Inflation is not good for you

J.P. Szafranski,
BridgeTower Media Newswires

“Inflation is good for you. Don’t panic over milk prices. Inflation is bad for the 1 percent but helps out almost everyone else.” I nearly fell out of my chair when I read this headline and subhead from Jon Schwarz’s recent column for The Intercept, an outlet that prides itself on “holding the powerful accountable through fearless, adversarial journalism.”

Mr. Schwarz states that “the inflation freakout is all about class conflict.” He correctly points to the fact that rising price levels reduce the real value of outstanding debt, as borrowers can repay old debts with money that is worth less than when the debts were incurred. He myopically champions the advantage afforded to U.S. households’ collective $14.5 trillion in outstanding debt. That’s great and all, but on this logic guess who benefits even more? Total corporate nonfinancial U.S. debt totaled $17.7 trillion at the end of 2020, a problematic fact for Schwarz’s view of why “rich people who run the U.S. absolutely detest inflation.”

Inflation is good for borrowers and bad for lenders (aka savers). The problem is that households are both. Try telling a retiree living on a fixed income of savings amassed during working years that inflation is a good thing. A meaningful amount of the above-mentioned household and corporate debt balances are owed to pension plans whose sole mission is to provide retirement income for millions of hardworking Americans. Sure doesn’t seem like “class conflict.”

Schwarz ambles forward to discuss wages, positing that “inflation generally accompanies economic booms” when “workers have the market power to demand higher pay.” The 1970s called to say that higher wages are only meaningful if they are rising faster than the cost of living. That was the last decade where the U.S. saw sustained high inflation rates. Real, inflation-adjusted hourly wages declined by 6.4% from 1970 to 1980, according to the Federal Reserve Bank of St. Louis Review. Mr. Schwarz, I award you no points.

The historic 31 year high 6.2% increase in October’s Consumer Price Index is in no small part a monetary phenomenon as Milton Friedman might say. We’ve witnessed a historic amount of money-printing in response to the COVID pandemic. The emergency response of central bankers was well-intentioned. But we would be naïve to expect that such generous stimulus can come without a cost. A period of elevated inflation is to be expected. We’ll have to see how monetary policy evolves to deal with it.

Inflation is bad for everyone, but it’s unequivocally more tolerable for the 1 percenters and anyone with excess disposable income and ownership of hard assets. Instead of setting up arguments using illogical straw men, we should debate how to achieve what everyone should want: a better standard of living for everyone. That is not a goal that you can inflate your way into. We need to invest and pursue policies that will encourage innovation and increase productivity. We’re certain to disagree about how to accomplish that but let’s at least argue about what matters!

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J.P. Szafranski is CEO of Meliora Capital (www.melcapital.com).