‘Inflation tax’ will cost families many thousands this year, Bloomberg analysis warns

Another day, another alarming inflation metric. We just got the numbers for the personal consumption expenditures (PCE) index, the Fed’s favorite inflation metric, and they are staggering. The PCE peaked at 40 years in Februarywith measured prices increasing 6.4% year over year.

What does this mean in real life?

a new Bloomberg analysis shed some light on this key question. He finds that this year, inflation will cost the typical American household an additional $5,200 just to pay for the same goods as last year. That’s $433 a month out of the average family budget.

Why is this happening?

Inflation is a policy choice

In the mainstream media and among progressive economists, the price inflation it is often presented as an abstract force beyond our control, like the weather. But in reality, it is directly caused by unwise government policies.

The Federal Reserve decided to “stimulate” the economy in the midst of the pandemic by (digitally) printing trillions of new dollars out of thin air. But scarcity and trade-offs are the defining reality of economic life, so his actions had consequences. By putting trillions of new dollars into the economy, they made the dollars Americans currently held less valuable, inflating our savings and wealth.

Just consider the following graphicshowing the amount of US dollars in circulation in the last 5 years:

What’s more, the federal government flooded the economy with “stimulus” money.

He ran up massive multi-trillion dollar budget deficits, at the very time various levels of government were constricting economic life and tightening supply. Through trillions in debt, Congress has signed us up for serious future economic costs to artificially inflate short-term consumer demand, which doesn’t work as a “stimulus” to begin with.

However, when you do this at the same time you’re tightening the economy and hampering the supply chain, it’s inevitable that price levels will generally rise as demand outstrips supply.

So no, inflation is not an abstract phenomenon. But it is essentially an indirect tax on ordinary Americans.

Inflation is a ‘sneaky tax’

What is a tax, after all, but a cost forcefully imposed on the citizenry to finance/enable government spending? And that also perfectly describes the inflation currently hitting Americans in the wallet.

The government wanted to engage in reckless money printing and spending without bearing the political weight of directly raising taxes on the people. As a result, our savings ballooned.

That’s the textbook definition of a “stealth tax.”

Even John Maynard Keynes, hardly a free-market economist, recognized this reality.

By a continual process of inflation, the government can seize, secretly and unobserved, a significant portion of the wealth of its citizens,” Keynes once said.

Keynes found agreement on this point across the spectrum. Nobel Prize-winning free-market economist Milton Friedman similarly quipped that “inflation is taxation without legislation.

Ultimately, Americans should not fall for this financial sleight of hand.

“Inflation” isn’t really what will cost families an extra $5,200 this year. The government is what is really imposing that burden on all of us.

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