Inflation impacts already
and it illustrates how out of touch and uninformed our politicians are in understand
one of their own most important issues.
Now Inflation
is a true financial issue. It has impacts on the economy. Inflation is not good
or bad, it is just a produce of “cause and effect” processes in the economy. To
much inflation is bad, just as to little inflation is not necessarily good.
A
current forecast by one side is that proposed government spending will cause some
increase in Inflation for a period of time but the boost to the Economy will be
more beneficial and that Inflation will be a blip. Another side is projecting a
catastrophic increase in Inflation which will do more harm and ultimately retard
the recovery. Of course, neither side is required to be right or even know what
they are forecasting based on how evets transpire. Regardless, we can expect
the politicians to claim that they were right no matter what happens.
What is
it that politicians would seem to be unaware of and don’t seem to be able to capture
in their ideological stances on Inflation? Well, it is that there is Inflation
now and it isn’t due to too much or too little governmental spending. Costs are
rising now, before any Infrastructure legislation has been passed and before
any other government spending legislation has been agreed to. Inflation is occurring
now due to other factors. Costs are rising because there have been disruptions
in the supply-chain for many businesses. Costs are rising because inventories
are low as industries ramp back up to full-scape production capacity. Costs are
rising because there is demand increasing more rapidly than supply can be
produced. Costs are rising because there have been other natural events that
have distorted the markets, such as weather damage to industrial production
facilities. Costs are rising because the corona virus has introduced additional
expenses into what the pre-pandemic cost structure was.
So,
will boosting the growth of the Economy be a force that helps address some of
the factors that have produced Inflation Now? Or, will it increase the pressure
on Inflation causing it to rise more? If you pick your answer based upon your
political alignment, then you are not approaching the question or the problem
properly. It is almost always a mistake to know the answer before you know why
it is the answer.
Beware
of politicians! “Here Be Dragons!” And these are not intelligent dragons.
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