The top fear among businesses, consumers, and investors? Inflation. The U.S. annual inflation rate has topped 5%, producer prices have exceeded 7%, the personal consumption expenditure (PCE) index jumped nearly 4%, and Wall Street and Main Street surveys have revealed increased expectations for higher living costs over the next year for fuel and food. Republicans are running a full-court press on Bidenflation one year ahead of the mid-term elections. At the same time, Democrats attempt to downplay the highest inflation reading in more than a decade. But Representative Alexandria Ocasio-Cortez (D-NY) is urging everyone to understand the root cause before moving ahead with public policy to tackle the problem. And yet, she has chosen to embrace partisanship instead of heeding her advice.
AOC Solves Inflation With Infrastructure
Ocasio-Cortez recently appeared on CNN to talk about inflation with host Don Lemon. AOC was brought into the program to ostensibly dismantle the GOP’s talking points on the topic, utilizing her credentials as a policymaker with an economics degree.
AOC expressed the importance of getting “the diagnosis right” before enacting policy that could affect households and the labor market. She dismissed the idea of using political pressure to nudge the central bank to raise interest rates to curb inflation, noting that soaring inflation is “very sector-specific.” According to AOC, the consumer price index (CPI) trending at a 13-year high is a supply chain issue more than anything else. Her proposal to tackle inflation is to spend more money on infrastructure.
“That means that we don’t have enough ports. That can accommodate all of the backed-up ships that are trying to come in. It’s because we don’t have enough computer chips that are produced by just a handful of factories in the world that go into these vehicles which are then causing a rush on used vehicles, and it’s because of all of the, you know, all of the rush on demand to build and to remodel homes during lockdown. And the reason it’s important for us to understand that is because the solution to that is guess what? infrastructure.”
As usual, there is a modicum of truth to her statement. But, ironically, AOC wishes to grapple with the root cause of inflation while ignoring the fundamentals of why it is skyrocketing in the first place.
Inflation in America
Across the globe, everyone is demanding everything simultaneously. The pent-up demand is through the roof as nations are importing record levels of soybeans, natural gas, copper, and computer chips. As Liberty Nation has reported, there is a shipping container crisis unfolding, with transportation companies selling space on their ships at premium rates. Businesses are responding by manufacturing crates to transport consumer goods worldwide, but the cost of steel has spiked close to 300% over the last 12 months, adding to ballooning prices. So, AOC is correct on this front.
But is inflation concentrated in only specific sectors, like automobiles and semiconductors? According to the Bureau of Labor Statistics (BLS), inflation is being felt across the board. Here is the percentage change on a year-over-year basis in June 2021:
- Food: +2.4%
- Energy: +24.5%
- Apparel: +4.9%
- New vehicles: +5.3%
- Used automobiles: +45.2%
- Shelter: +2.6%
- Transportation: +10.4%
- Medical care: +1%
Ocasio-Cortez perhaps shares the opinion of the White House and the Federal Reserve that red-hot inflation is temporary. This might be the revelation that nobody in Washington seems to think printing one-quarter of all U.S. dollars ever created in only a year is the inherent issue with today’s inflationary crisis-in-the-making. When an addiction to approving trillion-dollar spending bills is routinely fed, why target the source? That said, a central bank cannot inject more than $4 trillion into the economy in only a few months without bearing the consequences.
Of course, it is the power players in the U.S. landscape that have benefited from this money-printing environment. The harmful effects of embarking upon a “money printer go brrrr” blitzkrieg are beginning to be felt. Indeed, those closest to the spigot, such as politicians and Wall Street institutions, benefit from this freshly printed cash. But once the money travels through the system, everyone else receives a diluted currency and reduced purchasing power. As legendary economist Murray Rothbard wrote in Economic Controversies: “An increase in the money supply can only dilute the effectiveness of each existing money unit, and therefore must be ‘inflationary’ in the sense of raising prices beyond what they would have been otherwise.”
The congresswoman ostensibly disapproves of pulling the trigger on a rate hike, appealing to her something-for-nothing modern monetary theory (MMT) instincts and Keynesian orthodoxy. But, as former Fed Chair Paul Volcker proved in the early 1980s, raising rates would be the only cure in winning the war on inflation. Fighting inflation is not a suitable course of action when you are in government since less money in your hands would negate the modern-day politician’s existence.
Helping the Rich, Hurting the Poor
Since devising a winning political campaign in the good old days of 2018, AOC and her acolytes have championed “the girl from the Bronx” character as an advocate of the impoverished and the crusader of social and economic justice. And yet progressivism and her flippant dismissal of price inflation suggest the opposite. Inflation benefits the rich and powerful at the expense of the impecunious. Economist Ludwig von Mises’ words are hauntingly accurate decades later: “Inflation is the true opium of the people and it is administered to them by anti-capitalist governments and parties.” A Tesla, a million-dollar online store, and a successful political career – why should AOC lose sleep at night over this stealth tax? So much for being a maverick.