Inflation is a moral evil

By Phil Lawler ( bio - articles - email ) | Jul 08, 2022

Can we all agree on this? Any government policy that deliberately harms the poor and the elderly is immoral.

How about this? A policy that predictably harms the poor and the elderly is immoral.

Inflation harms the poor and the elderly. Therefore, if inflation is the predictable result of government policies, those policies are immoral.

“Inflation is seldom an error—it’s usually a policy, if an unavowed one,” writes Christopher Caldwell in an insightful article published in the new Compact magazine. Later in the same piece he makes the same point more forcefully:

Inflation has always signaled a deficit of legitimacy. It arises when the government has an agenda it cannot declare.

Does that seem an unduly harsh judgment? It is harsh, certainly. But it is unduly harsh only if inflation is—as political leaders often pretend it is—an unpredictable misfortune, something like a hurricane. If inflation is the foreseeable result of deliberate policies, then the judgment is not nearly harsh enough.

When President Biden introduced his “fiscal stimulus” package, economist Larry Summers—who is certainly not a partisan Republican, having served as Secretary of the Treasury in the Clinton administration—warned that the massive deficit spending would “set off inflation pressures of a kind we have not seen in a generation.” Subsequent events have proven him right.

Inflation is no longer a threat but a current reality. Price levels are rising, forcing millions of Americans to spend more on everyday necessities—in some cases, to spend more than they have. Affluent families can adjust, particularly if their wage-earners are winning raises that match the increased cost of living. But for the poor and for the elderly—especially those living on fixed incomes—the results are especially painful.

All responsible economists now admit that inflation is upon us. But the official statistics understate the problem. Bari Weiss explains:

Making matters worse is the fact that the Bureau of Labor Statistics and the Federal Reserve, which measure inflation, have long relied on measurements that make it appear as if inflation is not as bad as it really is.

The official statistics, you see, measure the price level of a basket of goods. But for a struggling household, not all prices are equally relevant; the cost of a bag of groceries is far more important than the cost of a new car. (You can probably make do with an old car for another year if necessary, but last week’s groceries are gone.) Moreover, inflation plays some nasty tricks on the household budget that do not necessarily show up in market prices. That raise you won at work might bump you into a higher tax bracket, so that you take home a lower proportion of your earnings; thus the raise does not quite cover the increased cost of living. Your home is worth more, thanks to soaring real-estate prices; but you aren’t planning to sell that home, and meanwhile your property tax jumps. And so forth.

But no one will dispute the fact that inflation is painful. The key question, for my purpose here, is whether inflation really is deliberate. So let’s take another look at that massive federal spending program.

In a recent Heritage Foundation study, David Ditch observes that the US federal government has rolled up $7 trillion in debt since March 2020. As a proportion of GDP, the federal debt is now at a level the US has not seen since World War II. Ditch remarks: “The federal government only reached this amount of debt once—following a combination of the longest economic downturn and the greatest military struggle in history.”

And what was the reason for this unprecedented orgy of federal spending? Not a major world war. Not even a serious economic recession; the American financial system was plugging along reasonably well a couple of years ago. But then the Covid epidemic struck, and the government responded by deliberately closing down substantial portions of the economy, while simultaneously sending large checks to taxpayers—in effect, paying people to stay home and watch Netflix.

Inflation is properly understood as the result of “too much money chasing too few goods.” With those checks to taxpayers, Uncle Sam vastly increased the supply of money, while at the same time the Covid lockdown decreased the availability of goods. Even when the lockdown was lifted, the long-term damage to the supply chain ensured shortages of all sorts. So prices began to rise. And then the new Biden stimulus package started the cycle again.

Now we are assured that the Federal Reserve will raise interest rates, thereby bringing inflation under control. But the interest rate is, in effect, the price one pays for money. And right now the American economy is not lacking for money; there is money aplenty floating around. The problem is the shortage of goods. And a rise in interest rates will make it that much more difficult for new businesses to expand and meet that demand.

The only realistic way to tame inflation is to curb the exponential growth in government spending. And now we come to the point of this little essay, and the reason why I think it belongs on a site devoted to discussion of the Catholic faith.

Over the years I have seen and heard hundreds of appeals by Church officials to political leaders, calling for increased spending on various government programs to promote the public welfare. Never—not once—have I heard or seen a Church leader warn against the irresponsible spending that invites inflation.

We can argue, one by one, about whether different government welfare programs actually serve the common good. We can argue about the unintended consequences of those programs, which may or may not outweigh their benefits. But as we do so, we must recognize that inflation also weighs heavily against the common good. Even if inflation is not entirely deliberate (we can debate that proposition, too), it is often predictable. And if it is predictable, then the policies that cause inflation are immoral.