Inflation 
By Walter Sorochan   Emeritus Professor San Diego State University

Posted December 14, 2021.

In economics, inflation refers to a general progressive increase in the price of goods and services in an economy. When the general price level rises, each dollar buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The causes of inflation have been much discussed, the consensus being that growth in the money supply is typically the dominant causal factor. The most significant factor influencing inflation or deflation is how fast the money supply grows or shrinks.  Wiki: Inflation 

In other words, printing money devalues the value of the American dollar. It cost more to buy goods. This has been true throughout recent history. For example: Germany 1918: After the German government was defeat after World War I, the allies insisted that the German government pay reparations far in excess of the ability of the shattered German economy to pay. So the German government printed money to pay its bills. Overlooked was that the war had destroyed Germany's productive capacity. German economy could not produce enough essential products to sell and pay for the war debt. Excess money contributed to hyperinflation and people in Germany needed wheelbarrows full of cash just to buy loaves of bread.  Edwards argues that this was a classic example of the lack or scarcity of goods or labor, or capacity that triggered hyperinflation.  Edwards: MMT & Latin America 2019

Inflation is the decrease in the purchasing power of a currency in any country. That is, when the general level of prices rise, money buys fewer goods and services. The impact of inflation differs on different sectors of the economy, with some sectors being adversely impacted while others benefit. For example, with inflation, those segments in society which own physical assets, such as property, stock etc., benefit from the price/value of their holdings going up, while  those who seek to acquire them will need to pay more for them. Their ability to do so will depend on the degree their income is fixed. For example, increases in payments to workers and pensioners often lag behind inflation, individuals or institutions with cash assets will experience a decline in the purchasing power of cash. Increases in the price level (inflation) erode the real value of money (the functional currency) and other items.

The videos below explain inflation:

What Is Inflation?

Investopedia: Video What is inflation?; Length = 1.10 mns.

Source: Video What is inflation?

 

The opposite of inflation is deflation, which occurs when the purchasing power of money increases and prices decline. This is explained in the next video:

Investopedia: Video What is inflation?  Length = 1:35 mns.

Source: Video 2 What is inflation?

Controlling inflation:

Although both fiscal and monetary policy can affect inflation, ever since the 1980s, most countries primarily rely on monetary policy to control inflation. When inflation beyond an acceptable level is taking place, the country's central bank can increase the interest rate, which typically tends to slow or stop the growth of the money supply. Some central banks have a symmetrical inflation target while others only control inflation when it rises above a threshold, whether publicly disclosed or not. Wiki: Inflation

The gold standard was used to control inflation in the past. Under a fixed exchange rate currency, a country's currency is tied in value to another single currency or to a basket of other currencies [or sometimes to another measure of value, such as gold]. A fixed exchange rate is usually used to stabilize the value of a currency, as when the currency is pegged to it. In the past [before 1970], gold was tied by the US government to gold at the rate of US$35 per ounce as a way to stabilize the value of the dollar.  It can also be used as a means to control inflation. Under this system all other major currencies were tied at fixed rates to the US dollar.

When the gold standard was abandoned by President Nixon this caused most countries to switch to fiat money, that is, money not backed up by collateral.

Another method attempted in the past to control inflation have been wage and price controls, although in general, wage and price controls are regarded as a temporary and exceptional measure, only effective when coupled with policies designed to reduce the underlying causes of inflation during the wage and price control regime, for example, winning the war being fought. Wage and price controls in general do not curb inflation.

Inflation status in 2021:

Inflation is under control when it is between 0 and 1 percent. The stock market becomes unstable and begins to go up and down when inflation rises up to 3% or over.  Such inflation occurs when the cost of goods and services is more than 3% and rising out of control. Consumers pay more for goods and services but their income wages stagnant. The result is that the economy also stagnates.  President Biden and his government seem to be paralyzed and unable to fix this problem. 

