Inflation And Politics

For the better part of two decades, the world’s governments have been fixated on fighting inflation, often at the expense of promoting economic growth. That boosted corporate profits and helped the Dow Jones Industrial Average quintuple and then some. The average worker, however, has actually lost ground. The voters’ message to elected officials now is simply this:

Either help us or… we vote for someone else who will!

Faced with that ultimatum, it’s only a matter of time before governments shift the primary focus of economic policy from fighting inflation at all costs to boosting growth. Their shift will produce higher inflation – ultimately cresting in the double-digits currently- for the next decade or longer. But the old paradigm just never really goes away.

Only the rich have been getting richer; the rest have been falling further and further behind…

Losing Ground

Why are people so dissatisfied with what on paper seems to be a healthy economy? Because the benefits of steady growth- the same formula that made everyone happy in bygone years- aren’t trickling down to the average person anymore.

Even the soaring stock market prior to 2019, which reflected ballooning corporate profits, is almost solely a rich man’s toy. According to data generated by several highly renowned economists, 98% of the value of publicly traded stocks is in the hands of the wealthiest 20 percent of households, leaving just 2 percent for the remaining 80 percent.

Annual economic growth of 4.5 percent with no inflation is just dandy for corporate executives and investors who are watching their profits surge. The wrenching truth is that, for the first time in memory, the majority of Americans have stopped participating in the forward march of wealth.

Over the past forty years, Americans have witnessed their buying power drop. That’s called inflation- when the purchasing power of your currency no longer has the power to purchase the same amount of goods as it had before. Inflation is technically the debasement of currency which fits the same description aforementioned; your money is worth less than it was yesterday. And that, my friends, is a compounding phenomenon that will continue to occur whether you like it or not.

Unlike the Great Depression of the 1930s, the decline has not been sudden or steep. But it has been relentless. Worse still, it shows no sign of reversal and it has begun to feed on itself.

Throughout most of the 1900s, Americans’ inflation-adjusted or “real,” wages rose. The rich got richer, but everyone else did too. That trend halted around 1972 and it’s been in full reverse since then.

Curiously, that was synonymous with Nixon taking the United States off the gold standard. It’s an interesting correlation. The United States went off the gold standard and we have experienced negative real wage growth and progressive inflation ever since.

Attention Investors: Own As Much Gold As You Can

Inflation is nothing new to the American public. It’s become a political talking point of late because the government certainly is not accurate in their CPI reports. Inflation is much higher than the FED or politicians want you to know. And it’s been slowly creeping into every household since that fatal day; when the United States went off the gold standard.

At least up until the 1980s, there was a loophole of sorts to the problem of falling incomes… The growing number of dual income families helped pick up some of the slack of diminished paychecks.

But what about those who are single with only one income? From the 1960’s onward, increasing numbers of married and unmarried women began entering the workforce. Consequently, when real wages began falling in the 1970s, American families with dual incomes could still aspire to get ahead, as the loss in purchasing power of a single paycheck was camouflaged to some extent by the addition of a second salary.

However, by 1988, having a dual income household wasn’t just a matter of choice, it had become a necessity. Worse, the tragedy of this century is that, for many, even two incomes has become heartbreakingly insufficient.

Two Americas: The Rich & The Poor

Not all Americans’ income has steadily dropped since the 1970’s according to ‘real wage’ growth calculations. But only the rich have been getting richer; the rest have been falling further and further behind.

Rising inequalities mean the economy will have to grow that much faster in order for the benefits to trickle down to the less fortunate. That’s why in the early ‘90s, the benefits of rapid growth were reaped by Wall Street and corporate executives, not rank and file workers.

Unfortunately, inequalities and falling income feed on each other. When wealth distribution gets too far out of whack, opportunities for those at the bottom to catch up or even keep pace become increasingly scarce.

Fewer opportunities mean that fewer people will succeed in lifting themselves up. This increases wealth inequality, which diminishes opportunity further and so on. Government guarantee or no, the more extreme the cycle gets, the harder it is for anyone to do anything to reverse it.

Wrap Up

Here’s a few foreboding signs of out-of-control inflation and the devolution of a society:

  • Higher crime rates
  • Lack of skilled workers to fuel productivity / economic growth
  • Lack of people being able to afford goods for sale in the open marketplace

History always serves as a great way to measure the current state of economics and politics because history has an uncanny way of always repeating itself in some way, shape or form.
I will end the discussion with this caveat: the violent Jacobin Revolution that gripped France in 1789, the Bolshevik Russian coup of 1914, China and America in the early 1900s… Are all stark evidence of what happens to societies that let huge inequalities go unchecked, far too long.