Economic Inflation: A Deliberate Outcome

Inflation refers to the increase in prices of goods and services while the purchasing power of currency declines. In regulated markets, adjustments to inflation rates act as guiding tools for economic management.

Inflation can be categorized into three primary types: Demand-Pull inflation, Cost-Push inflation, and Built-In inflation. The most common measures of inflation include the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

Perceptions of inflation can vary widely among individuals, influenced by its rate of change. However, the intentions behind inflation are often not reflective of free-market principles. Instead, inflation can create a speculative bubble that can be manipulated. For example, Demand-Pull inflation occurs when demand exceeds supply, resulting in rising prices—often described as "too many dollars chasing too few goods." On the flip side, Cost-Push inflation arises when production costs increase due to higher wages and raw material prices, leading to price hikes that are passed on to consumers.

Interestingly, Built-In inflation originates from past inflationary events, whether demand-pull or cost-push, and remains influential in the current economy. This form of inflation can become a "normal" aspect of economic expectations, contributing to a cycle of wage and price increases.

Inflation can also stem from currency devaluation or increased costs of imported goods alongside domestic demand. Rising wages can spur increased spending and lead to inflationary expectations, prompting workers to seek higher wages, which ultimately pushes costs higher for businesses.

The persistent presence of inflation today indicates it is a product of collective intention rather than an unexpected calamity, leading to criticism of the Federal Reserve's expansionary monetary policies over the years.

Economic Bubbles: A Misleading Facade

An economic bubble, or asset bubble, occurs when asset prices are based on unrealistic valuations. This phenomenon can be illustrated by transactions occurring at prices that exceed the inherent value of the assets. While some economists dispute the existence of bubbles, the artificial nature of financial bubbles aligns closely with the concept of Built-In inflation.

The rise of financialization, initiated by Nixon in 1971 when the gold standard was abandoned, has made the global economy susceptible to monopoly and artificial inflation. Financialization has allowed markets and elites to exert disproportionate influence over economic policy, altering economic systems at both macro and micro levels. It has primarily benefited the financial sector, which inflates the value of existing wealth without creating new wealth, resulting in income inequality and wage stagnation.

Inflationism: A Detriment to Economic Health

The current global economy leans more toward crony capitalism than genuine free-market principles, which leads to many issues often misattributed to free-market capitalism.

A true free market offers vast opportunities for diverse individuals when allowed to function properly. However, the deliberate creation of economic bubbles benefits the wealthy and influential who can sway policymakers, perpetuating cycles of inflation.

Economic freedom is paramount. When entrepreneurs can operate without excessive government interference, they can innovate and provide significant value to consumers, creating jobs. Market inefficiencies may arise for various reasons, and in constrained markets, the costs of transactions can adversely affect those who need it least.

Inflation acts as a quiet adversary, gradually diminishing the purchasing power of every dollar earned. Governments fuel inflation by printing money to cover annual deficits, allowing the Federal Reserve to issue currency, which ultimately devalues money. Responsible money printing could help stabilize prices.

Politicians often mislead constituents into believing inflation is a natural occurrence, ignoring that reckless spending is the primary driver. Governments typically adopt inflationary policies to increase the money supply, seeking to raise prices and wages, despite the detrimental impact on economic stability.

The social consequences of inflation include: 1. Borrowers benefit at the expense of creditors due to delayed payments. 2. Price changes do not affect all goods and services uniformly.

Inflation: A Double-Edged Sword

Corporations can benefit from inflation if they manage to raise prices in line with increased demand for their products. In this way, inflation can enhance corporate pricing power and profit margins. When production costs rise slower than the prices companies charge, intentional inflation may seem advantageous, although it primarily serves those with ulterior motives.

Inflation's effects permeate all sectors. Once it becomes widespread, expectations of further inflation begin to shape consumer and business behavior. While consumers may struggle with inflation, investors and companies may thrive if they hold inflation-sensitive assets. Furthermore, businesses can strategically limit supply to drive prices higher.

Politics and Inflation: An Interconnected Relationship

Inflation is intricately linked to the political landscape. Central banks in developed nations continuously monitor inflation, typically targeting around 2%. They adjust monetary policy to manage inflationary pressures. The manner in which inflation arises raises numerous ethical, economic, and political questions, making it inseparable from political systems.

Money is crucial for commerce, necessitating a stable monetary system for effective market operation. Inflation creates disparities, as certain groups within society are impacted differently. This makes inflation a powerful tool for governments to manipulate production, allocation of goods and services, and employment, ultimately redistributing resources. Inflation undermines economic calculation and planning, stemming from government monetary policies influenced by Keynesian ideologies post-gold standard abandonment.

The Economic Cycle: Navigating Inflationary Periods

Economic fluctuations between growth and recession are influenced by various factors, including GDP, interest rates, employment, and consumer spending. Governments can induce cycles of expansion, peak, contraction, and trough through policy maneuvers.

During expansion, the economy experiences rapid growth, low interest rates, increased production, and inflationary pressures. The peak phase occurs when growth reaches its zenith, often leading to economic imbalances that require correction. This correction leads to a contraction phase where growth slows, employment declines, and prices drop. The trough represents the lowest point before the economy begins to recover. While understanding these cycles can aid businesses and investors, the mechanisms often remain opaque to the public.

Inflation: The Invisible Thief

Inflation acts as an unseen predator, eroding public wealth and diminishing the value of hard-earned money. Its effects may not be felt immediately, but eventually, individuals realize that their previous earnings no longer suffice. The long-term impact of inflation fosters dependency on socioeconomic structures, often forcing individuals to rely on familial, governmental, or charitable support.

Real disposable incomes are likely to decline as the effects of increased expenses take hold. This situation has been exacerbated by the removal of gold as the global economic standard and the subsequent loss of monetary stability.

Addressing Inflationism: The Need for Control

To combat the detrimental effects of inflation, it is essential to eliminate government control over the money supply. Authorities must be held accountable for maintaining balanced budgets and reducing debt to prevent arbitrary currency manipulation. Restoring the gold standard could mitigate the hidden tax of inflation, allowing better control over currency issuance.

The government’s role in the economy should focus on protecting property rights, resolving conflicts, and ensuring a legal framework that supports free trade. Currently, excessive regulations hinder businesses and individuals, stifling innovation and job creation. The solution lies in reducing unnecessary regulations, lowering taxes, and empowering citizens to engage in honest trade without government interference.