Who is Responsible for Inflation?

By SAM URETSKY

In one episode of the TV western Gunsmoke, Marshal Matt Dillon, who was away from the Long Branch, went into a saloon and ordered a beer. The bartender told him it was 25¢. Matt put down 5¢ and said “that’s what we pay in Dodge.” In Trip-advisor from Rineyville, Kentucky, there was an entry, “I had a 12oz draft Bud light and it was $4 I think.” Of course, this was over a year ago – prices have been going up lately.

Inflation is an economic problem – particularly for people on low incomes. The New York Times had a report, “$15 French Fries and $18 Sandwiches: Inflation Hits New York.” Inflation has a number of different measures. There is Headline Inflation, simply the numbers that we see in news reports, and which is based on the Consumer Price Index, which measures changes in a number of categories for typical urban shoppers. Rural shoppers aren’t measured.

The categories tracked are:
Food
Food at home
Food away from home (1)
Energy
Energy commodities
Gasoline (all types)
Fuel oil (1)
Energy services
Electricity
All items less food and energy
Commodities less food and energy commodities
Used cars and trucks
Apparel
Medical care commodities (1)
Services less energy services
Shelter
Transportation services
Medical care services

There is also Core Inflation which eliminates costs that are subject to frequent changes – food is one example since the pice of commodities varies with the season. Core inflation is probably a better way of measuring the actual changes in prices since they’re less subject to changes in weather or other variables. The problem is, there have been a lot of variables lately, which influence prices and politics. Shut downs due to the COVID epidemics. problems in deliveries, and the occasional war.

The current drought monitor shows areas of extreme and exceptional drought in California, Texas and other western states. This would cause poor agricultural yields, with higher prices for crops. In other areas there are floods – also bad for agriculture. Then there are wildfires, but these only count toward headline inflation. Ultimately, inflation is something like an auction, with too much money chasing too few commodities, except for people who don’t have too much money.

Of course, this is political stuff and it’s obvious, to any Republican, that $5 gasoline is President Biden’s fault. For example, the COVID-19 stimulus program gave lots of people lots of money to compensate for being out of work. Since the people had no place to spend the money, they saved it, and once they could get out and go shopping, they were willing to bid up the prices.

There are other causes of inflation. Not the least is expectation. When prices start increasing, it sometimes feels as if this trend will never stop, that the prices will go up forever. So, the CEOs and CFOs sit down around the conference table and decide to live up to our expectations. If we expect higher prices, they’ll cooperate by raising prices, Of course, this is largely the fault of the unions, Anybody who remembers the Triangle Shirtwaist Fire, or any of the working conditions at the start of the 20th century knows how important unionization has been in improving working conditions in the United States. Unionization did a lot of good, but Republicans will claim that, by increasing salaries, the unions are solely responsible for inflation and higher prices.

The answer has always been to slow down the economy with higher interest rates – but this leads to a slump. Republicans had been counting on high inflation to provide a strong red wave in the 2922 election, but the July numbers showed no price increases over the June numbers. Gas prices are plunging, inflation is down, and real wages are up. Elections are commonly decided on the direction of the economy on election day, and things are starting to look better.

Maybe, just maybe — cheap gasoline is Joe Biden’s fault. We can hope, can’t we?

Sam Uretsky is a writer and pharmacist living in Louisville, Ky. Email sdu01@outlook.com.

From The Progressive Populist, September 15, 2022

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