In 2020, many economists and common sense people asked a crucial question… what were the consequences of COVID-19 lockdowns and restrictive government policies? The Left vehemently protested such questions. They argued that saving lives was more important than livelihoods. As a result, Congress authorized over $5 trillion in COVID relief spending, of which the New York Times reported $1.8 trillion went to families and individuals and $1.7 trillion to businesses to get them through the major economic shock.
In early 2021, most economists widely agreed that inflation would be an issue, at least short-term, while the economy came back to life. Still, the warning signs were going off that something wasn’t right. Democrats continued to push for artificial wage gains by expressing a desire to increase the minimum wage. Regardless, businesses in need of workers began pushing wages higher to attract potential employees without any intervention from the government. It’s one part of the complex economic problem that has helped propel inflation, and it is likely to become a vicious cycle.
In the 1970s and 1980s, Nobel Laureate Economist Milton Friedman showed that government spending was directly tied to inflation. He said the more the government flushed the economy with cash, the more people would spend it instead of saving it. In turn, all the excess cash would create demand for products and services that the supply couldn’t provide. In turn, companies must hire people to increase production, transport the supplies, fill the shelves, and sell things to people who want them.
Over the last two years, companies had to increase wages dramatically to attract people to work for their businesses. That has had a tremendous impact on the complexity of the current inflationary crisis.
As you’ll see momentarily, Democrats aren’t getting the message.
Ordinarily, wage increases are good. In times such as this, fast-paced rises in pay are bad. Economists say that America is experiencing what’s known as a “wage-price spiral.” It could determine how long inflation sticks around and by what amount.
So, what is a wage-price spiral?
It’s when workers demand higher wages to cover the lost quality of lifestyle due to inflation. In turn, rising employee costs eat into a company’s revenues. In response, businesses are forced to increase prices to offset their increased expenses. This sets off a never-ending loop.
In the second quarter of 2022, wage growth exploded by 5.5% annually. It was the fastest rise since the first quarter of 2002. In December 2022, they rose 5.28%. Prior to COVID, annual wage growth was around 2%. It more than doubled.
The Federal Reserve Bank of San Francisco noted that the labor market continues to be tight. As a result, it’s giving workers a strong position to bargain higher wages. The economists noted that inflation expectations were playing a prominent role in wages and were likely to be felt over a longer period of time. The longer real inflation and inflation expectations are high, the higher and longer-lasting wage pressures will be.
Worse still, wages rose, and worker productivity declined. This means employers are paying more for less. This could spur more technological innovations such as artificial intelligence and robotics. We’re already seeing the introduction of threats to good-paying white-collar jobs for the first time in history as companies look for ways to increase supply to meet demand while also increasing efficiencies and putting more reliable forecasts on their expenditures.
The government’s desire to help people, regardless of any motives, has once again proven that it is incapable of such things. The more government does to protect and help people, the more it traps people in a state of dependency.
Still, Democrats aren’t getting the message.
On Sunday, Sen. Bernie Sanders (I-VT) attacked Walmart. He demanded they increase salaries despite the massive company giving entry-level jobs salaries between $15 and $20 per hour. Just a few years ago, the hourly wages ranged from $8 to $10 per hour.
In addition, Democrats in Congress are calling for a federal worker wage increase of 8.7%. They justify it by saying federal employees suffered through the pandemic (largely at home) and the Trump administration.
Wow! That sounds like a good reason.
So, what we have, thanks to wage price spiraling, is a self-fulling prophecy created entirely by COVID-policies and spending.
The reason is simple. It’s tied to the Democrat’s political philosophy. They believe the government should have tighter controls over commerce and more social welfare programs. The pandemic demonstrated that they believed losing some liberties for a little perceived safety was necessary and good.
Yet, was it?
Are we better off for their controls?
We are likely stuck in a loop where workers demand higher wages to pay for the necessities of life. At the same time, businesses will have to raise prices to pay for it. That will contribute to the 40-year levels of inflation.
I’m reminded once again of the words echoed throughout time by President Ronald Reagan. Government is not our solution to the problem. It is the problem.
If we’re going to end this economic catastrophe, America must get back to the basics of government. Its job isn’t to provide for our every need or shield us from every bad thing that happens in life.
The Conservative Era, Copyright 2023