Tag: inflation

A Minimum Wage Increase Is a Pay Cut for Millions

Ryan Lau | @RyanLau71R

In the past couple of years, a number of politicians have pushed hard for a minimum wage increase. Notable supporters include Elizabeth Warren and Bernie Sanders. Just this week, Connecticut agreed to incrementally up its minimum to $15 an hour in the next four years. Advocates of the idea claim that it will improve the quality of life for many, especially the working poor. However, they miss the fact (or don’t care) that their plan would functionally cut wages for millions of working-class Americans.

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Collectivism Has Destroyed Venezuela

By Trey Johnson | Venezuela

Millions of Venezuelans escape a country destroyed by bad government and coercive collectivism.

The border of Colombia and Ecuador is full of Venezuelans who are doing their earnest to escape the clutches of a coercive regime in search of free markets and better opportunities. Common tourists, amongst the droves of Venezuelans, must wait hours and hours in a line that wraps around the immigration office here in Ipiales, Colombia. During peak days, it can take over 24 hours to cross the border between Colombia and Ecuador.

The border crossing’s elevation is 2898 m (9500 ft), which makes the experience a rather cold one as nighttime approaches. Individuals in line are able to stay warm with the help of vendors selling coffee, hot dogs, and empanadas.

Most South American countries have no choice but to allow free movement of these refugees due to treaties signed by UN member states. The strain of this situation hampers economic stability and the free flow of goods and services due to long lines at the border.

While in the line, one can also learn of the tragedies affecting the people of Venezuela and understand why they are leaving their beloved homeland. Men and women full of fond memories and past success, now crushed by coercive collectivism. Doctors, welders, and professionals of all sorts are throwing away their experience to land a job in a neighboring country, hoping to make the minimum wage of $300 per month in favorable countries such as Chile and Peru. Ecuador and Colombia are not desirable, and Brazil’s language barrier makes the destination unattainable.

To date, an estimated 4 million Venezuelans have left the country. Hyperinflation is the sole reason these people have left. “There is a lot of work, but there is no money.” The minimum wage is currently 2,000,000 Bolivars per month which equates to $3 USD per month. That is $36 per year. The price of a kilogram of beef in Venezuela is $3 dollars and the price of shampoo is also $3.

To make matters worse, the Venezuelan government instituted new currency controls on money entering the country through financial institutions. In order to send money to your family members stuck in Venezuela, you must have a bank account in both Venezuela and an outside country. One refugee believes this policy is “choking the people.”

The current administration’s new constitution would completely eliminate the ability to own private property. This market uncertainty makes investments impossible.

The people who are working to stay in the country are almost at the end of what seems to be the brink of collapse. Schools are functioning, but they have no food to feed their students. Most of the faculty members leave the schools in search of new opportunities. Revolutionaries like the violin playing patriot and Oscar Pérez have become heroes to Venezuelans trying to take back their country.

The Venezuelan regime is continuing to provide a box of food to each family in accordance with its collectivist agreement. This box is called CLAP and contains two packages of flour and rice along with powdered milk “if you are lucky.” The frequency of these food distributions is about once every 5 to 6 months according to a refugee waiting in the 24-hour line.

One wealthy Venezuelan had a stable career for over 15 years. He had a house, a car, and “a whole complete life.” He went on trips with his family inside and outside the country. Right now he is busy moving groups of Venezuelans to more favorable environments scattered throughout South America. He understands the attraction of collectivism and believes “the Venezuelans have to learn the lesson.”

A Colombian bus driver passes and asks, “are you going to Cúcuta?”, a town on the border of Venezuela and Colombia, 32 hours in the opposite direction from this particular crossing.

It is truly a sad state of affairs for the people of Venezuela who slowly lost their grip on freedom and their country. Experts believe it will take 30 years to bring this country back to its former self. Many Venezuelans will most likely never return to their homeland, which is but another civilization lost to socialism and coercive collectivism.

