i812, 13:10 Intation Makes People Poorer (And I's the Goverment’ Fault) @® MISESINSTITUTE Published on Mises Insitvte (utpssiises.r9) Inflation Makes People Poorer (And It's the Government's Fault) July 27, 2022 - 3:16 PMAndeé Marques Toptes: The Fed pntation » The Consumer Price Index (CI) In the US was 9.1 percent in June, Taking Into account that the government les aboutintation is better to consider Shadow Government Statsles’ CI foased on the 1980s CPI methodology), which was (a8 of July 13) about *7 percent, The goverment claims that this high CPI is due to Russia's invasion of Ukraine (you could argue that, one ofthe reasons isthe sanctions on Russia's ‘economy, whicn don't do much to harm tothe Russian government and hurls inary people both inside and outste Russia), Bu hs is just an fexeuse forthe government to nol adm the blame. Lf lear the war has an iluence on the CPI, asi elminales the supply of various goods and Services, which ends Up increasing prices. However, the CI has been going up since February 2021 ». ‘The 2020 and 2021 lockdowns (andthe folowed supply shocks) were also a big factor, but the real reason prices are going up isthe inflation (monetary expansion) cated by the US government both in. 2020 and 202% Yes, supply shocks cause increases in SOME prices in the economy, but not a genera increase inthe prices of goods and services. tere ie eupely shock of eartain goods (making thei ces higher), bul the money supply doas not change, there wil Ye a new equilibrium ef supply and demand for the ‘various goods and services In tne economy (since the money supply the same and individuals wil have to change the allocation of thelr Budge, So the prees of the goods that wil have a tower demand will decrease}. ‘One the supaly shack of these goods ended, ther supply would increase, and tei prices would decrease (changing the equitrium of supply and demand once again). Only an increase in many in ceulaion can make ALL (or almost al) prices in the economy rise simultaneously, as the Value of money decreases and more units of curtency are needed to pay for goods anc services, Inflation (the expansion ofthe money supply) and the consequent increase in prices is a disguised lax. The US government increased its spending and is budge! defied ya, So, ft issued mare debt secures, which wera mosly purchased by Ihe Federal Reserve (Fee) Liou base (MO), Then, the government spent he newly crested money, in ihe amount of money in ereulaion in he economy (Mt which fends to make prices higher. [Note tha the government increased its spending without ralsing taxes inthe same proportion. The cost ofthe ineveasein government spending was paid by the population (nothing from the government is Free; nol even forthe poor, wno suffer the most from taxes, as ther incomes are lower} not by faxes, but by he increase in prices that occurred due to infation. ‘Also boar in mind that government borrowing, by ise Is not inalonary debt socurtes ar all absorbad by the market (by Investors and fhancial Instlutions) no now money is created by the contra bank However, even inthis case the economy is damaged because when the government goes into debt it appropriates resources that could be used for producve investments (hicn coule neease the producivly ofthe economy and make prices lower). In addon, goverment indebtedness also Imolies interest costs. To pay the interest (which tends to increase as debt grows), governments often raise taxes andlor borrow even more. The interest cost represents more resources thal are expropriated frm the economy by the government Price increases hurt everyone, especially the poor andthe lower mide class (ho have fewer resources). ue to rising prices, indvicuals wil inevitably have fo make budget cuts, buying fewer goods and serves. The standard of ving goes down. Al best, individuals Go not make budget cus, but save tose than before ‘The poor and the lower midda class are also more heaviy affected because, due lo rising prices, wealthy people and the upper midale cass (who have ‘enough income to afore to not make budget cuts) and up saving and Investing lss of couse, they barely foe his change tromsolves, but t's a raat atin tho savings and investments in the economy). 1 thors ess Investment inte economy, productivity does rot neraase (or evon decreases) and Prices ton to inerease inthe medium and lang run But even the wealthy people and the upper middle class can be heavily affected by rising prices caused by inflation. Imagine, for example, areal company, I prices rs, individuals (notably the poor and te lower middle class, which are the majoriy) wil stop Buying ceain produc (afterall, their income fs nat high enough for them to have te lanury to aford not too). ‘Thetefore, even with rising prices, the company’s prof decreases (or he company ends up incurring loss), also considering that, due to inftaton, the costs of producers andthe retall Company increase. This is what happened afew months ago wih Zara r, wrich registered lower profs. The owners Df arg retall companies and companies that produce the goods happen to reg'ster lower profs (or even incu losses), and investors and francial inttutions that buy the stocks ofthese companies aso lose since the stocks are wort less and the companies tend to pay less dividends ov even suspend i, ‘Therefore, everyone is worse of due to government-generated inflation. Butt isthe poor and the lower micdle class who take most ofthe bullets CGovemments always clam to help the poor and the lower mide clas, But those ar procisely the ones who boar most ofthe cost of governments (taxes, indobtodnoss,regulatons, and inflaton). Mer al, the upper middle class and the wealthy can tum to lawyers, accountants, and tax consulting fgencies to allocate thar assets inorder ta pay less in taxes (al egal). {And its good thing they da so (ifnot, there would be even less investment inthe economy and prices would be even higher). They may also buy alot ‘of gold, invest in agsots priced in currencies that ae ess inated, of resort to any other form of weak protectin, ‘Therefore, the poorest are the anes who actually pay forthe government. tis precisely bacause of governments thatthe poor and he lower middle class, in most cases, dant get cher, I's ie goverment that perpetuate paver, precsely to justly Ine existence by pretending to help the poorer hitpssimises.orgiprins0747 12i812, 13:10 Intation Makes People Poorer (And I's the Government's Fault) ‘Atral if there were no monetary inflation created by governments, prices would tend to decrease ast standard of flng would ris Source URL: htpnaes oiler ake pose poorer govtnent aut [p:teises oupotearemareues Elhp:tsesatoestt [Slhtps:ivicesotopesinieton Hi hp: rises2wteaion 9: prcantatternanheampbyod IS nap:tees ogra: sion tanstoy-ne-tvereegovrnmere- ris Flip gprgoaglveces sain RGev22UA ech ieaszaNAAMXYP 4a, plib-C-GARVINSb/ NQMSAPZangapkINanBVSCSO03 Zee gen oygagHoTasbxSanrten TAM a wg Nt e230 MPR USNS dy, eons O2CC Hwa ION pg {7 hips:inisesoglarohy-sactaredentwanancnyeynosty-nrorahany sop [ei tigger geglsncsentsxninglane 2SUAN Rc ovate, Not aes ape HWA BA leglETPCCAL Nr Cle GabwsT VAAL Faraazen BOSsp&ms tmx coxph ow ozntoneomG0spNeg”keCX ARH CrneOUpenF OOM MASAO PDN A mg [el hpssivises ogatecreppedtnerotooroparataeevales [ibn logge gaogmarecrsn.comimaia an 22:0K/ otf NMlplpeSUyECXmatNPSPueWR2-UOHZKEE- {vay anu fasta noGrraUeste | Menoay€xouGxt Muss Pyaaz57(ne2HINI VCEABVRONRAKGGtaPeH2zadaxD8FPIGOSBEOXDSTIIC pap [rite tagger googiersren canfnglr2e 2x xGEsdbINVEEE emsno Xeon TLaGOst elazeeze SDN MOCSEAD NOS daa rope NOOR cob PIR NG Utero Partner} a n8.90 POPE EAD a "og solemn cringe ZHAWAE oF Ain EMtngCAIGL Agha NRF UTE OKOOUEEP, NON fran acto covhay. gol ews ating nanevrey ing ot! 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