The government's report Friday, December 10, 2021, stated that consumer prices jumped 6.8% over the past year — the highest such inflation rate in 39 years — showing that some of the largest cost spikes have been for such necessities as food, energy, housing, autos, health care and clothing. These are goods and services that millions of Americans regularly depend upon in their daily lives. Especially hard hit are lower-income households with little or no cash cushions.  Crutsinger: Surging inflation 2021

Economists and politicians blame the surge in run-a-way prices and inflation on the pandemic that has disrupted supply chains, shortage of workers, and other reasons. But they hide the major reason for inflation .... that of printing money that has no collateral to back up the printed new money.  Sorochan MMT 2021

Over the past 12 months of 2021, the costs paid by a typical American family have surged by roughly $4,000 while their income has not, according to calculations by Jason Furman, a Harvard economist and former Obama White House aide. President Biden and his staff have been painting a rosy picture on the high cost of things. The consequences of the high cost of everything has resulted in uncontrollable inflation.

But some things in the economy have been deliberately orchestrated, causing high prices and inflation; and the government is doing nothing to stop or curb it. The health care system is a good example of this:

Newspaper reporter David Lazarus reported that a former operating-room nurse at Scripps Memorial Hospital in Encinitas [San Diego area] shared photos or screenshots of the facility’s electronic health record system. The screenshots show price hikes ranging from 575% to 675% being automatically generated by the hospital’s 'special' software.  Lazarus: Hospital markups costly 2021

Below is a copy of a screenshot from software used by Scripps Memorial Hospital in Encinitas. It shows a $117.97 charge for surgical equipment being automatically increased by 575% to $796.30.

Scrips MH
source:  Lazarus: Hospital markups costly 2021

Another screenshot showed the pricing for an antimicrobial solution to clean the patient’s wound. Scripps’ cost per unit was $73.50. The billed amount was $496.13 — "$496.13 = $73.50 + ($73.50 x 575%)”.

And another example was that of a Valley Village woman being billed $809 by a UCLA-affiliated clinic for a plastic boot for her broken foot. She found the exact same boot on Amazon for $80. Which is to say, she was being charged a nearly 1,000% markup.

Scripps’ software is from a Wisconsin company called Epic, which says its programs have compiled medical records for more than 250 million patients worldwide. Epic’s healthcare systems include MyChart, the patient portal used by many hospitals, as well as a wide variety of applications intended for clinical settings. Epic’s clients include UCLA, UC San Diego, UC San Francisco, Stanford University, Johns Hopkins University and Yale University.  Lazarus: Hospital markups costly 2021

One common aspect of all U.S. hospitals is a desire to keep their pricing under wraps, to prevent patients from knowing how badly they and their insurers are being fleeced. Meanwhile, as the cost of health care goes up, so does inflation.

References:

 

Edwards, Sebastian, "Modern Monetary Theory: Cautionary Tales from Latin America," CATO JOURNAL VOL. 39 NO. 3, FALL 2019.  Edwards: MMT & Latin America 2019

 

Lazarus David, "Leaked Scripps memorial Hospital records reveal huge, automated markups for health care," The San Diego Union-Tribune, December 10, 2021.  Lazarus: Hospital markups costly 2021

Crutsinger martin and Anne D'Innocenzio, "Surging inflation is forcing people and businesses to adapt," Associated Press DECEMBER 10, 2021.  Crutsinger: Surging inflation 2021

Mankiw, N. Gregory (2002). "Macroeconomics" (5th ed.). Worth. Measurement of inflation is discussed in Ch. 2, pp. 22–32; Money growth & Inflation in Ch. 4, pp. 81–107; Keynesian business cycles and inflation in Ch. 9, pp. 238–255.

Sorochan Walter, "Understanding Modern Money Theory [MMT], Freergrab.net, October , 2021.  Sorochan MMT 2021

Wikipedia, "Inflation."  Wiki: Inflation