Thousands of Venezuelans at the Border of Colombia and Ecuador

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President Trump, We Can’t Just “Print More Money”

By Dane Larsen | @therealdanelars

Donald Trump, as reported in Bob Woodward’s new book “Fear: Trump in the White House”, told Gary Cohn, the Director of the National Economic Council, to just “run the presses– print more money” when addressing the insurmountable US Federal Debt. Donald Trump, the same man who ran a campaign to the White House that pledged to “eliminate the [$19 trillion national] debt over a period of eight years”, thinks we can print our way out of this mess.

Bob Woodward, an investigative journalist and Editor at the Washington Post since back in the Nixon days of 1971, wrote a full book exposure of the Trump White House in comparison to the other administrations he’s seen in his tenure at WaPo. In the book, Woodward describes a back-and-forth between the National Economic Council and Trump that is truly telling of how out of the loop President Trump is. While the book dates the quotes and conversations back to 2015 and 2016 during his campaign, it is hard to believe the stances on this economic issue have changed in the slightest. With the signing of reckless spending bills and omnibus budgets that only increase the forecast of US government expenditures, it is clear that President Trump is all talk and no walk on the subject of the current economic crisis that is the National debt.

Whether or not it was already known that Trump’s words bleed insincerity when it comes to spending cuts or a balanced US checkbook, it is evident now that the current POTUS has no viable long-term solution for the issue, which could cause the worst depression yet. His “solution” if it could be considered as such, of printing more money to offset the effects of the ever-growing now $21 trillion national debt is not just infeasible, but is admittedly extremely popular in Washington D.C. and the White House itself, with past Presidencies.

We see in the Obama administration, the idea of printing more money caught wildfire throughout the EU and G-20 with direction by former President Obama himself. In fact, there was a specific occasion during a G-20 meeting where Obama and Biden called on Angela Merkel of Germany to start “pulling their weight in the global effort of economic stability” by “printing” more money. As much of an oxymoron as that sounds to even the most amateur economist, it is a legitimate belief that has spiraled many countries to insurmountable debt.

The Basis of Economics

The principles of economics rest on responsibility with the money you own. It would be foolish for the average person to go out and buy a $350 Xbox One when after my checkbook is cleared, I only have $150 to spend. Why do we not ask this much culpability from our Federal Government?

It all started back in the days of Woodrow Wilson, and the creation of the Federal Reserve as an entity itself in 1917. The overarching power of a central bank to be the authority on all things money related can be a powerful responsibility, and in most times, a detriment to the economy it attaches itself to. Before the creation of the Federal Reserve, only $20 billion in debt had accumulated in the years after the Civil War. When adjusted to inflation, this comes out to around $51.7 billion, just barely 25 percent of what the US National Debt is today. Since then, we’ve seen the ability to print money used as a weapon to over tax citizens, and justify wars overseas where the US frankly should not be involved in at all.

In the case of George W. Bush, the National Debt was increased 101%, tacking on $5.849 trillion to pay for the (ongoing) War on Terror in Afghanistan and Iraq. Military expenses rose to all-time highs, and when the US taxpayers couldn’t chip in the yearly $600-800 billion necessary to fund it, Bush and the Federal Reserve created the money out of thin air to respond to the 9/11 attacks over a span of 8 years that hasn’t stopped since. When will we be done with this intervention? The question has yet to be answered, and President Trump hasn’t made progress in that regard either.

Bad economic habits and fiscal irresponsibility is prevalent across the board, no matter party denomination. President Obama raised the debt 74% in his tenure in the White House, adding $8.588 trillion from fiscal years 2008-2016. Whereas Bush picked his poison with military spending, Obama focused more on tax cuts, unemployment benefits, and public works projects to recklessly spend more money than the US Government could even think about obtaining. That’s not to say that Obama didn’t have his fair share of military spending checks sent to the Department of Defense consisting of artificially printed money, because the War on Terror persisted throughout his Presidency as well. These bad values will lead us to the next depression at the expense of the taxpayer and common folk, while the people who got us in this mess leave untouched.

