Inflating Our Hopes
In the aftermath of the financial crisis, many libertarians warned of exploding price inflation in the economy should the Federal Reserve expand the money supply. For years, Keynesians have laughed at the Austrians because the surge in price inflation apparently never happened. You know what? The Keynesians are right. There is no inflation if you do not drive an automobile, live under a roof, attend a college or university, or receive medical care.
Although inflation is still relatively low, the consumer price index (CPI) in 2019 rose at its fastest annual clip since 2011. In December, the cost of living was 0.2% more expensive, lifting the annual CPI to 2.3%.
What caused the big jump? According to the Bureau of Labor Statistics (BLS) data:
- Gas prices climbed 2.8%.
- Food prices rose 0.2%; eating out is growing faster than making food at home.
- Medical costs edged up 0.6%, mostly from higher prescription drug prices
- Health care costs soared 4.6%.
- Rents jumped 0.2%.
Apparel, new motor vehicles, insurance, and recreation were also more expensive. But there were declines in the costs of airline fares, household furnishings, and used automobiles.
Could this be the sequel to the double-digit inflation of the 1970s? It was only a matter of time before price inflation reared its ugly head, especially with the Fed more than doubling the money supply since the recession a decade ago. Of course, the sectors that will be hit the hardest will be the ones with a lot of state intervention, which has been the case for years, whether it is health care or housing. But if you thought life was expensive now, then you ain’t seen nothin’ yet.
I’d Be as Rich as Rockefeller
Prosperity has gotten a bad reputation as of late. For years, progressives have lamented on the rich, complaining that inequality is making our lives more miserable and that billionaires need to be outlawed. This belief system sounds like envy because most people strive to be wealthier; the majority of folks do not aim just to get by. And whoever said money could not buy happiness either never had it or was a dirty hippy communist who read too much Karl Marx and watched too many Sen. Bernie Sanders (I-VT) speeches.
A new survey sponsored by NPR, the Robert Wood Johnson Foundation, and the Harvard T.H. Chan School of Public Health found that adults in the 1% of U.S. household income are “completely” or “very” satisfied with their lives in general. Meanwhile, two-thirds of middle-income households ($35,000 to $99,000) and 44% of low-income families (under $35,000) reported satisfaction with their lives. The percentage of the wealthiest Americans reporting “dissatisfaction” with their lives is statistically zero.
The obvious conclusion is that money buys happiness. Well, duh. A large fortune can solve a lot of problems, help a lot of people, and satisfy a lot of desires. Depending on how much is in the bank, you can donate a new wing in a hospital, you can purchase an extensive library of Agatha Christie novels, and you can help your kids escape the government education system and send them to private schools.
As Liberty Nation has reported in the past, many Americans are getting richer, especially the middle class. Middle-income earners are moving into higher income brackets, despite claims to the contrary.
It is not so much about the money, but what you can do with the dollars in your account or wallet. You could have a treasure trove of Federal Reserve Notes, but if there is nothing to buy, then all you have are pieces of paper. The industrial revolution – the first and second – has produced consumer and capital goods beyond our wildest dreams, and we can anticipate even more innovation in the years to come.
Indeed, material possession should not be equated with free-market capitalism. This economic system is about the free exchange between two parties who believe they are better off completing their transaction. Someone became wealthy by satisfying demand or investing in companies that improve consumers’ lives. What the affluent decide to do with the money is entirely up to them – the wealth can buy a yacht, take a trip to Venice, or purchase a whole movie theater to watch Spencer Tracey films.
Cash is King
Now that the holiday season is officially over, how is your bank account doing? If you have wanted to avoid it since last month’s splurge on Baby Yoda toys and Senator Rand Paul’s (R-KY) new book, The Case Against Socialism, we do not blame you. Avoiding the temptation to go on a spending spree throughout any holiday can be difficult. Unfortunately, the siren of consumerism can be damaging to your finances.
A new study found that about 48 million Americans are still paying off their holiday debt from 2018.
According to Magnify Money data, the average consumer racked up $1,230 in debt during the 2018 holidays going into the 2019 buying season. It might seem like a paltry figure, but it adds up when you think of the interest that has been accrued over the last 12 months, plus all the other debt that households have accumulated, from credit cards to student loans.
Zero Hedge’s solution is to stop buying stuff you do not need. This is sage advice, but you can do one better if you prefer not to be a Grinch at Christmas or on birthdays: Give the people you value in life an envelope of cash.
Ostensibly, the purpose of giving store-purchased items rather than cash is to highlight our thoughtfulness and to show we allocated a finite resource (time) to this endeavor. Moreover, as economist Joel Waldfogel wrote in his 1993 article, “The Deadweight Loss of Christmas,” gift-giving erodes a huge part of the retail value of the presents. Gift-givers usually fail at duplicating the decisions the recipients would have made on their own and with their own money, such as color, preference, size, style, or taste. In the end, just stuff cash in a white envelope and call it a day.
So, if you are already planning for Christmas 2020 or have your spouse’s birthday coming up, here is a gift idea from Reason: “A card which explains that the utility of the gift exchange is maximized when the recipient rather than the giver dictates how the capital is allocated.”
Read more from Andrew Moran.