How Do You Control Inflation? Are You Sure?

Americans are looking to or for the government to “fix” Inflation. This seems imminently prudent. After all, the government of a free, democratic, and capitalistic nation should ‘control’ the economy of that nation. This would seem to be a logical requirement if the citizens are to expect a mechanism for producing a causal relationship between an executive/administrative action(s) [those steps necessary to “fix” Inflation] taken which will result in bringing the costs of goods and services into alignment with a desired price range. With this expectation there must be not just the desire to accomplish this “fix” but also the authority and means of doing so.

This would seem to offer another chance to confirm how well America’s desire and expectation for a “fix” conforms with the reality of what is required to do so, and equally important what would be ‘accepted’ by the selfsame public to do so. Should we not therefore put it to the test? Though a short test, it might be a weighty one.

Question 1: The Federal Reserve is the government entity that has all the authority and processes which are required to ‘control’ Inflation. Is this correct?

Question 2: When fuel prices increase to a degree that produces a disruptive or harmful impact upon consumers, businesses, and the overall economy the nation is experiencing an Inflationary condition. What control provides the means for “fixing” this Inflationary situation?

Question 3: Consumer’s Demand spending is a driving factor in today’s Inflationary problems. As economic theory explains either the Demand must be reduced, or the Supply must be increased. Is it acceptable to you that what you choose to consume (no matter how irrationally you do so) that the government intervene and determine that you cannot spend your money as you see fit; that is reduce Demand? Note: If you require that the government increase Supply, answer Question 3 and move on to Question 4.]

Question 4: On the Supply side of economics, the way to “fix” Inflation is to provide enough of the goods and services that are being sought in the market. The solution requires that the government has the authority to mandate production by private businesses as the government doesn’t own nor engage in the production of goods or services in America. What goods or services do you grant the government authority to produce?

Question 5: Inflation is cited over and over for all manner of things in the nation’s current economic conditions. The increase in gas causes the increase in food and other goods’ prices. Wages are increasing due to labor shortages and needs which increase prices. The things increasing costs are what produce the resulting Inflation. Is the reaction of the American public convoluting effect with cause and vice versa?

Whew! Hope that wasn’t too arduous.

Answer to Question 1: No. The Fed has some tools to help ‘manage’ economic conditions which are expected to be able to influence and direct the path that the Economy will move towards. These tools often take a notable amount of time to produce their ‘corrective’ affects upon the Economy and can both over and under shoot expectations. “Fixing” Inflation doesn’t get much credit if the results are recessionary.

Answer to Question 2: None really. The government can release oil reserves which can provide some relief, but that is temporary and may have only a minor effect. The government cannot currently force production increases, in part because they lack both authority and appropriate tools that would work well.

Answer to Question 3: I would think that everyone would say No is the right answer. But you can never tell what people will say if you put the same question into a context that they don’t want to be the actual case that relates to what the real situation is. Usually leaders/politicians/government that act along these lines do a terrible job of it.

Answer to Question 4: Interestingly enough, if the government can demonstrate (or claim) a national security risk or requirement they can try to use the Defense Production Act to force businesses to increase supply. This isn’t easily used because of a problem with Inflation. Generally, the government can’t “fix” the Supply side by forcing production; and doing so would be very problematic for a capitalistic society. Besides there are better strategies to address this situation; it is just unfortunate that politicians are clueless.

Answer to Question 5: Yes. Inflation is what results from the economic processes, it is not the cause of the problem. In medical terms, treating the symptoms may be the best you can do; but it won’t cure the disease.

Do not be overly depressed. There are various things that could and can be done to effectively react to Inflation and help bring it down. Of course, depending upon those you elected to do so would imply that you have done a bad job in your choices many times before and again. Inflation has happened under Democrats and Republicans; just as recoveries from Inflation have occurred under Democrats and Republicans. Some have made poor judgements in their responses and as I assess what we should learn from history is a very common and sage bit of advice: “You get what you pay for.” We’ve all heard this before. But I see within this adage an almost overlooked bit of wisdom: “You pay for what you get.”