In California, Gavin Newsom has proposed to send “inflation relief checks” up to $1,050, like the stimulus checks sent out during the pandemic. This shows the Democrats have a fundamental misunderstanding of how inflation works.
The inflation we have seen over the past year is related to an economy with high demand and constrained supply. So, when the government increases spending, it increases demand and worsens inflation since our supply chains have not recovered.
The Sacramento Bee echoed this when they surveyed many different economists who unanimously agreed this would only make inflation worse for Californians.
Michael Shires, associate professor of public policy at Pepperdine University, had this to say, “Any increases in government spending will generally increase inflationary pressures.”
In a state where the price of gasoline is over $6 a gallon, this will only exacerbate the pain California consumers are feeling. To make matters worse, Gavin Newsom’s total proposed “Inflation Relief Budget” is over $18B of spending.
This fiscal policy is nothing new from the Democratic party as Joe Biden’s “Build Back Better Act” in its original state would’ve injected another $3.5T into our overheated economy.
Luckily, even some Democrats could not get behind this level of spending as Senator Joe Manchin withdrew his support, effectively killing the bill.
Amazon CEO, Jeff Bezos, also criticized this government spending and its inflationary effects by stating, “In fact, [Biden] tried hard to inject even more stimulus into an already over-heated, inflationary economy and only Manchin saved them from themselves. Inflation is a regressive tax that most hurts the least affluent. Misdirection doesn’t help the country.”
As liberals intend to increase spending, one troubling idea that is becoming more present in left-wing politics is the heterodox economics known as Modern Monetary Theory (MMT).
This “theory” states that since the government decides and enforces the national currency, they can never run out of money since they can just print it at will.
Therefore, some liberal politicians are adopting this idea as we continue deficit spending at rates that approach the debt ceiling.
Representative Ocasio-Cortez stated recently, “We need to break the mistaken idea that taxes pay for 100% of government expenditure.”
According to AOC, we never need to worry about how much debt the government takes on or if it can be paid back because we’ll just print more money.
What she doesn’t understand is that while consumers may not pay for this government spending directly through taxation, they will pay for it in increased prices from inflation.
As a basic supply and demand model always dictates, as the supply of anything increases its value will decrease.
In the case of MMT, the supply of the US Dollar would skyrocket, and its value would plummet making the inflation we see today look miniscule. This would further threaten the US Dollar’s status as the world’s global reserve currency as it would not have a stable value.
Democrats are essentially pouring gasoline on an open fire when it comes to inflation. They want to spend money we don’t have and just print more of it when the bill comes due.
By: Macro Conservative