Pinned on my office wall is a Zimbabwe $10,000,000,000,000 note. (That’s 10 trillion for those of you tired of counting zeroes). The currency is real, although Zimbabwe’s default currency is now the U.S. dollar. The central bank of Zimbabwe issued these $10T notes during the last days of hyperinflation in 2009, and they barely paid for a loaf of bread.
Ironically, you can now purchase one of these bills for about $27 U.S. dollars because they serve as collectors’ items or, more importantly, as a physical representation of the evils of inflation. Every economics professor in America should own one to show to their students on the first day of Econ 101.
Milton Friedman explained that inflation is always “a monetary phenomenon in the sense that it is and can be produced only by more rapid increase in the quantity of money than in output.”
Inflation hits everyone, but especially the middle class and those on fixed incomes. Inflation is a threat to the middle class because price increases reduce purchasing power so that the things that the middle class could previously afford are now out of reach. This pushes the lower rungs of the middle class out of the picture.
The disproportionate impact of inflation on the middle class relative to the wealthy may seem counterintuitive because the inflation rate — projected now at over 6% — is the same for everyone. But while all suffer the same rate of inflation, those with lower incomes tend to have lesser means of adapting to the increases in consumer prices. The suggestion from Biden’s White House chief of staff Ron Klain that inflation is a “high-class” problem is insulting.
Even harder hit are those on fixed incomes, including seniors who rely on Social Security and perhaps a small pension. Automatic cost-of-living adjustments lag behind the rate of inflation. For example, even though Congress passed the National Defense Authorization Act, which included a 2.7% pay increase for military personnel, that doesn’t even cover half the inflation rate. Those who protect us deserve better.
It’s not just Ron Klain in the White House who tried to minimize inflation’s impact. Press secretary Jen Psaki and Biden himself have tried to pivot, blaming the private sector. Biden blames oil companies for the increase in the price of gas and Psaki blames big meat producers for the doubling of the cost of hamburger. But Americans aren’t fooled. Even the narrative that inflation is “transitory” has been abandoned in the face of indisputable evidence that inflation shows no signs of subsiding.
Inflation is the direct result of bad government policy. And when government policy erodes the purchasing power of money, let’s call this for what it is: A cruel tax hike. California, as well as many other states, allows voters to approve or reject tax increases in many situations. But inflation is a tax voters never approved.
Politically, progressives are hoping that inflation can be controlled prior to the midterm elections later this year. That is highly unlikely. In fact, all indications are that this genie is going to be especially difficult to stuff back into the bottle and may be a central issue in the presidential election in 2024.
Between now and then, however, citizens are in for a rough ride. And if you think inflation is bad now, it could get worse. We could easily slip back into an era of “stagflation” with a combination of double-digit inflation, double-digit interest rates and negative economic growth. That’s what Jimmy Carter brought us in the 1970s and it will take stalwart political leadership in the mold of Ronald Reagan to right the ship.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.