Hyperinflation

Hyperinflation is defined as the monetary inflation that occurs at a high. uncontrollable rate. When the economy sees an influx of money in circulation, prices rise as the natural tendency of the free market sets out to do. When the government steps in to pay for it’s mistakes or overspending by printing money out of thin air is where the problems really start to occur. As Kimberly Amadeo of The Balance describes: “Instead of tightening the money supply to stop inflation, the government keeps printing more. With too much currency sloshing around, prices skyrocket. Once consumers realize what is happening, they expect continued inflation. They buy more now to avoid paying a higher price later. That excessive demand aggravates inflation. It’s even worse if they stockpile goods and create shortages.”

The economy will crash in the event of Trump printing more money to stabilize the National Debt, and it won’t be a small recession. We will see the closing of businesses as the value of the US dollar declines, leading to lower imports and exports, and a shortage of goods in the US market. With all of this leading to a disaster, we beg the question: Why aren’t we holding these government workers to higher standards? After all, they clearly aren’t looking out for our best interests. On his campaign trail, Trump vowed to be the change in the government bureaucracy that is Washington D.C., but he clearly can’t live up to that.


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“Not Real Socialism” Is An Excuse for Bad Economics

By Mason Mohon | @mohonofficial

When looking at the empirical evidence for economic systems, socialism/communism seems to be in dead last. Time and time again, socialist governments have met economic demise. The Soviet Union collapsed after starving massive amounts of people. Communist regimes throughout history have been notorious for massacring enemies of the socialist order. In the present, the Venezuelan state has hyperinflated the currency and is causing widespread economic degradation in their country. North Korea is held as the earth’s boogeyman of unfreedom.

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Deflation: The Cure to the Economic Crisis of Government

By TJ Roberts| United States

The world is sitting on the largest financial bubble ever created. While the economic elite says that we will never see another crisis in our time (just as Keynes said two years before the crash of 1929), we have been living in a bubble for more than a century, and it will inevitably break. This bubble, however, is unlike any economic boom we have dealt with before. The inflated commodity that will cause the future bust is the currency which the US Federal Government forces us to use: the US Dollar, and this is all because of the unnecessary fear of deflation.

Estimates say that as much as 98% of the value of the US Dollar has disappeared since the Federal Reserve claimed a monopoly power over currency in the United States. The only reason the Dollar has not collapsed already is due to legal tender laws, which requires businesses to deal in US Dollars within the US.

So, how did it get so bad? As alluded to in the first paragraph, it is because the government is terrified of deflation. They fear that since prices have a tendency to decrease, people will hoard their money since they can make a profit by simply refraining from spending in the present. Since consumers hold on to their money, firms earn less revenue, which causes them to decrease their spending. This leads to a decrease in employment, and therefore production. With this loss of production, those who make the factors of production also lose revenue, leading them to cut spending, thus decreasing production and employment. With the loss of employment, consumers spend even less. This ultimately leads to a complete collapse of the economy according to the Keynesians (see Chapter 12 of John Maynard Keynes’s The General Theory of Employment, Interest, and Money).

Deflationary Spiral will not destroy the economy

The process outlined in the prior paragraph is known as a “deflationary spiral,” in which deflation causes the entire economy to disappear. This, however, is an economic myth. In truth, a deflationary spiral can only occur under special circumstances. The reason why Keynes is wrong in assuming a deflationary spiral will happen is two-fold.

First, it is not possible for human beings to reduce spending externally. Although money does possess deflationary tendencies when unregulated, this does not mean that people will hoard their money indefinitely. Humans have basic needs, namely food, water, and housing. It simply isn’t possible for the people to cease all forms of economic activity.

The second reason why a deflationary spiral will not destroy an economy is time preference. Time preference is the concept that human beings prefer present goods to future goods. If one offered you one thousand dollars today or one thousand dollars in one month, people will typically take the money today. This is why we have an interest in society. Interest gives an incentive for one to refrain from present consumption so that they may have even more future consumption.

People, however, have varying degrees of time preference. The lower your time preference is, the more willing you are to forego present consumption for future consumption. Simply because something is cheaper in the future does not guarantee that someone will wait to consume it. If the price drop is high enough, then they will wait, but that only applies to those with low enough time preferences to be willing to wait. Those with higher degrees of time preference will still consume and the economy will not totally disappear.

