Save Inflation for Later

• OPINION – KURT STAUDTER

– Christmas shopping this year is costing a little bit more, but it’s not just holiday shopping, buying the weekly groceries is taking a bigger bite out of our wallets.

The right is waving the red flag of inflation, and making the argument that by increasing government spending during the pandemic we’ve lit the fuse on another recession. With inflation fears on the rise, and another big government package in the offing, should we be concerned?

When anyone talks of inflation I always conjure up images of Germans before WWII taking wheelbarrows full of Deutschmarks to buy a loaf of bread. That’s what inflation does, at the same time it devalues your money while prices on everything rise. By giving everyone in the country extra money to spend during the pandemic, some experts argues that it’s caused inflation. Traditionally, the response to inflation by the Federal Reserve is to raise interest rates. Fed chair Paul Volker did this in the early 1980s and we saw interest rate soar to above 18%, and then we watched one of the worse recessions since the Great Depression. It would take years to climb out of that hole.

I may be wrong, but I don’t think what we have going on right now is regular inflation. Inflation tends to affect all parts of the economy, and this isn’t happening right now. Sure, fuel prices are going wild, and because of a rise in transportation costs, groceries and meat are on the rise. One could make the argument that fuel costs have been below market for a long time and this is just a correction.

When we have true inflation we see it everywhere, yet we’re not seeing a rise in the cost of services. It’s like they never got the memo, or more than likely, it’s fallout from the pandemic – People are still not ready to risk COVID exposure by getting one-on-one personal services. By all indicators, people have not returned services to pre-pandemic levels, yet the purchase of goods has exceeded pre-pandemic levels. Instead we’re seeing people buying things, and ironically, since we don’t make things in this country anymore, because of supply chain issues, the cost of things are going up.

Now, is it because of inflation, or is it more because of simple supply and demand constraints? One thing is for sure, the COVID has been responsible for every price increase since the pandemic began. Lack of workers, interruptions in supply networks, and shortages of raw materials, the COVID is wreaking havoc on the international economy.

As more Americans get vaccinated and return to spending on services, we should see a return to lower prices as we stop buying things and facilitate the normalization of the supply chain while using more services. Also, as we move closer to living with the COVID we’ll figure out what the new normal looks like. The one thing markets hate is uncertainty, and right now we’re awash in the unknown.

Now the Republicans believe that inflation is out of control and the pending Build Back Better bill will be like feeding gasoline to a fire. I disagree with this assessment. Think about it: The bill contains ways of addressing housing costs, medical expenses, fuel prices, and childcare, all among the biggest expenses in any household. By lowering the costs of all of these things through government intervention one would hope that it would knock back inflation as well. It would seem that raising interest rates isn’t the only action the government can take.

For example in Vermont rent can be raised with a new lease, or with monthly renters, rent can be raised with 60 days notice. Nowhere in Vermont law is there a limit on how much rent can be increased. If you want to take pressure off households, put a cap on rent increases, and that could even be done at the municipal level.

Another example of what we can do is with the Green Mountain Care Board. Instead of tweaking increases in health insurance and hospital budgets, perhaps the GMCB can act like the regulator it’s supposed to be and just once in a while say no to price increases. It turns out that the government has lots of tools to combat inflation and they should use them.

Finally, the move away from fossil fuels will in the long run lower energy costs but it’s going to take time. Meanwhile, lots of Vermonters make use of LIHEAP (Low Income Home Energy Assistance Program) and by expanding eligibility it will go a long way to help more families get through winter.

Should we fear out-of-control inflation? Yes, but Democrats have to stand up to the Republicans that have made a weapon out of inflation, and make the argument that we need to make these investments in the American dream for millions of Americans. For too long our government has been the best money can buy, and the big spenders have been the rich and corporations. Now is the time for a large dividend for the citizens.