The late Nobel Prize-winning economist Milton Friedman said, “Inflation is just like alcoholism; In both cases, when you start drinking or when you start printing too much money, the good effects come first, and the bad effects only come later. That’s why in both cases there is a strong temptation to overdo it — to drink too much and to print too much money.”
The federal government poured trillions of dollars into the economy during the pandemic. The enormous tranches of money helped millions of Americans and businesses who were struggling. As Friedman said, those early drinks tasted good and were intoxicating.
However, the hangover has arrived. Inflation reached a 40-year high of 8.5% in March, driven by higher costs for food and fuel and strong consumer demand. The cash flow from the Washington spigot means too much money is chasing too few goods and services.
As the Wall Street Journal reports, “High inflation is the downside of booming growth as the economy bounces back from COVID-19, powered in part by low interest rates and government stimulus to counter the pandemic’s impact.”
Inflation hits individuals and businesses especially hard in West Virginia. This is not a wealthy state. Many West Virginians are older and on fixed incomes. Stagnant population growth means businesses struggle to find new customers.
Inflation is unrelenting. Consumers can and do cut back on non-essentials, but there is no escaping the necessities, meaning families often must make difficult decisions.
Richard F. Moody, chief economist at Regions Financial Corp., told the Journal, “There’s an element of sticker shock when people go to fill up their tank or go to the grocery store. Lower- and middle-income households are already having to make choices about what to buy because they are having to pay so much more for food and energy.”
The scary part about inflation is the gnawing feeling of losing ground. Wages typically do not keep up with inflation. Scott Schuh, associate professor at the Center for Free Enterprise at WVU’s John Chambers College of Business and Economics, said high inflation means your money is losing value.
“This is big enough to eat into the money holdings that we have in currency, checking accounts, (and) savings accounts because we can’t get interest high enough to offset inflation,” Schuh said on Talkline Tuesday.
Many economists believe the solution is for the Federal Reserve to tighten the money supply by raising interest rates, but that carries a risk. Pull back on the reins too much and the economy could slip into a recession.
Frankly, most of this stuff is way above my head, and I’m not sure most Americans have the time or energy to study macroeconomics.
What Americans do understand quite clearly, however, is that they are having trouble keeping up. Country singer Marty Stuart was not a prize-winning economist, but he accurately identified the plight many find themselves in today when he sang, “There’s too much month at the end of the money.”
