• Inflation Is the Mother of Big Political Change

    From (David P.)@21:1/5 to All on Mon Nov 1 23:27:34 2021
    Inflation Is the Mother of Big Political Change
    By Holman Jenkins Jr, 10/22/21, Wall St. Journal

    Since excessive inflation is one characteristic outcome
    of a fiat money system, who is really surprised that such
    a moment might be on us again? The table would seem to
    have been set for a long time: Unruly govt borrowing.
    Mounting regulatory burdens & disincentives to business
    & workers. A decline in labor force participation. The
    peculiar unwillingness of a large cohort of young men
    to pursue either work or schooling.

    Then came the pandemic & the pandemic spending binge,
    which shifted public demand away from services (no longer
    available) to goods that supply chain struggles to deliver.

    Jerome Powell, the Fed chief, posits a happy ending:
    Production resumes, goods & services flow in abundance,
    inflation is transitory. But he knows it’s not that simple.
    An apparition of central bankers is the dread inflation
    psychology, but inflation expectations don’t become embedded
    in consumer heads because of childhood trauma, but because
    consumers detect a mindset of policy makers to accommodate
    inflation. And Powell, whose renomination is pending, must
    subordinate himself & his monetary decisions to a fast-rising
    new agenda in Washington: a whole-of-establishment effort
    to keep Donald Trump from returning to the White House.

    Inflation is like Covid: If it gets loose, it will dominate
    our politics. It causes great unhappiness but also makes
    new things possible.

    In the 70s, the inflationary crisis imploded a large govt
    establishment occupied with trying to fix the supply &
    price of air travel, truck transport, rail services &
    consumer energy supplies. It imploded a tax system that was
    found to be constantly promoting people into higher brackets
    even as their real income and living standards declined.

    All in all, quite a revolution in govt’s role in the economy
    began under Carter & continued under Reagan, & was echoed
    all around the Western world.

    Today’s inflation would be hitting an economy with
    rigidities of its own, mostly of a different kind. Zoning
    rules depress the supply of housing; licensing restrictions
    depress the supply of personal services. Wind and solar
    mandates tax the reliability of the grid. Means-tested
    entitlements make it less attractive at the margin for
    Americans to work.

    We may discover other vulnerabilities but two gaping ones
    weren’t part of the story in the 70s. In 1977 federal debt
    was 34% of GDP; today it’s 125%. And the share of Americans
    who’ve experienced direct govt aid has quadrupled. It now
    comprises over 50% of the population, & that’s before our
    vast pandemic spending & Joe Biden’s welfare ambitions.

    Which means a lot could go kerblooey & fast. Rising
    interest rates could double or triple today’s $400 billion
    interest bill on the national debt. Overnight, this item
    could rival Social Security and Medicare as the biggest
    single budget outlay.

    The available options would only compound the public’s
    unhappiness with inflation: large tax hikes & spending cuts,
    central bank finance of deficits (leading to more inflation)
    or heavy-handed measures to force private depositors to
    hold govt debt, essentially expropriating private savings.

    Though Social Security benefits nominally are indexed for
    inflation—a 5.9% increase has been announced for next year—
    Congress knows well how to claw back benefits by taxing
    them. For programs like Medicare & Medicaid that deliver
    in-kind benefits, the even simpler expedient is to cut
    reimbursements to providers, which users will experience
    as declining quality and longer wait times.

    To the upwelling of voter aggravation, add Congress’s
    likely targeting of indirect benefits that effectively put
    almost 100% of Americans on the dole. These include the
    mortgage-interest deduction & tax-free employer-provided
    health care.

    When voters are angry & at wit’s end as they are when
    inflation is unraveling their expectations & life plans,
    new things become possible, good & bad. Evolutionists
    talk about “punctuated equilibrium.” A bout of society-
    transforming inflation would certainly get us off an old
    & exhausted equilibrium & onto a new one that we can hope
    will prove sustainable in the long run.

    Nobody planned our giant experiment in a welfare-cum-
    administrative state. Its incoherence has long been
    showing. Many of its features aren’t even about fixing any
    problem but about satisfying constituencies who want
    power over their fellow citizens.

    All things that live must change & adapt. That includes a
    fiscal state that so demonstrably has run out of gas that
    almost everybody, from the most woke to the most Trumpian,
    senses it in some fashion.


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