The Role of Government Spending in Inflation, Not Corporations or Oil Prices
Inflation has long been a topic of concern for individuals and businesses alike. Many people attribute rising prices to various factors such as corporations and oil prices. However, a closer analysis reveals that the real cause of inflation lies in government spending.
Governments and their so-called experts often try to shift the blame for inflation onto other factors, but the truth is that inflation is a deliberate policy. By issuing more currency than the private sector demands, governments erode the purchasing power of the currency and create a constant transfer of wealth from real wages and deposit savings to the government.
Contrary to popular belief, oil prices are not a cause of inflation but rather a consequence. As more units of currency are used to denominate the commodity, prices naturally increase. Therefore, oil prices are not the root cause of inflation but rather a signal of currency debasement. If oil prices were truly the cause of inflation, we would see a rapid shift from inflation to deflation, rather than continued elevated inflation with relatively lower price increases.
Similarly, governments often try to blame other causes for inflation, such as oligopolistic businesses dominating the global economy. However, even if these monopolistic corporations were able to increase aggregate prices, they would not be able to maintain annual increases if the quantity of currency in the system remained constant. In fact, if currency remained equal, these corporations would see their working capital soar while other prices would decline due to a lower number of units of currency available for purchase.
It is important to note that monopolies cannot create inflation unless they are able to force consumers to use their products without any decline in demand. Destructive and inefficient monopolies can only exist if the state imposes them. In any other situation, competition, technology, and cheaper imports from other nations would lead to the disappearance of monopolies. The only monopoly that can force consumers to use their product regardless of real demand is government fiat money.
Contrary to the claims of some politicians, corporations are not to blame for inflation. Only the government has the power to cause and perpetuate inflation, using the central bank as its financial arm and regulation as a means of imposing the use of its own form of money. The government creates and imposes the currency, and when its purchasing power declines, it shifts the blame onto economic agents who are forced to use its form of money.
The government plays a crucial role in driving aggregate demand and is the largest economic agent. It has the power to end inflation by eliminating unnecessary spending that causes the deficit, which is essentially equivalent to money printing. Attempting to cut inflation by taxing the private sector is akin to starving children to make the fat parent lose weight.
Proponents of Modern Monetary Theory (MMT) argue that the government can issue all the currency it needs, with inflation being the only limit. However, this argument fails to recognize that inflation is a manifestation of an unsustainable fiscal problem and reflects the vanishing confidence in the currency issuer. It is simply a subterfuge to implement constant increases in the size of government in the economy, knowing that once the state controls a large part, it becomes virtually impossible to stop its growth.
Some economists suggest that the government should spend freely and tax excessive money away if inflation rises. However, this approach only perpetuates the problem. The government increases in size through spending and dilutes the purchasing power of the private sector’s earnings and savings. Then it taxes the private sector, further increasing the size of government. This cycle continues, diminishing confidence in the currency and worsening the economic situation.
Governments cannot tax away the inflation they have created by bloating spending. Instead, they weaken the private productive sector and worsen the economic situation and inflation outlook. In reality, there is no such thing as perpetual monetary sovereignty. Currency demand disappears when the government’s solvency is compromised and the private sector is burdened by excessive taxes. Once confidence in the currency as a reserve of value is destroyed, the private sector will seek alternative means of conducting transactions outside the realm of state-issued currency.
When governments present themselves as the solution to inflation through large spending programs and subsidies, they are essentially printing money and exacerbating the problem. The current administration’s efforts to cut inflation have only perpetuated it, making citizens poorer and weakening the productive sector. If President Biden truly wants to tackle inflation, the solution lies in eliminating the deficit through cutting expenditures. Allowing governments to oversee monetary policy and monetize deficits only leads to a larger government and a dependent and hostage economy.
In conclusion, the role of government spending in inflation cannot be understated. Governments have the power to stop inflation by addressing unnecessary spending that causes deficits. Blaming corporations and oil prices for inflation is merely a diversion from the real cause. It is crucial for individuals and businesses to recognize the impact of government actions on inflation and advocate for responsible fiscal policies that prioritize the stability of the currency and the well-being of the private sector.
