But some inflation is not the same as scary, runaway hyperinflation that will destabilize the financial system and reduce the living standards of wage earners. In fact, rising wages have in many places been higher than rising costs. Take the recent hike of $21 a month by the federal government in Medicare premiums, the largest dollar increase in history. That got all the headlines because it spoke to inflation fears. At the same time, however, the government announced that Social Security premium would increase 5.9%, which more than cover the Medicare increases and still leave a healthy extra amount in people’s pockets.
Not all inflation erodes lifestyle; wages rising, social security increases, modest rises in interest rate can add to middle-class savings and disposable incomes. For years, largely because of the proliferation of new technologies, prices have been dropping everywhere. Deflation, not inflation, has been the dominant trend, and in terms of costs of services and many goods, that tech-fueled trend has not been altered. The rise in the cost of sofas and refrigerators and gas is a product of demand, not intrinsic changes in how much it costs to make those goods. Once supply adjusts to increased demand, and once the surge of post-COVID-19 pent up demand levels off, we will be largely in the same world we have been in: a world where technology pushes costs lower.
Of course, it may be that the long-awaited inflation shoe is indeed dropping. You can’t disprove a future fear, and the memory of destructive inflation runs so deep that even a hint of it is sufficient to spook markets and nations. But it is far more likely that our current inflation fear is more a product of the past than of the present and the future, and that the larger danger is not that prices are inflating for good but that our fears are inflated. We’ve had enough fear over the past two years; let’s not succumb to another wave.
Join the conversation as a VIP Member