Inflation by design

February 9, 2009

Without getting too far into the inflationist vs. deflationist debate, readers are aware that I have long argued that government will always choose inflationary policies in an attempt to inflate their way out of asset deflation.  While an argument rages as to whether government can succeed, I have long suggested their intent is clear.  See here.


Even renowned economics blogger Mike ‘Mish’ Shedlock , while a noted deflationist, understands the motivation behind the state’s attempts at inflation and mirrors my thoughts on the matter.


BWS: In our corporatist state, politicians’ primary constituents are not the mass of voters.  Voters are easily manipulated.  The primary constituents of our political overlords are wealthy individuals and corporations who keep the political class in power.  The wealthy are not wealthy because they earn high wages.  Rather, they are wealthy because they own assets.  Therefore, when given a choice, the state will always choose inflation, or even hyperinflation, over widespread asset deflation. 


Mish: Fed and government policies rob taxpayers by promoting policies of inflation. Look at what accompanies rising prices: rising property taxes, rising sales taxes, and rising income taxes. Is that a good thing. The answer is no, especially when wages fail to keep up, which is exactly what happened.  Who benefits from inflation? The answer is government, banks, and already wealthy because they are first in line to receive money. Everyone else is screwed. Inflation is theft from the middle and lower classes for the benefit of government and the wealthy.


BWS:  The state will respond to its constituents and attempt to inflate its way out of widespread asset deflation with no boundaries on the pain inflicted upon the general population.  It’s a choice: inflation affects everyone, but disproportionately affects the worker, the wage earner.  Asset deflation hits the wealthy far more than the poor.  The reason is simple: the wealthy own assets, the poor own money


Mish: Taxpayers will eventually have to pick up the tab, either via taxes or a weaker US dollar.  Deflation is actually a natural state of affairs. As productivity increases, standard of living rises and prices fall. Absent government intervention, productivity would actually increase the amount of goods produced, causing prices to drop. Falling prices are a good thing not a bad one.


As with TARP, and as with the latest trillion dollar ‘stimulus’ attempt, I encourage readers to follow the money and understand who will benefit.  With TARP, it has become quite clear who has benefited: financial sector executives and bondholders. 



The Big Lie of Job ‘Creation’


The latest TARP variant will attempt to expand these same errors to the broader economy by throwing vast amounts of money, with minimal transparency or oversight, at the central planners instead of the financial services corporations.  Through this ‘stimulus’ act, the state will claim to ‘create jobs’.  I have heard claims as high as 3,000,000 jobs, most coming from ‘infrastructure projects’.  In point of fact, the state cannot create a single job.  The reason why is both simple and straightforward.  I will repeat it once more: The state does not have any money.  Your government (referred to on this site as ‘the state’, as opposed to the State in which you live: state vs. State) can only obtain money from one of two ways: 1) confiscating it from citizens in the form of tax and 2) borrowing the money.  Either way, the citizen pays.  The citizen pays income tax, FICA tax and sales tax.  The citizen pays corporate tax in the form of higher prices to off-set the tax.  (Every reader should know that corporations do not pay ‘corporate tax’).  The citizen pays an array of ‘sin’ taxes.  And, of course, the citizen pays a whole host of miscellaneous taxes on everything from their telephone to their real estate purchases to their automobile registrations.  Less commonly understood is how citizens pay the cost of government borrowing through debasement of the currency- through inflation, the stealth tax on every dollar earned or owned. 


Capital confiscation is not job creation


The state’s attempt to ‘create’ jobs simply amounts to the confiscation of capital from the private sector and the moving of this capital to the public sector, where this capital is then directed by bureaucrats- the central planners of our state-sector economy.  Thereby is a citizen ‘employed’ in building a bridge, digging a ditch or painting a school.  But what happens when the bridge is built, the ditch dug or the school painted?  What then?  That job goes away – poof! – just as magically as it was ‘created’.  These are not jobs, as they are not economically viable or self-sustaining based on productivity or value.  They are simply another form of state welfare- the movement of capital from the private economy to the government sector.  And the net result is always the same: waste, inefficiency and ultimately failure.


But there is a more insidious result that readers of this site may appreciate: the expanding power of the state- in the economy and in our lives, through regulation, policing and enforcement.  The more dependency is created, the more liberty is lost.  And your government is now moving rapidly towards creating a state of dependence never before seen in our country.  The question remains, to what end?



One Response to “Inflation by design”

  1. joker2600 Says:

    You list a lot of the problems, but the simple fact is that the pursuit of profit dictated by our current economic system will always lead to the same result. It is a zero-sum game where there will always be winners and losers.

    Do you offer any solutions?

    Of course you know the zeitgeist movement’s solution of creating a system based on abundance instead of scarcity and the economical distribution of resources, but I am always interested in finding alternative solutions to our current situation.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: