Opinion: Fighting inflation is a tough job

Want to sign up to be an inflation fighter? Don’t think it’s just something for the Fed, Congress, and big business to do?

It’s like being a forest fire-fighter. Inflation is a blaze that’s hard to contain once it gets going. It can be started by careless people on the ground as well as by strikes of lightning from above.

Our current inflation is a result of two efforts by the Fed, the Biden administration, and Congress – including both parties – to avoid economic disasters in 2008 and 2020.

In 2008, Wall Street imploded, and the entire credit system of the U.S. was endangered. The credit system enables us to buy a car, a house and our daily groceries with our credit/debit cards. It enables the car dealer to have a selection of cars on the lot and the grocer to have a variety of goods on the shelves.

In 2020, COVID struck. As more and more people got sick, some businesses had to close because customers weren’t buying as much, or even any, of the goods and services they had before COVID.

The response to both crisis situations was to prop-up the economy with a flow of cash, giving the economy a transfusion of money which enabled businesses and households to function.

Those transfusions were made by the Fed buying and holding the bonds and other IOUs of businesses. The Biden administration suspended payments of consumer debt including mortgages, rent and student loans. The Congress authorized payments to firms, governments and households to sustain their purchasing power and employment.

Inflation starts with key prices, like petroleum, going up and others then follow. But we have seen it rise as well when consumers are willing and able to spend more to sustain their living standards. This time around, we had supply problems as well.

All of us, except the very poor, could hold back on spending, but we don’t want to stop the escalation of our expectations.

We’re willing to pay those monthly fees for entertainment to Netflix and other streaming services. We “need” and “deserve” that premium ice cream. Eating out is part of our “lifestyle” and, after all, we’re supporting the wait-staff.

We’ll use about five gallons of gas a week, but we’ll keep a full tank because the price is going up. But if we didn’t keep an inventory of gas, the demand for gas would go down and prices could fall.

Want to fight inflation? It’s just like voting; your actions are but one of many, but important. “The silent majority” is ultimately a minority.

Higher interest rates have a braking effect on the economy, discouraging borrowing. They are but a signal, a warning flag, urging caution in consumption. Aggressive consumer resistance to buying everything we feel entitled to have, is a responsible way to fight inflation.

Morton Marcus is an economist. Follow him and John Guy on Who Gets What? wherever podcasts are available or at mortonjohn.libsyn.com. Send comments to [email protected]