How high inflation jeopardizes monetary and economic freedom

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Economic freedom in the United States is on a perilous path.

The United States fell five places in the Heritage Foundation’s 2022 Index of Economic Freedom, to 25and-the most economically free country in the world from the 20and in last year’s ranking. (The Daily Signal is the medium of the Heritage Foundation.)

The main culprit behind this year’s decline in the index was the astronomical spending shortfall in the wake of COVID-19, amounting to 15% of gross domestic product in 2020.

It’s bad enough, but now the twin threat of high inflation for four decades is shaking the economic freedom of the people of the United States with no apparent end in sight.

White House press secretary Jen Psaki downplayed the effects of Americans’ diminishing purchasing power in this new era of high inflation, reminiscent of the stagflation of the 1970s (i.e. stagnant economic growth combined with high inflation).

PSAKI said a shortage of goods reaching shelves in time for Christmas was “the treadmill tragedy”, implying that only people looking for luxury items, such as treadmills, could be harmed.

Scarcity contributes to inflation because people pay more for things when there are fewer things they want to buy for everyone. Just last month, Psaki told the White House press that inflation should be “temporary.”

So don’t worry? There’s “nothing to see here”, apparently, so move on now. Pay no attention to your thinner wallet or the exorbitant bills you pay. It’s only temporary.

The 8.5% year-on-year inflation rate announced on Tuesday is the highest since 1981. Year-on-year food prices are even higher, up 8.8% since March last year. The cost of energy has increased by 32%, including gasoline, by 48%.

Claiming it’s temporary or “transitional”, as has been said redundantly over the past 12 months as inflation rose, doesn’t put money back into people’s checking accounts.

Meanwhile, another alarming piece of data released on Tuesday was overshadowed by government data on inflation.

The National Federation of Independent Business Research Center – which has collected data on small business economic trends with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986 – released its March survey, and the business owners’ expect better business conditions over the next six months fell 14 points to a net negative 49%, the lowest level recorded in the survey of 48-year-olds.

Inflation has now replaced “quality of work” as the No. 1 issue, according to business owners polled by the National Federation of Independent Business in March, and concerns about it are the highest since 1981.

None of this bodes well for economic freedom in America.

A year ago, in March 2021, year-on-year inflation stood at 2.6%, which was then the largest year-on-year increase since August 2018, but still far from the 8.5% figure recorded a year later last month. published on Tuesday.

Monetary freedom is one of the 12 components of economic freedom in the Heritage Index, and it is primarily determined by inflation.

High inflation – and therefore low monetary freedom – is the number one concern of business owners in the National Federation of Independent Business survey for good reason. No customer wants to pay more for what companies sell, and some will cut spending when inflation hits.

Inflation hurts businesses by decreasing the value of the money they need to invest in their businesses and produce their products. It’s also hard for business owners to plan for the future if the value of a dollar a month – or a year, or two years – from now is unknowable.

These are just a few of the reasons why a stable currency – and, therefore, monetary freedom – is the key to economic freedom in Heritage’s Economic Freedom Index. And there is no need to distinguish treadmills.

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