Inflation’s Impact on the Lower and Middle Classes
Two Score Years Ago
It was in 1980 that Ronald Reagan, a Hollywood actor who had served as the Governor of California, defeated President Jimmy Carter and became the President of the US. The inflation rate was at 15.31% per year, and unemployment was at 7.5%, a condition known as Stagflation: a combination of stagnation and inflation. The election occurred on the anniversary of Iran’s hostage-taking invasion of the US Embassy.
Reagan appears to have been more concerned with healing America’s wounds than boosting his own popularity. He allowed unemployment to rise for two years until most of the inflation had been squeezed out of the economy. Had the Presidential election been held in 1982, he would have lost in a landslide. Instead, with inflation gone, he won by a landslide in 1984.
Since then, five U.S. Presidents have faithfully kept inflation at bay on behalf of everyone. Enter Joe Biden, and inflation roared back.
“Mo’ free stuff’ is not a strategy, it’s theft and malfeasance of office.
Inflation’s Impact varies by Class
With inflation, things that everybody needs, such as heat, usually cost the same amount to everyone. But they don’t impact everyone the same. Consider heating your home. We all need to do it (except, of course, for the few elected officials such as Joe Biden, State Governors and a few others, whose bills are paid by the taxpayers). The impact varies by income level and socioeconomic status. Inner city minority-group members will suffer the most. For them, keeping warm went up at least 35%, which then consumed all available housing money. THAT is institutional racism.
Gasoline is needed to travel from place to place. Yes, there are electric cars and high-capacity batteries. But our total capacity to produce renewable energy is paltry compared to the need. And, most of the plants producing electricity to charge the batteries use fossil fuels. The cost of gasoline rose 45% for everybody. That impacts those living paycheck-to-paycheck more than those who earn more. Inner city minority group members are disproportionately affected.
The price of new cars, preferred by the well-off, rose 12% during 2021, an unusually high inflation rate. The price of used cars, however, primarily bought by those less affluent, increased an unprecedented 40.5%. That is an incomprehensible phenomenon. Its effect is easy to comprehend. The working poor and middle class disproportionately carry the burden of inflation.
Virtue Signalling
The amount of US energy consumption produced by fossil fuels is 81%. Only nuclear and hydro power are truly non-carbon-emitting. Renewables (biomass and ethanol from corn or sugar cane also emit carbon). Driving an electric vehicle is simply transfering, not reducing, carbon. It only moves the carbon emissions to wherever the electricity is produced. It’s like the way cost savings are calculated in government-run healthcare: Cost-shifting is not the same as Cost Reduction. The same is true of carbon emission: Carbon-shifting is not the same as Carbon Reduction.
Wind and solar are almost irrelevant. Wind generation of power depends on a way to store the power when the wind is blowing; Solar power needs to store energy for when the sun isn’t shining. The greatest untapped source of power in the world is wave action. I designed a wave-action energy-capture and -storage system for a novel I wrote. It was sound engineering, but never could produce enough reliable energy to matter, since it was very small, only capturing a tiny percentage of the available energy.
It would be nice if Biden and Harris could acknowledge whom they are forcing to bear the cost of their policies.
Inflation is the hidden tax on everybody but hits the hardest on the poorest. Congress loves hidden taxes so they won't be blamed for higher taxes. In the past we have counted on a nominal 2% inflation to amortize the difference between government outlays and revenue. Historically the US revenue has been ~ 20% of GDP. A near constant despite various tax rates assessed in a progressive fashion - the rich might have had rate of 90% but the government never could collect that in actuality. It's not clear if the US citizen would agree to materially higher tax rates as seen in many EU countries nor if innovation stalls with higher rates that discourage risk for reward. Then historically outlays were ~ 22% of GDP. War often created deviations that were compensated by reducing some outlays afterwards.
All of that changed in 2008 with the combination of the FDR social security time bomb (boomer retired) and the collapse of the financial engineering real property scam. In a short period of time $17T of paper profits disappeared. We now live with that overhang. In the meantime the total debt has risen to $30T and we have no ability to contain that growth. Debt service which Modern Monetary Theory seems to ignore has to increase as interest rates rise to stem inflation.
Congress must eventually deal with the issues they created long ago. We won't be happy with them when that happens. The policy positions related to US energy are not sustainable. We need GDP growth and energy fuels that growth. Inflation reduces real GDP growth and individual prosperity. Not sure when Congress will understand.
My gas bill was a lot higher than last January. In small print it said "we have raised the cost by 30%." There are some programs that help the poor with energy costs and the gas company lets you donate to help them...but 30% is a huge hit. Same with vehicle costs.
Yes, hourly wages have gone up some but not enough to cover these increases.