People have to accept that inflation has made them poorer.
At least that’s what an economist for the Bank of England recently said. Central bankers and politicians in America won’t articulate this, but it’s true nevertheless.
Inflation has robbed Americans of their earnings and savings, but that wealth didn’t just disappear. No, it was transferred to the government.
Over the last three years, many governments worldwide, especially here in the United States, ran unprecedentedly large deficits. Borrowing by the Treasury exploded by 147%, and the government’s voracious appetite for money far exceeded the savings available for it to borrow. In response, the Federal Reserve stepped into the breach and created the money out of nothing for the government to spend.
At first, everything seemed fine, if not great. People were literally paid to stay home and not work, like getting something for nothing. Consumers were flush with cash. Savings ballooned.
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But printing trillions of excess dollars while reducing production in the economy is reminiscent of the roller coaster ride that is alcoholism: The good times are front-loaded, and the pain comes later.
As the government and private individuals began competing with more dollars for fewer goods and services, prices began to rise. It wasn’t that everything was worth more, but that the dollar was worth less.
One of the functions of money is a measuring tool, like a yardstick. Money tells us how much things are worth relative to one another, in the same way that a yardstick tells us which of two people is taller. But inflation shrinks the dollar, like shrinking a yardstick, so that you need more dollars to buy the same thing, or more yardsticks to cover the same distance. The person isn’t taller; the yardstick shrunk.
Because of inflation, your money buys less. But what happened to the lost value of your dollars? It didn’t simply evaporate; it was transferred. As the government created those trillions of dollars, it quietly confiscated a portion of every dollar in your paycheck and your bank account.
The lost value of your dollars is equal to the amount of spending, borrowing and printing by the government. In other words, trillions of dollars were taken from the people and poured into government coffers.
This lost wealth is illustrated by the average family’s weekly paycheck, which is about $200 larger now than it was in January 2021 but buys about $100 less stuff.
The idea that governments have real purchasing power of their own is a myth. If a government is going to buy anything, it must first acquire purchasing power from its citizens through taxes or borrowing. Even borrowing is just a promise to tax at a future date.
But explicit taxes are politically unpopular, and many citizens wouldn’t approve of excessive government spending if they simultaneously had to pay high taxes to finance their spendthrift government. Inflation provides a way out for the bureaucrats—taxing the people without their knowledge.
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The hidden tax of inflation has subtly confiscated trillions of dollars’ worth of value from the American people, which the government promptly spent. This made many people poorer as prices rose faster than wages and the value of their savings declined. Just as explicit taxes shrink our budgets and make us poorer, so does the implicit inflation tax.
And now one of the central bankers integral in causing the inflation has the gall to tell people to be content with being poorer?
The only way to end this impoverishing of the American people is to stop the inflation that causes this modern-day serfdom. Simply put, the runaway government spending must cease. If it continues, the oppressive taxation will continue.
And changing from the implicit tax of inflation to an explicit one like income taxes makes little difference to a family’s budget, since they become poorer either way. Hence, the taxation will continue until spending is reined in.
This piece originally appeared in the Washington Times