In the news today: “Biden Taps Top Bernie Allies to Craft Economic Agenda,” Washington Free Beacon.
“The Biden campaign tapped top Sanders allies Stephanie Kelton and Sara Nelson to join a ‘unity task force’ focused on developing the Democratic platform on the economy. An economist at Stony Brook University, Kelton served as an economic adviser to Sanders’s failed presidential campaigns in 2016 and 2020. She has argued that the government can pay for expensive programs, including the $94 trillion Green New Deal, by printing more money.
“Kelton is a leading advocate of ‘Modern Monetary Theory,’ which rejects concerns about deficit spending and calls for the funding of radical progressive policies by printing more money. Rep. Alexandria Ocasio-Cortez (D., N.Y.) has said the theory should be ‘part of the conversation.’ Kelton pitched the theory at the Wall Street Journal‘s 2019 Future of Everything Festival, questioning why Democratic presidential candidates do not dismiss concerns about paying for expensive policy proposals.
“’There’s so much pressure on candidates to pay for everything,’ Kelton said. ‘I don’t see anyone—I mean, I’ll just be honest, I don’t really see any presidential candidates putting forward ambitious agendas and saying,” ‘We’re not going to try to pay for any of this.”'”
Separately, at the Chicago Tribune: “Grocery prices see biggest monthly increase in nearly 50 years.”
“U.S. grocery prices saw their biggest monthly increase in nearly 50 years last month, according to the latest report from the federal Bureau of Labor Statistics.
“The index for meats, poultry, fish, and eggs increased the most among food groups, rising 4.3%. A separate index for eggs alone increased 16.1%.
“The index for cereals and bakery products also rose 2.9% in April, its largest monthly increase ever.
“All six major grocery store food groups increased at least 1.5% month-to-month, the Labor Department said.
“Overall, U.S. consumers paid 2.6% more in April for groceries, which is the largest one-month jump since February 1974.”
Experts say inflation is coming
Repeatedly, experts insist that we are at no real risk of inflation, and, instead, will experience a period of deflation. What’s more, conventional wisdom claims, because the dollar is the world’s reserve currency, we are insulated from the risk of hyperinflation, and can run the money printer in ways that other countries cannot.
Monetary theory aside, in the short-term, it simply costs more to produce goods and services under our pandemic conditions: increased sanitation procedures, facility closures, adaptation to changed consumption patterns, and so on, irrespective of everything else. In the longer term, Patrick Hosking at The Times of London writes that, however much in the short term businesses will cut prices to boost sales, “Societies will be less tolerant of long supply chains and low inventory levels, while globalised companies will play second fiddle to ‘national champions’ — favoured by populist governments. The benign force which has helped to put downward pressure on prices for three decades could be coming to an end.” A push to move manufacturing out of China may be popular and may even be the right decision, geopolitically, but it will boost costs.
Harrison Schwartz, writing at Seeking Alpha, claims, “hyperinflation is here, we just can’t see it yet.” Analyzing both the monetary supply and actual price increases for various categories of goods and services, he concludes that “we should see a total increase in the price level of 50% or more over the coming years.”
Other voices make similar predictions:
At Barron’s, Randall Forsyth writes, “The Next Big Inflation Wave Could Kick In by 2022. This Time, the Fed Will Welcome It.” While Forsyth doesn’t predict a specific level of inflation after the economy recovers, he does believe that central banks will be happy to permit it.
At Financial Times, Karen Ward, chief market strategist for the EMEA region at JPMorgan Asset Management, writes that “Coronavirus will awaken inflationary forces before year is out.”
“For much of the past decade economists and investors have debated whether inflation is dead, or merely sleeping. Within a year, it will be clear that it is very much alive and kicking.”
After lockdowns end, Ward predicts, households will be ready to spend again to a greater degree than supply of goods and services will be available. What’s more, “there is also a risk that policymakers leave the stimulus in place for too long.”
“Policymakers have demonstrated in recent years a clear tendency to err on the side of delivering too much rather than too little. And populations will not tolerate talk of a new wave of austerity so soon after the last. It is possible that the monetary and fiscal taps remain turned on for longer than necessary, allowing medium-term inflationary pressures to build.”
Given Biden’s economic advisor’s support for aggressive money-printing, it hardly looks like a mere possibility that the taps “remain turned on for longer than necessary.” And how great the risk is of not merely moderate inflation but hyperinflation, I don’t claim to know — but if it were as easy to clamp down on high inflation before it becomes hyperinflation, then we would hardly have so many instances in history in which governments were unable to prevent this. And the consequences of high inflation, let alone hyperinflation, are so pernicious that I sure as heck would rather not gamble with this.
And retirement?
It should go without saying that retirees relying on fixed pension checks will suffer when those pensions lose their value. The same is true of those who have purchased annuities, or who rely on interest from bonds they’ve purchased to provide an income in retirement. But even Social Security, with its cost of living adjustments, wouldn’t fully compensate retirees for inflation, since they’re provided only annually.
What’s more, high inflation will make it all the more difficult to figure out how to fund future increases in the cost of health and long-term care for the elderly, two key issues for which we are already short on answers.
Now, I’ll admit that, last year, I cynically and Swiftianly proposed that the Illinois pension system could cut its liabilities in half by means of an ongoing inflation rate of 10%, because its Tier 1 teachers’ 3% guaranteed annual adjustment would then be dramatically less than, instead of greater than the inflation rate. Multiemployer pension plans would also be doing better, presuming that asset returns stay ahead of inflation. But it’s not worth the cost.
Building a wishlist of items to pay for by printing money is playing with fire. As a mom of boys who love to do exactly this, I know that often enough, there’s no harm done. But if it goes wrong, the consequences can be devastating.
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