What are the causes of deflation?

There are four immediate causes of deflation.

  1. An increase in the demand for money will cause deflation. If the demand for money increases relative to the demand for goods, then price deflation will occur. Money will have an increased purchasing power due to the increased demand for money.
  2. A decrease in the supply of money will lead to price deflation. If less money is in the system, then people will marginally value money more than goods. Simply put, with less money in the system, people will be able to purchase more goods for less money.
  3. A decrease in the demand for goods. If the demand for goods decreases relative to the demand for money, then money becomes more valuable and deflation occurs.
  4. An increase in aggregate output. In other words, an increase in the supply of goods will cause price deflation because production has become more efficient.

The commonality among these causes is that it leads to the decrease in the price of goods.

Deflation is caused by economic growth

The fourth cause of deflation, an increase in aggregate output, is simply economic growth. Economic growth, in fact, is inherently deflationary. When the people can afford more for less, there is growth. This compels more production, more innovation, and more prosperity, especially among the lower classes.

The only examples in which economic growth was not deflationary was in times of war. In times of war, the State forces an increase in production through inflationary policies that allow the government to “afford” these wars. This inflation, of course, always leads to a bust in the future.

Inflationary growth is unsustainable.

Under inflationary growth, the government utilizes their power to dictate the devaluation of their currencies. This leads to vast misallocations of resources. By devaluing the currencies, governments redistribute wealth to political entrepreneurs who position themselves to receive money straight from the printing press. Major banks and corporations are among the most prone to doing this.

The growth these firms experience, however, is vastly unsustainable, whereas it is built upon wealth that did not exist in the first place. In true growth, firms cut their costs in order to produce more efficiently and maximize their profits. Under inflation, however, the exact opposite happens. An inflationary monetary policy, especially one based on a fiat currency in a system that tolerates fractional reserve banking, will lead to a boom that must be corrected.

The idea that inflationary policies can lead to growth in the short run is just another example of the broken window fallacy. As mentioned before, political entrepreneurs who receive money straight from government printers benefit, but those who are not politically connected suffer since they cannot pay the higher wages and other costs. This leads to unnatural growth at the expense of others.

Inflation is fraud.

When the government implements a fiat system, they have the ability to manipulate the currency to deceive the masses into believing out economic condition is better than what it really is.

deflation vs inflation
Annual inflation (in blue) and deflation (in green) rates in the United States from 1666 to 2004.

Fractional Reserve Banking

Perhaps the most egregious form of inflationary fraud is fractional reserve banking (FRB). FRB is a system in which banks loan out the deposits of its customers, keeping only a fraction of their nominal reserves in the bank. This leads to unnaturally low-interest rates and thus high levels of debt.

If a shock in the economy occurs, bank runs will happen. When it comes out that the bank can’t give its customers their money, the bank goes under (or gets bailed out due to government intervention), and the people lose everything.

FRB is a clear instance of fraud in which a bank claims to have more money than it truly has. It is loaning out its customers’ funds, leading to credit expansion, which leads to business cycles.

Of course, we can dodge this by returning to the gold standard and punishing those who partake in fractional reserve banking.

Deflationary Spiral punishes parasitic frauds.

Inflation must come down eventually. And the only way to do that is through deflation. This is not to be feared but celebrated. It is the market’s way of correcting the malinvestments caused by government manipulation of money. Deflation is a means by which the economy returns to the real world. In addition, it halts the centralization of power under governments that have cartelized the monetary system of their nations.

Firms that are deeply in debt, which have certainly taken advantage of the fraudulent fiat and fractional reserve banking systems, will go under. The power elites of the State will be humbled as they will lose the foundation on which they rested. Deflation purges our society of the parasites and frauds that have been manipulating the economy to their advantage since 1913. By this, of course, I mean the central planners and political entrepreneurs who have propped up the Federal Reserve and the federal government. For they have delayed deflation for more than a century. For liberty and prosperity to return, we must have a deflationary spiral to rid us of the wealth that the State holds, which never existed, to begin with.


Originally published on freedomandeconomics.org.

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