Understanding the root causes of inflation is crucial in today’s economic landscape. While many attribute rising prices to corporate greed, the reality is more complex. Inflation fundamentally begins with an increase in the money supply, leading to inflated consumer prices and exacerbated market bubbles for stocks and real estate.
As prices escalate, the effects ripple through the economy. Asset holders experience wealth accumulation as the value of their possessions rises, simultaneously easing the burden of their debts. However, the situation is markedly different for workers who rely solely on their wages. For them, rising consumer prices often outstrip wage growth, resulting in significant financial strain.
Those on fixed incomes, like retirees, face similar hardship, as stagnant monthly allowances fail to keep pace with increasing costs. Consequently, individuals find it increasingly difficult to manage consumer debts; more of their earnings must be allocated to basic needs such as food and shelter, leaving little to address debts. For many, this means accumulating additional debt just to bridge the gap between their earnings and rising costs.
The impact of inflation also widens the wealth disparity within society. While wealthy asset holders benefit from inflated values, the purchasing power of wage earners diminishes. For example, as of the third quarter of 2023, the top 10% of earners in the U.S. owned a staggering 66.6% of total wealth, while the bottom half retained just 2.6%.
The surge of inflation currently plaguing America can largely be traced back to the erratic financial strategies implemented by the Treasury and the Federal Reserve during the COVID-19 pandemic. Unfortunately, this issue is unlikely to resolve soon, and its repercussions may persist for generations.
At this juncture, many individuals have already felt left behind.
Despair and Decline
In rural America, where the landscape is marked by neglect, there exists a palpable sense of hopelessness. The Centers for Disease Control and Prevention report that over 1,500 Americans succumb to overdoses from fentanyl or other opioids each week, totaling around 80,000 deaths annually—an unfortunate statistic that exceeds the capacity of many NFL stadiums.
The combination of highly addictive substances, bleak job opportunities, and escalating consumer prices has led many individuals to despair. In search of relief, they turn to drugs, often with tragic consequences.
Sadly, reversing this trend will be a complex challenge. Economic indicators like a few quarters of positive GDP growth or interest rate reductions won’t address the fundamental issues at hand. This crisis will need to unfold fully before sustainable solutions can be considered.
Government interventions, while often well-intentioned, can lead to unforeseen negative consequences. Take California, for example, where a new law set to take effect on April 1 will elevate wages for fast food workers to $20 per hour.
This legislation illustrates how well-meaning policies can inadvertently harm job markets and inflate costs. Many businesses have already preemptively reduced staffing or halted hiring in anticipation of the changes.
Franchise owners for Pizza Hut and Round Table Pizza have announced plans to let go of 1,280 delivery drivers this year, opting instead to outsource deliveries to apps like DoorDash. Unfortunately, some workers have already received their termination notices.
Intrusive Government Policies
Consider the case of Michael Ojeda, a 29-year-old Pizza Hut driver from Ontario, California. After nearly eight years of service, he was informed in December that his job would end in February. The only consolation offered was a $400 severance package for staying until termination, which he understandably rejected.
“Pizza Hut was my career for nearly a decade, and with little to no notice, it was taken away,” Ojeda lamented. Regrettably, his experience is likely to be shared by many fast-food workers across California due to similar policies.
As businesses innovate to reduce labor, like Jack in the Box testing fryer robots and El Pollo Loco automating salsa production, menu prices will inevitably rise, further complicating the cost-of-living crisis that the wage increases aim to alleviate.
Conversely, the prospect of new restaurant openings in California is becoming bleak as many restaurant owners look to expand in states with friendlier business climates. This trend showcases how government interference can result in both higher prices and fewer job opportunities.
For Ojeda and his colleagues, this transition might open doors to better prospects. It could serve as motivation to acquire new, higher-paying skills or even to relocate to a less restrictive state where living costs are manageable and government burdens more tolerable.
Does Corporate Greed Cause Inflation?
Consequently, California’s unemployment rate has surged, now standing at 5.3 percent as of February. Moreover, the rate of job growth has significantly slowed.
Initial reports indicated that California added 300,000 jobs between September 2022 and September 2023, but this figure has since been revised to a mere 50,000—translating to just over 4,000 jobs per month. For a state with a population exceeding 39 million, this represents an insignificant fraction of the workforce.
It is uncertain what the state legislature’s next move will be, but increased regulations appear likely—a pattern that has become all too familiar. The impact of added regulations is well-documented, often driving businesses to shutter or relocate.
An alarming recent example occurred on March 20, when State Farm announced that it would eliminate 72,000 home and apartment policies in California due to inflation, regulatory expenses, and rising disaster risks. This decision further burdens California property owners, who already grapple with exorbitant insurance rates.
Although California’s regulatory issues may seem extreme, they are not unique. Even in states with lighter regulations, federal measures often compensate for them, culminating in a difficult scenario for many.
The combination of government regulation and inflation creates a harsh reality: soaring prices, limited options, fewer employment opportunities, and an ever-widening wealth gap.
The next time you hear President Biden attribute rising prices to corporate greed, remember that the true culprit lies in massive government budget deficits and lax monetary policies from the Federal Reserve. More inflation is on the horizon.
The recently approved $1.2 trillion spending package, laden with regulatory measures and political favors, ensures the continuation of this trend.
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Sincerely,
MN Gordon
for Economic Prism
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